By Jeffrey Weinstein, Partner, Mound Cotton Wollan and Greengrass
On July 15, 2010, the House of Representatives passed legislation that extends the National Flood Insurance Program (“NFIP”) and contains changes designed to provide additional certainty to the program. But, this good news was tempered somewhat by a proposed amendment to the legislation that has generated significant criticism from insurers, leading one to withdraw support for the bill.
The legislation, H.R. 5114, the “Flood Insurance Reform and Priorities Act of 2010,” sponsored by Rep. Maxine Waters, D-Calif., passed the House 329-90. It reauthorizes the NFIP for five years and includes provisions designed to phase in market rates and reduce instances where a homeowner submits multiple claims.
The insurance industry’s major concern involved the House’s approval of an amendment from Rep. Gene Taylor, D-Miss., that requires Write Your Own (WYO) insurers1 to agree that they will not use “anti-concurrent causation” language to exclude coverage of wind damage simply because there is also flood damage to the property.
The amendment led the American Insurance Association to say it now opposes the bill. The association also cautioned that it is uncertain that the Senate will even consider any NFIP reauthorization bill this year. The Property Casualty Insurers Association of America said the amendment would require a WYO company to rewrite its insurance contracts to address the concurrent causation issue, “putting those companies at an increased risk of loss,” and also that it would “create a competitive disadvantage for those WYO companies who support the NFIP, and threatens to force private insurers out of the WYO market.”
So, just what is all the fuss about? The “anti-concurrent causation” clause found today in many first-party property policy forms2 is an important component of first-party insurance, as it gives a carrier an opportunity to shape its coverage by upholding traditional notions about what is and is not supposed to be covered by first-party insurance. “Concurrent” causes are multiple causes occurring close in time, or simultaneously, that combine to cause the damage. Significantly, at least in the U.S., each such cause could have caused the entire loss independently of the interaction of the other. (UK causation principles include the concept of “interdependent” concurrent causes, where the damage would not have occurred but for the interaction of the two causes, but that is the subject of another blog).
The “anti-concurrent causation” clause was developed in reaction to a number of decisions where courts adjudicated the concept of “concurrent causation” (a concept which, by the way, courts often confuse with “proximate causation,” i.e., a chain of causative perils, where one leads to the next, and leading to the ultimate loss-producing event) in a manner so that even if all except one of these causes is excluded, there would still be coverage. These scenarios came into play most recently and compellingly following the 2005 hurricanes, where adjusters would arrive on the scene and see a concrete slab where a structure once stood, and it could not be determined whether the damage was caused by “wind” (usually covered) or “flood” (usually excluded, which is why the NFIP exists in the first place).
Though there are some courts in the U.S. that hold that in a “concurrent” causation scenario so long as one of the causes is excluded the loss is excluded, most courts hold the other way. Of course, if the losses attributed to each peril can be differentiated (such as, for example, a case where a structure remains standing, and you could see the water line, but the roof is blown off), you don’t need to employ concurrent causation principles. Nonetheless, most courts do anyway, because the litigants inevitably introduce concurrent causation (sometimes, incorrectly) into their briefs.
With this in mind, there is no doubt why first-party insurers want to maintain the “anti-concurrent causation” clauses in their policies- in a situation where “flood” is involved, the insurers want to rely on their exclusions and to have the insured look to the NFIP first, to cover the entire loss (wind and flood). The proposed amendment to the Bill would eliminate this possibility. Of course, as mentioned above, in situations where wind damage and flood damage can be delineated, it is still possible to adjust wind damage separately, and there would be no need for the application of the “anti-concurrent causation” clause. It will be interesting to see how this battle between the Government and the insurance industry plays out as H.R. 5114 winds its way through the Senate.
1The Write Your Own (WYO) Program began in 1983 and is a cooperative undertaking of the insurance industry and FEMA. The WYO Program allows participating property and casualty insurance companies to write and service the Standard Flood Insurance Policy in their own names.
2Typical “anti-concurrent causation” language says that loss or damage is excluded if it is caused by or results from certain specified perils “regardless of any other cause or event that contributes concurrently or in any other sequence” to the loss or damage. “Flood” is a typically excluded peril.
Jeffrey S. Weinstein is a partner of Mound Cotton Wollan and Greengrass and has over twenty years of experience in insurance coverage litigation. He is co-author of the Property Chapter in the Second Edition of New Appleman New York Insurance Law.
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Access Full Text of H.R. 5114
Bill Tracking for H.R. 5114