When a homeowner or business sustains catastrophic property damage and submits a first-party insurance claim, the threshold inquiry is whether the cause of the loss is covered by the policy. In theory, the task of identifying the cause of property damage should be a relatively straightforward exercise. For example, where a home is gutted by fire, our instinct is to say that fire was the cause.
Where a loss can be traced to two or more causes working together, however, the causation analysis becomes complex. Over the years, many courts have attempted to solve causation quandaries by adopting and applying the doctrine of “efficient proximate cause,” which purports to select the predominant cause that sets into motion the chain of events producing the loss. But this characterization masks the varied, and at times contradictory, ways in which the efficient proximate cause doctrine has been interpreted and applied. One iteration refers to the cause that sets in motion a “train of events” that, unbroken by any intervening independent cause, produces the loss.1 Another refers to the cause that is the “predominant” factor in producing the loss, normally the cause nearest in time to the loss.2 Still another relies on a distinction between an active agency and a passive or preexisting condition. In other jurisdictions, courts have tackled the causation problem by adopting the doctrine of “concurrent causation,” which holds that if covered and excluded perils that are independent from each other contribute concurrently to bring about a loss, the loss is covered.3
In response to judicial decisions finding coverage for losses that they did not intend to insure, insurers began adding what is known as the “anti-concurrent causation” (ACC) clause to certain categories of policy exclusions. The typical ACC clause provides that where an excluded risk directly or indirectly causes a loss, the loss is not covered even if some covered peril contributed concurrently or sequentially to produce it. Predictably, in the majority of jurisdictions where ACC clauses are enforceable, the extent of their reach has been tested time and again.
Nowhere has the debate about the ACC clause been livelier than in the body of decisions addressing hurricane claims involving property damage from both wind (typically a covered peril) and flood (typically excluded). In a seminal decision issued after Hurricane Katrina, Corban v. United States Automobile Ass’n, the Mississippi Supreme Court declared the ACC clause ambiguous due to its use of the language in any sequence.4 In the wake of Superstorm Sandy in 2012 and Hurricanes Harvey, Irma, and Maria in 2017, many in the insurance bar wondered whether courts in New York, New Jersey, Texas, and Florida would follow suit and depart from the enforcement of the ACC clause in the context of wind-flood cases. Though the ACC cases decided since 2012 are relatively few in number, they suggest that the analysis reflected in Corban will not spread beyond the Magnolia State. Indeed, the trend in the wake of hurricanes since Katrina favors a literal interpretation of the ACC clause to bar coverage for damage caused by a combination of wind and flood.
Evolution of the ACC Clause
To understand the tension at play in disputes over interpretation of the ACC clause, it is necessary to explore the origin and history of the provision.
Traditionally, first-party property insurance policies were named-peril policies, which, as the name suggests, provided coverage only for certain enumerated perils, such as fire, vandalism, or theft. Out of the realm of marine insurance arose a different creature: the so-called all-risk policy, which insured “all risks” that may be encountered at sea. The insurance industry eventually issued all-risk policies for dwellings and for commercial property. To eliminate or minimize exposure to certain risks, however, underwriters incorporated exclusions into their all-risk policies.5 The interplay of the all-risk grant of coverage with these excluded perils is one that has spawned a host of conceptual issues, including the wind-flood problem addressed in this article.
On the surface, the coverage provided by an all-risk policy is deceptively simple. If a peril is excluded, there is no coverage. If a peril is not excluded, there is coverage. But in the real world, things are rarely so straightforward. Among the complexities that muddy the waters is the scenario where multiple perils, some covered and some excluded, combine to cause the same loss.
Imagine, for example, the following scenario: A home is constructed on an inadequately compacted lot with unstable soil. The home’s sewer pipe, which was improperly sealed, leaks and saturates the fill material surrounding the foundation, causing extensive settling and resulting damage to the home. The insurance policy covering the home provides coverage for contractor negligence but excludes coverage for settling. Is the loss covered? This is a classic concurrent causation dilemma.
