Louisiana Federal Court Upholds Applicability of Anti-Concurrent Causation Exclusion for Hurricane Damage

In a timely reaffirmation of the Fifth Circuit’s 2007 ruling in Leonard v. Nationwide Mut. Ins. Co., a Louisiana federal court recently upheld the application of an insurance policy’s Anti-Concurrent Causation Clause (“ACC”) in precluding coverage for property damage caused by a combination of storm winds and flooding.  In Chad Little, et al. v. Aegis Security Insurance Co., Case No. 2:21-CV-00997 (W.D.La. July 9, 2021), the Western District of Louisiana granted defendant-insurer’s motion for summary judgment holding that the defendant-insurer proved that both a covered peril (storm winds) and an excluded peril (flooding) contributed to the losses claimed by the plaintiffs-insureds, and that as a result of the application of the policy’s ACC, all coverage was precluded. 

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Posted in Catastrophes, Water

Eleventh Circuit Becomes Second Federal Appellate Court To Hold No Coverage For COVID-19 Business Losses

In the second federal appellate ruling on Covid-19 business losses, the Eleventh Circuit has joined the Eighth Circuit in holding that they do not trigger coverage because they do not involve “physical loss” or “physical damage” to property. In Gilreath Family & Cosmetic Dentistry Inc. v. Cincinnati Insurance Co., No. 21-11046, Slip. Op. (11th Cir. Aug. 31, 2021), the insured dentistry practice canceled routine and elective dental procedures at the beginning of the Covid-19 pandemic in response to state orders and CDC recommendations. Because these procedures made up the bulk of its business, the insured lost a substantial portion of its usual income. To recover that lost income, the insured filed a claim for business interruption coverage with its insurer.

The policy at issue provided “Business Income” and “Extra Expense” coverage for income lost “due to the necessary ‘suspension’” of the insured’s operations and for extra expenses it sustained during that suspension, but only if the suspension and expenses resulted from “direct ‘loss’ to property” at the insured premises, and only if that “loss” resulted from a “Covered Cause of Loss.” The policy defined “Covered Cause of Loss” as a “direct ‘loss’” not excluded or limited under the policy, and “loss” as “accidental physical loss or accidental physical damage.” The policy also provided “Civil Authority” coverage for business losses and extra expenses sustained as a result of a civil authority order prohibiting access to the insured’s practice when physical damage occurs to property in the area immediately surrounding the insured’s premises.

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Posted in Federal Appeals

No Bad Faith When Insurer Relied on Opinion of Independent Consultant

The Court of Appeals of Georgia recently held that an insurer’s reliance on the report of an independent consultant creates a presumption that it did not act in bad faith in denying coverage. In Montgomery v. Travelers Home and Marine Ins. Co., 859 S.E.2d 130 (Ga. Ct. App. 2021), the insured made a claim under her homeowners insurance policy for water damage to her basement that she asserted had been caused by a ruptured garden hose. The insurer’s claims adjuster inspected the property two days later and saw damage that appeared to be from ground water rather than the ruptured hose. The adjuster sought input from his supervisor, who suggested that he hire an independent engineer to determine the cause of the water damage.

The insurer retained a structural engineer, who inspected the property and observed conditions on several basement walls that indicated moisture had seeped into the basement from the ground outside over a period of time. Based on his observations, the engineer opined that the water damage resulted from the migration of groundwater through breaches in the concrete masonry unit block foundation walls and slab-on-grade, not from the broken garden hose. The engineer issued a written report to the insurer detailing his findings. Based on the engineer’s report, the insurer denied the claim because ground and surface water was not a covered peril under the policy.

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Posted in Bad Faith

Claim Investigation Not Necessarily Protected by Work Product Doctrine in Illinois

In determining when the work product doctrine is triggered, the Northern District of Illinois recently held that, rather than adopting a bright-line rule, the issue should be decided on a case-by-case basis at the court’s discretion. In Club Gene and Georgetti, LP v. XL Insurance America, Inc., No. 20 C 652, 2021 WL 1239197 (N.D. Ill. Apr. 2, 2021), the insured’s steakhouse was damaged in a fire. When the insured sued for coverage, the insurer refused to produce documents prepared in the course of its investigation of the claim on the basis of the work product doctrine. The issue of contention was: at what point in an insurer’s claim investigation can the insurer claim that litigation was reasonably anticipated?

In addressing this question under Illinois law, the court noted that, because litigation can be anticipated at the time almost any incident occurs, a “substantial and significant threat of litigation” is required before an insurer can invoke the work product doctrine and decline to produce a document requested in discovery. To demonstrate the existence of this “threat,” an insurer must show “objective facts establishing an identifiable resolve to litigate.” The fact that litigation actually ensues or that a party has retained an attorney, initiated investigations, or engaged in negotiations over a claim, is “insufficient to dispositively establish anticipation of litigation.”

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Posted in Claim Investigation

Policyholder Permitted to Videotape Appraisal

In Silversmith v State Farm Insurance Company, 2021 W.L. 2910240 (Fla. 4th DCA July 7, 2021), Florida’s Fourth District Court of Appeal ruled that policyholders may openly videotape an inspection by the insurance company appraiser, despite the state’s “two-party consent law.” The court held that an appraiser has “no legitimate expectation of privacy while in the insured’s home for the inspection.” Silversmith v State Farm, 2021 WL 291040, p.1. 

