U.S. Court Upholds State Farm’s Anti-Concurrent Causation Clause

A U.S. court of appeals ruling dashed the hopes of potentially hundreds of post-Hurricane Katrina claimants recently when it ruled a major insurer’s policy language unambiguous.

The case is based on State Farm’s refusal to pay Long Beach, Miss., claimants John and Claire Tuepker for the complete destruction of their home and property caused by Katrina in August 2005. The couple had a current and valid homeowners’ insurance policy with State Farm at the time.

State Farm argued that the policy’s anti-concurrent causation clause is not ambiguous — in this case, coverage of wind damage but not water damage associated with wind — because it cannot be construed to have two or more reasonable meanings and it does not conflict with any other provisions.

A three-judge panel from the 5th U.S. Circuit Court of Appeals agreed with State Farm. The ruling overturned the decision U.S. District Judge L.T. Senter Jr., made earlier this year in Gulfport, Miss., stating the clause is ambiguous and can’t be enforced.

The Tuepkers argued that the ACC clause is unenforceable because it conflicts with other provisions in the policy, namely the express coverage for losses attributable to wind and the hurricane deductible endorsement.

But according to the court, the State Farm ACC clause clearly states that excluded losses — any loss which would not have occurred in the absence of one or more of the excluded events — will not be covered even if a non-excluded event or peril acts “concurrently or in any sequence” with the excluded event to cause loss.

State Farm spokesman Frasier Engerman said the company is pleased with the ruling. “The court’s ruling reinforces our confidence in the clarity of the policy language,” Engerman said. “While we’re pleased the court resolved these issues, State Farm is working to settle remaining outstanding claims on the Gulf.”

In the judicial trio’s 17-page document, Judge Will Garwood concluded that Mississippi law validates the water damage exclusion and the storm surge that damaged the Tuepkers’ home is a peril that is unambiguously excluded from coverage under State Farm’s policy.

David Rossmiller, a Portland, Ore.-based lawyer who has written about Katrina insurance litigation but isn’t involved in any of the cases, said the ruling is a “big victory for State Farm.”