Back in 1963, the California Supreme Court was presented with this exact situation and concluded that the policy covered the loss. The court reasoned that the leaking pipe was the efficient proximate cause of the loss (the cause that set the other events in motion); and because the efficient proximate cause of the loss was a covered peril, the entire loss was covered.6 Many other states followed suit and adopted the efficient proximate cause rule. Eventually, the doctrine of concurrent causation, which states that the presence of any covered peril in the chain of causation renders the loss covered, grew roots in California and other jurisdictions.7
The ACC clause was the insurance industry’s reaction to a rise in unsettled (and unsettling) causation jurisprudence. A standard ACC clause states that
[w]e will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.8
That prefatory language is typically followed by a list of exclusions. Put simply, these clauses mean that if an excluded peril played a role in causing a loss, the loss is excluded regardless of whether covered perils also helped produce the damage.
In the context of hurricane claims, however, applying the ACC clause has challenged some courts.
The Wind-Flood Problem
There are certain risks for which traditional insurance is not commercially viable. Chief among them is flood. Flood insurance differs from traditional forms of insurance because the risk of flood tends to be centralized around coastal regions and other flood-prone areas. Thus, the problem of adverse selection arises: only people in high-risk areas are likely to purchase flood insurance, and those who purchase it are likely to make claims.
Therefore, as all-risk policies began to emerge, so, too, did flood exclusions. The federal government eventually established the National Flood Insurance Program (NFIP) to fill the void, yet few homeowners purchased flood insurance through that program. When hurricanes hit, these policies came into play, and the concurrent causation dilemma reared its head.
In coastal regions, hurricane-related claims frequently involve a combination of damage caused by wind and damage caused by flood, and often it is difficult to separate the two. Imagine that a hurricane approaches a coastal region and its winds tear off the roof of a home. An hour later, storm surge washes the home off its concrete slab, leaving only remnants of the structure that once stood there. There is no doubt that wind (covered) and flood (excluded) combined to damage the home, so how does one approach the causation inquiry? If both causes truly acted in concert to produce the loss, is there coverage under a policy with an ACC clause? This issue figured prominently in landmark appellate rulings arising from Hurricanes Katrina (Mississippi and Louisiana), Ike (Texas), and Superstorm Sandy (Connecticut, New Jersey, and New York).
Hurricane Katrina: Mississippi Favors Insureds
In the aftermath of Hurricane Katrina, many Mississippi homeowners facing the denial of insurance coverage for flood damage to their homes sought redress in the courts.
Leonard: A victory for insurers. Among them was the Leonard family of Pascagoula. In Leonard v. Nationwide Mutual Insurance Co.,9 the Leonards’ home, located about 200 yards from the Mississippi Sound, sustained wind damage to its second story when Katrina’s winds thrashed the coastline. To make matters worse, the wind was followed by Katrina’s devastating storm surge, which took out the first floor of the home. Nationwide, the Leonards’ insurer, paid for repair of the wind damage but declined to pay for any water damage based on the following exclusion:
We do not cover loss to any property resulting directly or indirectly from [flood]. Such loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss.10
Following a bench trial in the ensuing litigation, the court found in favor of the Leonards, awarding them approximately $1,200.00 for damage determined to have been caused by wind. The court also held that the water exclusion
does not exclude coverage for different damage, the damage caused by wind, a covered peril, even if the wind damage occurred concurrently or in sequence with the excluded water damage.11
The U.S. Court of Appeals for the Fifth Circuit ruled in favor of Nationwide, concluding that the trial court had misinterpreted the policy’s ACC clause and water exclusion. Making an “Erie guess” as to how the Mississippi Supreme Court would rule, the Fifth Circuit observed that the ACC clause “unambiguously excludes coverage for water damage ‘even if another peril’—e.g., wind—‘contributed concurrently or in any sequence to cause the loss.’”12 The court explained that “[t]he only species of damage covered under the policy is damage caused exclusively by wind” and that “if wind and water synergistically caused the same damage, such damage is excluded.”13 As an example, the court explained that if rainwater entered through an opening created by wind, that damage would be covered. But if storm surge then flooded the same area of the home such that it was impossible to distinguish the rainwater damage from the storm surge damage, the latter damage would be excluded. The Fifth Circuit also concluded that the ACC clause was enforceable under Mississippi law because there was no case law, statute, or principle of public policy precluding the use of such language.
The Fifth Circuit’s decision in Leonard was viewed widely as a victory for the insurance industry because of its expansive reading of the ACC clause and the resulting limitation on carriers’ contractual exposure for damage caused by a combination of wind and flood. However, its value as precedent was short-lived.
