The Leonards’ Mississippi home, which was insured
by a homeowners policy from Nationwide Insurance Co., was one of many seriously
damaged by Hurricane Katrina. Specifically, their home was flooded by a storm
surge that was created by the infamous storm.
The Leonards filed a claim and, after inspecting the
loss, Nationwide offered a check of less than $2,000. The insurer notified the
Leonards that this was the amount of damage that could be attributed solely to
windstorm; the rest of the damage involved flooding and was excluded. The
Leonards filed suit to recover damages and Nationwide filed its own request for
a summary judgment.
The Leonard’s homeowner policy included wording
that is found in most standard policies, including how the policy responds to
loss caused by windstorm. Along with each renewal (over a period of more than
10 years), the Leonards received a statement that notified them that flood
losses are not covered by the policy and that such coverage (through
Nationwide) could be purchased under the National Flood Insurance Program.
Further, their policies also included a section titled “Concurrent Action by
Wind and Water (ACC Clause). That statement read as follows:
1. We do not cover loss
to any property resulting directly or indirectly from any of the following.
Such a loss is excluded even if another peril or event contributed concurrently
or in any sequence to cause the loss....
In the lower court action, the Leonards indicated
that their longtime insurance agent led them to believe that no flood insurance
was necessary because of their location and that their homeowner policy covered
loss for hurricane damage. After reviewing the matter, the court ascertained
that the agent did not materially misrepresent coverage. Of particular
importance was evidence that the agent actively sold flood insurance coverage
to his clients, including to a dozen households in the same neighborhood of the
Leonards. In the end, the lower court ruled that the Leonards were due a modest
amount (less than $1,300) for damage cause solely by the wind. However, the court
upheld the ACC clause used in the policy while issuing the opinion that the
clause was ambiguous. Both parties appealed.
The higher court first handled the Leonards’
argument that Nationwide had no standing to appeal since the insurer did not
dispute the wind-only damage award. However, the court ruled that Nationwide
was made vulnerable by the lower court’s ACC Clause decision and that fact was a
valid reason to ask for higher review.
The higher court focused on making its points known
regarding the error it felt was made by the lower court and the acceptance of
ACC clauses in various jurisdictions. On the former, the court believed the
lower court confused the issues of concurrent causation and efficient proximate
cause. The court reasoned that, when a clearly written ACC appears in an
insurance contract and that wording has undergone a forms filing process (via
state insurance dept. procedures); its approved wording renders the situation
of a contributing cause of loss moot. Per the exclusion, such a loss is still
barred from coverage. On the latter point, the court held that the use of an
unambiguous ACC provision that does not violate any statute nor which is
against public policy, is to be read as written.
The higher court also reviewed evidence of the
Leonard’s agent in offering advice concerning the need of flood coverage as
well as that agent’s record of sales of that coverage. It held that the agent’s
alleged statement concerning hurricane protection did NOT constitute an oral
alteration of the homeowner policy coverage. The higher court, while refuting
part of the lower court’s reasoning, affirmed its decision in favor of
Nationwide.
Paul and Julie Leonard,
Plaintiffs-Appellees-Cross-Appellants, v. Nationwide Mutual Insurance Company
Defendant-Appellee-Cross-Appellee.USCTAPP, Fifth Circuit, No. 06-61130. Filed August
30, 2007. (http://www.car[dot]uscourts.gov/opinions/pub/or/or-61130-CVO.wpd[dot]pdf
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