107A
AMERICAN BAR ASSOCIATION
ADOPTED BY THE HOUSE OF DELEGATES
FEBRUARY 16, 2009
RECOMMENDATION
RESOLVED, That the American Bar Association recommends that federal, state and
territorial governments enact legislation with appropriate funding that would eliminate
any prohibitions or restrictions on participants in the private insurance and reinsurance
markets from making available broadened insurance protection for property damage
arising from storms, including damage from wind, wind-driven rain, and flood caused by
storm surge, but excluding damage arising from other types of flood; provided that the
availability of such broadened insurance coverage on a voluntary basis by insurers should
be encouraged through a competitive marketplace under a regulatory system permitting
broad flexibility in insurance pricing and product development.
FURTHER RESOLVED, flood is defined as an overflowing of water on an area of land
that is normally dry and storm surge is defined as water that is pushed toward the shore
by the force of the winds swirling around a storm. The coverage provided for storm surge
would be limited (unless an insurer explicitly chose to provide broader coverage) to
damage directly caused by the force of the storm surge.
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REPORT
As a result of Hurricanes Katrina and Rita, there had been widespread criticism of
the insurance system as it relates to the kinds of disasters precipitated by hurricanes and
storms. In response, in the spring of 2007, Peter Neeson, Chair of the ABA Tort Trial &
Insurance Practice Section (TIPS), appointed the Task Force on Disaster Insurance
Coverage. The Task Force was reappointed the following year by the next Chair of TIPS,
Peter Bennett.
Task Force Mission
The specific mission of the Task Force was "to examine insurance coverage
difficulties arising from the hurricanes, including (1) why so much litigation has surfaced
in surrounding states over the wind/water issue, and (2) why insurers are departing from
hurricane-prone areas in Florida and along the entire east coast. The scope of the Task
Force's research has included the full range of issues arising out of insurance coverage,
availability, and affordability for hurricanes and storms and the executive, administrative,
legislative, and judicial framework for addressing such issues.
The Task Force extends its gratitude to its ex officio members representing
various stakeholders for their outstanding contributions to the difficult work of the Task
Force. However, it is important to stress that the positions expressed in this Report and
Recommendations, while resulting in an overall general consensus, does not necessarily
represent the opinions of the entire ex officio membership or their respective policies.
Meetings, Hearings, and Deliberations of the Task Force
The Task Force met on May 18, 2007 in Newport Beach, CA; August 12, 2007 in
San Francisco, CA; October 6, 2007 in Palm Beach, FL; February 9 2008 in Los Angeles.
CA; April 15, 2008 in Washington, D.C.; August 9, 2008 in New York City, N.Y.;
September 22, 2008 in Chicago, IL; and October 4, 2008 in Hilton Head, SC. It heard
presentations from a wide variety of officials from the insurance industry, state and
federal governments, and consumer and other non-governmental organizations.
Concerns with the Present Insurance System
Following Hurricanes Katrina and Rita some national insurers moved to terminate
existing policies, or to cease writing new policies entirely, in coastal areas ranging from
Florida to New England. A few states moved to establish state mechanisms for the
hurricane insurance business, while others looked to Washington for a solution. Various
hearings and investigations were initiated by Congressional and state legislators, state
insurance regulators, and certain attorneys general, and the Task Force has reviewed the
testimony and proposals that have resulted from this process.
From the presentations and effort conducted by the Task Force, it was noted that,
among other things, some raised “concerns” about adequacy of coverage provided under
insurance policies and the National Flood Insurance Program (NFIP) in regard to wind
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and water damage, the varying interpretations of "anticoncurrent cause" provisions in
insurance policies and questions of enforcement, promptness and/or consistency
surrounding claims determinations during times of catastrophe.
The Task Force while having considered the referenced “concerns” recognized
that it was not a fact-finding body and did not express any view on the accuracy or
validity of such matters revealed or discussed in the course of its efforts. In furtherance
of its mission, the Task Force proposals intend to address both possible causes and
solutions to challenges inherent in the present insurance system, including the NFIP, and
those arising from mega catastrophes in seven separate but highly integrated
Recommendations.
Recommendation “107A”
Recommendation “107A” addresses issues encountered in the Task Force’s
research that property insurance policies generally do not provide coverage for damage
caused by combined wind and water and suggesting that the determination of whether
damage was caused by one or the other can sometimes be difficult and expensive; that the
differentiation in coverage between damage from wind and rain and “flood” is a potential
source of concern in the context of private insurance policies and the National Flood
Insurance Program1; and that different interpretations and enforcement by insurers and
courts of "anticoncurrent cause" provisions have led to uncertainty as to the extent of
coverage that a property owner has and resulted in class action litigation.