Corban: A narrow construction of the ACC clause. While Leonard was being reviewed by the federal appellate court, another decision—Corban—was working its way through the Mississippi state court system. The Corbans’ property—including a home, guest cottage, garage, and other structures—was situated a few hundred feet from the ocean in Long Beach, Mississippi. When Katrina struck, the buildings were badly damaged by a combination of high winds and storm surge. The United States Automobile Association Insurance Agency (USAA) had issued the Corbans two insurance policies: a homeowners policy and a separate NFIP flood policy. In response to the Corbans’ claims, USAA paid the limits on the flood policy but declined to pay any additional sums for flood-related damage to their structures under the homeowners policy, relying on the policy’s water exclusion and its ACC clause.14
The Corbans and USAA filed cross-motions for summary judgment with the trial court, with the Corbans arguing that the water exclusion and its ACC clause were ambiguous. The circuit court ruled in favor of USAA on the water exclusion, holding that property damage caused by wind was not covered if the same property was also damaged by flood.15
The Mississippi Supreme Court granted direct review to resolve that and several other important issues raised by the parties, including whether storm surge constituted “flood” within the meaning of the water exclusion. In a lengthy opinion, the high court ruled that the water exclusion was ambiguous and concluded that if property is first damaged by wind and subsequently damaged by water, the ACC clause does not bar coverage. In so ruling, the court adopted a narrow interpretation of the ACC clause:
Only when facts in a given case establish a truly “concurrent” cause, i.e., wind and flood simultaneously converging and operating in conjunction to damage the property, would we find, under Mississippi law, that there is an “indivisible” loss which would trigger application of the ACC clause.16
With Corban standing as the law of the land in Mississippi, an insured is entitled to coverage where wind damage can be identified and segregated—regardless of whether flood later damaged or destroyed the same portion of the property. The ACC clause applies only where the excluded and covered perils occur and combine at precisely the same moment to produce a loss.
This approach is quite at odds with the Fifth Circuit’s prediction in Leonard of how the Mississippi high court would rule on similar facts. The conflict demonstrates how even respected appellate courts can take vastly different views of the reach of the ACC clause. Notably, the logic of Corban has been adopted by at least one appellate court outside of Mississippi.17
Hurricane Ike: ACC Clause Precludes Coverage in Texas
Considering how the Corban court labored to build a framework for applying the ACC clause, one might have expected courts in Texas—another Gulf Coast state vulnerable to hurricanes—to follow in its footsteps. But when it came time for the Texas Supreme Court to interpret the ACC clause in a Hurricane Ike case, JAW the Pointe, LLC v. Lexington Insurance Co., the majority found its thinking more aligned with the Fifth Circuit’s reasoning in Leonard than with the Mississippi Supreme Court.18
JAW was a Hurricane Ike coverage dispute that involved a claim of wind and flood damage to an apartment complex. The principal issue was whether Lexington’s policy covered the cost to bring the apartment complex into compliance with current code requirements. The code upgrade requirement was triggered by the city’s finding that the apartment complex, which it valued at $2,247,924, had been “substantially damaged,” meaning that it had sustained damage equal to or exceeding 50 percent of its market value.19 The city made that determination based on the permit application submitted by the insured, which estimated that it would cost $6,256,887 to repair the damage to the apartment complex.20 The permit application did not segregate the cost to fix wind damage (covered) from the expense to repair flood damage (excluded); however, the insured argued that the wind damage alone was sufficient to support the “substantially damaged” finding and the enforcement of the code upgrade requirement.21 To support that position, the insured pointed to an estimate prepared by Lexington’s building consultant that fixed the cost to repair wind damage at $1,278,000, more than 50 percent of the market value as determined by the city.22
On appeal, the Texas Supreme Court considered whether the policy’s ACC clause precluded code upgrade coverage. The court paid homage to the decisions of prior federal courts and lower state courts of appeals upholding the applicability of similar clauses under the laws of Texas and other states. The court went on to adopt the Fifth Circuit’s analysis in Leonard that
[t]he only species [of damage] covered under [a policy with an anti-concurrent-causation clause] is damage caused exclusively by wind. But [when] wind and water synergistically cause the same damage, such damage is excluded.23
In its opinion, the Texas Supreme Court also rejected the insured’s argument that it should apply the concurrent causation doctrine and essentially ignore the ACC clause. It went on to hold that because the city’s enforcement of code upgrade requirements was attributable to damage by both wind and flood, the ACC clause precluded coverage.
