UNIVERSITY PARK, Pa. — When a hurricane levels a home, it’s often impossible for insurance adjusters to determine whether the property damage was caused by wind, which is covered by most standard homeowners policies, or by flooding, which is often excluded from homeowners policies and covered by the National Flood Insurance Program. This creates what is called the “concurrent causation conundrum.”
In a new essay published in the University of Pennsylvania Law Review Online, Christopher C. French, Penn State Law visiting assistant professor of law, writes that this scenario could leave the property owner homeless. This unfair scenario results from the homeowner's insurer contending that the damage was caused by a flood and the flood insurer contending that wind leveled the property. Thus, neither insurer agrees to cover the damage.
This conundrum was at the center of a case decided by the U.S. Supreme Court in December that inspired French’s essay, “Hurricanes, Fraud and Insurance: The Supreme Court Weighs In but Does not Wade Into the Concurrent Causation Conundrum in State Farm Fire and Casualty Company v. Rigsby.”
Rigsby concerned a Mississippi homeowners insurance claim in the aftermath of Hurricane Katrina, in which the property owner had homeowners insurance with State Farm and a flood insurance policy administered by State Farm on behalf of the federal government. State Farm allegedly instructed the claims adjusters to misclassify wind damage as flood damage to shift the liability from State Farm to the government.
The Supreme Court ultimately upheld a jury verdict against State Farm, but it did not address the concurrent causation conundrum. So, in his essay, French offers two solutions.
First, he suggests eliminating the flood exclusion in homeowners insurance. Since the 1960s, almost all homeowners insurance policies have excluded flood damage to avoid the problem of insuring “correlated risks” in which numerous people suffer catastrophic losses in one geographic area at a specific time. French argues that, in today’s insurance market with global insurance companies selling insurance around the world, reinsurance, and catastrophe bonds — all of which spread losses across a wide array of investors and capital markets — the chances of financially crippling insurer losses from a flood are minimal. In fact, French contends, flood losses are much more correlated under the current National Flood Insurance Program than they would be if flood damage was no longer excluded from homeowners policies because such losses would be spread across a much larger group of insureds who do not all live in flood zones such as coastal areas.
French’s alternative solution would be to broadly apply homeowners policies’ “ensuing loss” clauses, which he argues can serve as an antidote to “anti-concurrent causation” exclusions. These exclusions allow insurers to attempt to defeat coverage any time an excluded peril is one of multiple causes of a loss, as is the case with hurricanes where both wind and water damage to property.
“Anti-concurrent causation exclusions purport to eliminate coverage when both an excluded peril and a covered peril cause a loss,” he writes. According to French, however: “Many policies with anti-concurrent causation exclusions also contain, however, a little known exception to such exclusions called an ‘ensuing loss’ clause. … [I]n essence, an ensuing loss clause reinstates coverage for an otherwise excluded loss where the loss results after a covered peril occurs — even if an excluded peril is also part of the causation chain.” By applying ensuing loss clauses more broadly according to the rules of insurance policy interpretation, French argues, they could “resolve the concurrent causation conundrum in many situations.”
French has written and published extensively in the area where insurance law intersects with contract and tort law. He has written numerous chapters in a two-volume insurance law treatise entitled Policyholder's Guide to the Law of Insurance Coverage and he is co-author of the fifth edition of "Insurance Law in a Nutshell," published by West Academic. His scholarly work has been published in law review journals at, among other law schools, Georgia State University, University of Kansas, University of Nevada, University of Southern California, University of Pennsylvania, Villanova University, and University of Virginia.
Prior to joining the faculty at Penn State Law, where he currently teaches insurance law, contracts, remedies and torts, he taught at the University of Pittsburgh School of Law and Villanova Law School. He was formerly a partner at K&L Gates LLP where, as a commercial litigator, he handled all aspects of litigation matters for Fortune 500 companies and other businesses in federal and state courts across the United States, trying cases in seven different states. In addition to his advocacy work, he has also served as both a party-appointed and a neutral arbitrator.