This Recommendation would help to ameliorate these issues or “concerns” in the
context of hurricanes. It proposes a new optional form of property owners’ policy that
would insure against damage from storms, whether from wind or wind-driven rain, as
well as flood caused by storm surge. Flood is defined as an overflowing of water on an
area of land that is normally dry, and storm surge is defined as water that is pushed
toward the shore by the force of the winds swirling around a storm. Thus, the
recommended limited optional coverage would not cover damage arising from types of
flood other than that caused by storm surge. The optional flood coverage would be
limited to damage directly caused by the force of a storm surge. The Recommendation
specifically provides that such broadened optional coverage should be offered only
through a competitive marketplace under a regulatory system that permits broad
flexibility in pricing and product development and then, only if an insurer elected to offer
such coverage.
This recommended optional insurance policy would provide property owners far
1
See http://www.abanet.org/tips/tfdic/OIG_08-97_Sep08.pdf, a report of the Office of Inspector General of the Department of
Homeland Security (OIG-08-97) and the excerpt of the Executive Summary attached which did not find support for the allegation
that there was improper allocation of causation and damages between private insurers and the National Flood Insurance Program.
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more certainty of coverage from the direct effects of a storm and possibly substantially
reduce the need for litigation to resolve coverage disputes, real or perceived. In part,
coverage disputes would shift to the insurer and NFIP. An important element of the
change in coverage is the ability of actuaries to estimate the risk of storm surge since it
arises from natural climactic conditions that can be charted over time. This recommended
coverage, however, would not protect against flooding not directly arising from a storm
where other factors such as human conduct is “causal”. The level of risk from flooding in
which human conduct is significantly “causal” may be more difficult to calculate in
advance. Levee breaches, for example, can be caused by a number of factors such as the
reliability of the design by the Corps of Engineers or others, construction by private
contractors, maintenance by various state, regional, or local bodies, and human
negligence in various forms. Private insurance policies cannot provide an adequate
solution, as the need for governmental involvement in the form of liability and immunity
rules or subsidies may be greater as to these forms of flooding.
If a property owner chose to purchase the optional extended storm coverage
envisaged by this Recommendation, the problem of differentiating between damage
caused by the wind of a hurricane or by flooding from storm surge would be unnecessary,
although it would not resolve all problems of determining causation. An example of an
unresolved problem is whether the damage was caused by storm surge or ordinary noncovered flooding might still be present depending on the circumstances. Also, insurers
voluntarily writing this broad coverage would be required to distinguish between the
causes of loss in order to accurately price the optional coverage. However, in the case of
a hurricane (which is of particular concern throughout the Gulf and Atlantic states), it
would often be relatively easy to determine whether the flooding came from the sea as
part of the storm surge rather than from another cause. Thus much of the extended and
expensive litigation that followed Katrina and Rita, and is occurring again in the
aftermath of Gustav and Ike, could be avoided.
This new optional policy or endorsement also would not remove all the problems
of determining causation in reference to “anti-concurrent causation” clauses in policies.
Such clauses provide that when there are multiple causes of a loss and any one of them
are from non-covered perils, “such loss or damage is excluded regardless of any other
cause or event that contributed concurrently or in any sequence to the loss.” The new
recommended policy or endorsement would obviate the “anti-concurrent causation clause
when damage arises from wind and storm surge from a hurricane. In other situations,
some jurisdictions have applied an “efficient proximate cause” test that finds no need to
resort to an “anticoncurrent causation” clause if one cause can be determined to be “the
predominating” or “most important cause of the loss.” Sabella v. Wisler, 377 P.2d 889
(Cal. 1963); Julian v. Hartford Underwriters Ins. Co., 110 P.3d 903 (Cal. 2005); cf.
Michael C. Phillips & Lisa L. Coplen, After the Storm: Courts Grapple with the
Insurance Coverage Issues Resulting from Hurricane Katrina, 36 ABA The Brief, No. 2
(2007). Under this analysis, property owners can still recover even if their damage was
caused in some small part by an excluded peril like water from a non-covered flood, as
long as the covered peril, like wind or storm surge (under the recommended new policy),
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is found to be the efficient proximate cause. "By the same token, other courts have
rejected “efficient proximate cause” and instead enforced the anti-concurrent causation
clause." See also: Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419,436 (5th Cir. 2007);
Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346, 356 (5th Cir. 2007).2
Respectfully submitted,
Timothy W. Bouch, Chair
Tort Trial and Insurance Practice Section
February 2009
2
See Hood ex rel. State of Miss. v. Miss. Farm Bureau Ins., No. G2005-1642, slip op. at 7-8
(Miss. Chanc. Ct. Dec. 22, 2008).
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GENERAL INFORMATION FORM
Submitting Entity: Tort Trial and Insurance Practice Section
Submitted By: Timothy W. Bouch, Chair
1.