Through its opinion in JAW, the Texas Supreme Court established that ACC clauses are enforceable under Texas law and that they override the default concurrent causation doctrine. Research has revealed no Texas case arising from Hurricane Harvey that addresses the ACC clause in a scenario where wind and flood combine to damage the same property. Based on JAW, however, it is reasonable to predict that such a case would end in the same way as Leonard.
Superstorm Sandy: Literal Application of ACC Clause
Severe tropical storms and hurricanes have become a way of life for residents of states bordering the Gulf of Mexico. Those living in the mid-Atlantic and New England states, however, also are no strangers to such weather catastrophes. On October 29, 2012, Superstorm Sandy made landfall as a “post-tropical cyclone” near Atlantic City, New Jersey, and then thrashed homes and businesses throughout New Jersey, coastal New York, and Connecticut with powerful winds and a record-breaking storm surge as she made her way north. In addition to the epic ocean storm surge, Sandy generated massive river flooding, leaving behind billions of dollars in property damage.
As one would expect, the insurance industry was faced with countless insurance claims seeking coverage for property damage from flood, wind, and wind-driven rain, as evidenced by the thousands of coverage lawsuits filed in the state and federal courts of New York and New Jersey.24 Among those disputes were battles over the enforceability and interpretation of the ACC clause in standard water exclusions, and how those exclusions applied where damage allegedly was caused by a combination of wind and flood.
New York. Long before Sandy struck, courts applying New York law had enforced ACC language and found it to be unambiguous.25 A number of decisions involving the ACC clause had emerged in cases concerning the applicability of an earth movement exclusion, where policyholders claimed that earth movement was caused by a covered peril.26 It appears that before Sandy, however, no New York court had been asked to apply the ACC clause in the context of the water exclusion, where parties alleged multiple covered and excluded causes of loss. Sandy filled that void in New York jurisprudence.
In Sandy’s aftermath, several New York trial courts interpreted the ACC clause to bar coverage for a single form of damage caused by covered and excluded risks working together. For example, in a decision cited with some frequency, Valle v. New York Property Insurance Underwriting Ass’n, the Supreme Court for New York County explained when the ACC clause does and does not apply:
An anti-concurrent causation provision applies only to multiple concurrent or sequential causes of the same loss or damage, i.e., when multiple forces lead to a single direct physical loss or damage to property. . . . The provision precludes coverage for losses that would not have occurred except for an excluded peril working “concurrently or in sequence” with another non-excluded peril. . . . It does not apply when separate and distinct losses are caused by separate and distinct perils or physical forces.27
Relying on a similar formulation of the ACC clause, other courts applying New York law have rejected the argument that the ACC clause bars coverage for all property damage if any part of it resulted from flood. In Silvers v. New York Property Insurance Underwriting Ass’n,28 the insurer argued that it had indemnified fully the insured homeowner for all direct wind damage to his home—and that even if there were any other minor damage related to wind, “the losses were caused in combination with water damage, and therefore excluded by the anti-concurrent causation clause.” The court dismissed that argument, concluding that the experts’ disagreement over the cause of the damage raised material issues of fact that precluded summary judgment for the insurer.29
New Jersey. Finally, a recent federal decision in a Sandy case in New Jersey strongly suggests that the narrow construction of the ACC clause adopted in Corban is unlikely to spread to other jurisdictions. In Zero Barnegat Bay, LLC v. Lexington Insurance Co., expert testimony established that the insured’s dock, pool, and other outdoor property were damaged first by Sandy’s winds and impacted later by storm surge.30 The policy covered the peril of wind but featured a flood exclusion with an ACC clause. The insurer moved for summary judgment on the flood exclusion, arguing that the damage was excluded in its entirety even though some of it resulted from wind.31 The district court agreed and granted the motion. Thus, in New Jersey, as in Texas and New York, the ACC clause is applied literally to bar coverage for a single form of damage caused by a combination of covered and excluded perils. Had the loss occurred in Mississippi, a different result would have been obtained: there, Corban ensures that the wind-caused damage would have been covered, while the separate flood damage would be excluded.
Anti-Concurrent Causation:What Lies Ahead?
Though the wind-flood decisions reviewed in this article contain many factual parallels, the lack of a uniform judicial response in the years since Katrina is hardly surprising. The Corban court appears to have devoted the greatest effort to an analysis and application of the ACC clause to cases involving a combination of wind and flood damage. In most other jurisdictions, however, courts have resisted labeling the ACC clause ambiguous and have applied it to bar coverage. Indeed, the logic and relative simplicity of the courts’ analyses in JAW and the New York decisions are somewhat appealing.
