Concurrent Causation Clauses

Attorneys handling hail damage claims need to read this case. It is a 2015, Texas Supreme Court opinion styled, JAW The Point, L.L.C. v. Lexington Insurance Co.
In this case, the “anti-concurrent causation” (ACC) exclusion reads:
loss or damage caused directly or indirectly by any [excluded cause or event], regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
No damage claims implicate the ACC exclusion more frequently than those covered by wind (usually covered) and flood (usually excluded).
Here, the insured, JAW, owned an apartment complex that was heavily damaged by Hurricane Ike in 2008. Lexington covered a number of insured properties, including JAW’s complex, under a blanket “all-risk” property policy, up to a value of $8 million. Under normal circumstances, JAW could probably have repaired the apartments well within that limit and in addition, collected a few hundred thousand for lost profits. However, the city imposed an ordinance that repairs equaling or exceeding 50% of market value must raise the ground level of a structure to a minimum base flood elevation, in this case, three feet. Because the estimated cost to repair exceeded 50% of the market value, JAW determined that it could not simply repair the existing structures but instead had to demolish them, raise the ground elevation, and rebuild the structures at substantial additional cost. After extended discussion and negotiation, Lexington denied the claim for raising the elevation and rebuilding.
Two facts should be noted. One, in accepting JAW’s permit application, the city agreed that the ordinance required JAW to meet the base flood elevation but did not indicate whether this requirement was due to wind or flood damage. Two, before JAW brought a coverage action, Lexington had actually paid to JAW $817,940, and the damage amount stated in JAW’s proof of loss stated exclusively caused by wind.
JAW sued Lexington on “bad-faith” claims and the jury awarded $3 million. The Court of Appeals reversed, concluding that the ACC exclusion barred coverage for all costs necessary to comply with the ordinance. The Texas Supreme Court agreed.
The parties had agreed, noted the court, that the only coverage issue was whether a covered loss caused the enforcement of the ordinance. Lexington argued that the ACC exclusion barred coverage because the property damage triggering the ordinance was the result of both wind and flood. JAW countered that the ACC exclusion does not apply when the covered damage was sufficient to be a “separate and independent” cause of the damage. Because it demonstrated that both wind and flood contributed to the damage, JAW argued that the burden of proof shifted to Lexington to prove that flood damage alone pushed the loss above the 50% ordinance threshold.
The court fashioned a solution about how to determine whether or not coverage applied. First, regarding abstract theory, the court simply asked, “what in fact triggered enforcement of the ordinances.” The evidence clearly established that the damage triggering enforcement was the result of both wind and flood. But two important facts conclusively established that at least part of the ordinance-triggering damage was flood and flood alone, a conclusion that doomed coverage. First, JAW’s application to the city and the city’s approval contained no allocation between wind and flood damage. Second, Lexington had paid 100% of JAW’s wind-damage claim, which was an amount well below ordinance threshold. Necessarily, therefore, some of the damage triggering the ordinance was exclusively caused by flood.
This court decision clarifies the relatively high burden facing an insured in these cases. When we consider the task of distinguishing what wind damage is synergistically bound with flood and what is “separate and independent,” the burden of proof becomes all important. This court decision probably gives ties to the insurance company. If the insurance company can show no more than the impossibility of separating wind from flood damage, it probably shifts to the insured to segregate wind-only damage.