The facts revealed that the insurer invoked the appraisal clause on a property loss, and the policyholder sought to videotape the appraisal. The insurer’s appraiser objected on privacy grounds.  The policyholder filed an action seeking permission to videotape the appraisal of her home, and the trial court refused.  Relying on Section 934.03 Florida Statutes 2020 (the two-party consent rule), the trial court denied the request, ruling, “no one may audio/video record the inspection unless all participants consent.” Id.

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Posted in Arbitration and Appraisal

Wind Before Storm May Blow Away Flood Exclusions

Flood exclusions may not apply when floods are preceded by winds strong enough to independently cause the loss, according to a recent decision issued by the Western District of Louisiana. In Doxey v. Aegis Security Ins. Co., No. 2:21-CV-00825, 2021 WL 2383834 (W.D. La. Jun. 10, 2021), an insured sought coverage for wind damage sustained to his home by Hurricane Laura under a property insurance policy that excluded coverage for damage “caused by, contributed to or aggravated by” flooding. The policy also contained an anti-concurrent causation clause, which excluded losses caused by excluded perils “regardless of any other cause or event contributing concurrently or in any sequence to the loss.” The insurer denied coverage under the flood exclusion on the grounds that the covered structures were completely displaced and destroyed by the storm surge that followed the wind.

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Posted in Causes of Loss, Windstorm

Reasonableness of Insurer’s Coverage Decision Determined by Evidence Available at Time of Decision

The Eighth Circuit Court of Appeals recently held that, under Iowa law, an insurer is not liable for breach of contract or bad faith if its coverage decision was objectively reasonable at the time it was made. In Hallmark Specialty Ins. Co. v. Phoenix C & D Recycling, Inc., No. 20-1339, 2021 WL 2197068 (8th Cir. June 1, 2021), a fire originated from a pile of biofuel material on an insured’s power plant, causing alleged damage to buildings, wiring, equipment, and other materials. The insurer paid for a portion of the insured’s equipment losses, but not for removal and installation of wiring and equipment because the policy did not require such payment until damaged property had been repaired or replaced. While the insurer eventually paid for these items, the insured contended that the insurer should have made these payments at the time of the initial claim.

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Posted in Coverage

New Jersey Federal Court Holds That Insurance Coverage Issues Do Not Need To Be Decided Before Appraisal

A federal court recently held that ongoing insurance coverage issues should not prevent an appraisal from going forward as per an appraisal clause in the insurance policy. In DC Plastic Products Corp. v. Westchester Surplus Lines Insurance Co. Case No. 17-13092 (D.N.J. May 19, 2021), the District Court of New Jersey directed the parties to proceed with the appraisal process as set forth in the relevant policy, despite the defendant-insurer’s argument that appraisal is improper under New Jersey law where unresolved coverage issues exist.

Plaintiff DC Plastics Products Corporation (“DC Plastics”) made an insurance claim to its insurance carrier Westchester Surplus Lines Insurance Co. (“Westchester”) after DC Plastics’ premises in Bayonne, New Jersey was damaged as a result of Superstorm Sandy in 2012. Since that time, the parties have disagreed over whether certain additional payments were required under the terms of the policy.  The policy at issue contained an appraisal provision that allowed either party to make a written demand for an appraisal if the parties disagreed on the amount of loss. This provision also specified that if the separate appraisers selected by both sides cannot agree on an umpire, “either may request that selection be made by a judge of a court having jurisdiction.” DC Plastics filed a motion for the court to appoint an umpire.

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Posted in Causation, Causes of Loss, Valuation

Appraisal Process Tolls Contractual Suit Limitation Period Even For Non-Covered Claims

The Eleventh Circuit Court of Appeals recently held that, under Georgia law, an appraisal process tolled a commercial property policy’s two-year contractual suit limitation period even for non-covered claims. In Omni Health Solutions, LLC v. Zurich Am. Ins. Co., No. 19-12406, 2021 WL 2025146 (11th Cir. May 21, 2021) (unpublished), the insured filed a property insurance claim with its insurer, reporting hail damage to the roof of its medical facility in Macon, Georgia, and water intrusion. The policy required the insurer to give notice of its intentions with respect to a claim within 30 days of receiving a sworn proof of loss. Following a protracted appraisal process, the insured sued the insurer in Georgia superior court for breach of contract and bad faith. In its first count, the insured contended that the insured breached its policy obligation by failing to timely make a coverage decision.

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Posted in Bad Faith, Proof of Loss

Florida Court Holds Rust and Corrosion is “Act of Nature”

A Florida court recently held that rust and corrosion of water pipes is an “act of nature,” and, thus, was excluded from coverage under a homeowner’s insurance policy. In Dodge v. People’s Trust Insurance Company, 2021 WL 2217299 (4th DCA Jun. 2, 2021), Florida’s Fourth District Court of Appeals defined “act of nature” as a naturally occurring force that does not require an uncontrollable or unpreventable event.

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Posted in Act of Nature
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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