In the coming months and years, coverage lawsuits arising from Hurricanes Harvey, Irma, and Maria will force courts in Texas, Florida, and Puerto Rico to contribute to the jurisprudence surrounding the ACC clause in this context. Given the trends observed in the years since Katrina, it is reasonable to expect that those courts—which enforce the ACC clause—will interpret it in a similar fashion.
1. See, e.g., Jussim v. Mass. Bay Ins. Co., 415 Mass. 24, 27 (1993).
2. See, e.g., Album Realty v. Am. Home Assur. Co., 80 N.Y.2d 1008 (N.Y. 1992) (also describing the “efficient proximate cause” as the “most direct and obvious cause” of the loss); Garvey v. State Farm Fire & Cas. Co., 770 P.2d 704, 707 (Cal. 1973).
3. See State Farm v. Partridge, 514 P.2d 123 (Cal. 1973).
4. Corban v. United Servs. Auto. Ass’n, 20 So. 2d 601 (Miss. 2009).
5. Dale J. Gilsinger, Validity, Construction, and Application of Anti-Concurrent Causation Clauses in Insurance Policies, 37 A.L.R.6th 657 (2008).
6. Sabella v. Wisler, 377 P.2d 889 (Cal. 1963).
7. Partridge, 514 P.2d 123.
8. E.g., Surabian Realty Co. v. NGM Ins. Co., 971 N.E.2d 268, 270 (Mass. 2012); Selective Way Ins. Co. v. Litig. Tech., Inc., 606 S.E.2d 68, 70 (Ga. Ct. App. 2004).
9. Leonard v. Nationwide Mut. Ins. Co., 438 F. Supp. 2d 684 (S.D. Miss. 2006).
10. Id. at 693.
12. Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 430–31 (5th Cir. 2007) (quoting Leonard, 438 F. Supp. 2d at 693).
13. Id. at 430 (emphasis in original).
14. Corban v. United Servs. Auto. Ass’n, 20 So. 2d 601, 602 (Miss. 2009).
15. Id. at 605.
16. Id. at 619.
17. See Orleans Parish Sch. Bd. v. Lexington Ins., 123 So. 3d 787 (La. App. 4th Cir. Aug. 28, 2013).
18. JAW the Pointe, LLC v. Lexington Ins. Co., 460 S.W.3d 597 (Tex. 2015).
19. Id. at 609.
21. Id. at 608.
22. Id. at 609.
23. Id. at 607 (quoting Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 430 (5th Cir. 2007)).
24. See, e.g., Raimey v. Wright Nat’l Flood Ins. Co., 303 F.R.D. 17, 19 (E.D.N.Y. 2014) (report & recommendation), aff’d, 76 F. Supp. 3d 452 (E.D.N.Y. 2014).
25. E.g., Alamia ABI Asset Corp. v. Twin City Fire Ins. Co., 1997 U.S. Dist. LEXIS 18265 (S.D.N.Y. Nov. 18, 1997); Kula v. State Farm Fire & Cas. Co., 212 A.D.2d 16, 21 (4th 1995).
26. See Kula, 212 A.D.2d 16; Nowacki v. USAA, 186 A.D.2d 1038 (4th 1992); Alamia ABI Asset, 1997 U.S. Dist. LEXIS 18265.
27. 2016 N.Y. Misc. LEXIS 1547 (N.Y. Sup. Ct. Apr. 25, 2016) (emphasis in original) (citations omitted).
28. 2017 N.Y. Misc. LEXIS 2444 (N.Y. Sup. Ct. June 20, 2017).
29. See also Bresnahan v. N.Y. Prop. Ins. Underwriting Ass’n, 2017 N.Y. Misc. LEXIS 2420 (N.Y. Sup. Ct. June 19, 2017) (insurer’s motion for summary judgment denied where insured’s expert claimed home was damaged by combination of flood, rain, wind-driven rain, and wind-blown debris; court rejected insurer’s argument that all loss, regardless of cause, was excluded by ACC clause because flood contributed to the overall loss).
30. 2019 U.S. Dist. LEXIS 43625, at *1, 10–11 (D.N.J. Mar. 18, 2019).
31. Id. at *10.