Summary of Recommendation(s).
As the keystone of seven integrated and highly interdependent set of Recommendations
to reduce the nature and extent of post hurricane (catastrophe) litigation, Federal, state
and territorial governments are urged to enact legislation with appropriate funding that
would eliminate any prohibitions or restrictions on participants in the private insurance
and reinsurance markets from making available broadened insurance protection for
property damage arising from storms, including damage from wind, wind-driven rain,
and flood caused by storm surge, but excluding damage arising from other types of
flood; provided that the availability of such broadened insurance coverage on a voluntary
basis by insurers should be encouraged through a competitive marketplace under a
regulatory system permitting broad flexibility in insurance pricing and product
development.
Storm surge is defined as water that is pushed toward the shore by the force of the
winds swirling around a storm. The coverage provided for storm surge would be to
damage directly caused by the force of the storm surge.
2.
Approval by Submitting Entity.
Approved by the Council of the Tort Trial and Insurance Practice Section on October 5,
2008.
3.
Has this or a similar recommendation been submitted to the House or Board previously?
No.
4.
What existing Association policies are relevant to this recommendation and how would
they be affected by its adoption? Not applicable
5.
What urgency exists which requires action at this meeting of the House?
Reducing the burden of class-action lawsuits on state and federal courts following
hurricanes and other storms is projected to be a complex 10 year project involving
multiple levels of governments, regulatory agencies, private insurers and related entities.
The next hurricane season begins June 1. (See Status of Legislation)
6.
Status of Legislation. (If applicable.) Not applicable. [Although there were hundreds of
bills referencing “flood” and “hurricane” in the 110th Congress, including the main set of
bills (HR 920, HR 1682, HR 3121 and S 2284), the House passed HR 3121 “Flood
Insurance Reform & Modernization Act of 2007” was amended by the Senate by
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substituting S 2284 and was languishing in Conference when Congress adjourned. New
legislation is expected to be filed after the 111th Congress convenes.]
7.
Cost to the Association. (Both direct and indirect costs.) Not applicable
8.
Disclosure of Interest. (If applicable.) Not applicable
9.
Referrals.
This Report and Recommendation is referred to the Chairs and Staff Directors of all ABA
Sections and Divisions.
10.
Contact Persons. (Prior to the meeting.)
a) Hervey P. Levin
Law Offices of Hervey P. Levin
6918 Blue Mesa Drive
Dallas, Texas 75252
972-733-3242-O 972-896-4312-Cell
hervey@airmail.net
b) James F. Carr
1525 Sherman St. Fl 5
Denver, Colorado 80203-1714
303-866-5283-O 303-513-0026-Cell
c) Janice Mulligan
Mulligan & Banham
2442 4th Avenue, Suite 100
San Diego, CA 92101-1609
619/238-8700/cell phone 619-977-4444
jfmulligan@yahoo.com
11.
Contact Person. (Who will present the report to the House.)
Hervey P. Levin
Law Offices of Hervey P. Levin
6918 Blue Mesa Drive
Dallas, Texas 75252
972-733-3242-O 972-896-4312-Cell
hervey@airmail.net
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EXECUTIVE SUMMARY
1.
Summary of the Recommendation
Federal, state and territorial governments are urged to enact legislation with
appropriate funding that would eliminate any prohibitions or restrictions on
participants in the private insurance and reinsurance markets from making
available broadened insurance protection for property damage arising from
storms, including damage from wind, wind-driven rain, and flood caused by
storm surge, but excluding damage arising from other types of flood; provided
that the availability of such broadened insurance coverage on a voluntary basis by
insurers should be encouraged through a competitive marketplace under a
regulatory system permitting broad flexibility in insurance pricing and product
development.
Storm surge is defined as water that is pushed toward the shore by the
force of the winds swirling around a storm. The coverage provided for
storm surge would be to damage directly caused by the force of the storm
surge.
Flood is defined as an overflowing of water on an area of land that is
normally dry and storm surge is defined as water that is pushed toward the
shore by the force of the winds swirling around a storm. The coverage
provided for storm surge would be limited (unless an insurer explicitly
chose to provide even broader coverage) to damage directly caused by the
force of the storm surge.
2.
Summary of the Issue that the Resolution Addresses
As a result of Hurricanes Katrina and Rita, there had been widespread criticism of the
insurance system as it relates to the kinds of disasters precipitated by hurricanes and
storms. In response, TIPS established the Task Force on Disaster Insurance Coverage.
The specific mission of the Task Force was "to examine insurance coverage difficulties
arising from hurricanes, including (1) why so much litigation has surfaced over the
wind/water issue, and (2) why insurers are departing from hurricane-prone areas in
Florida and along the entire east coast.' The scope of the research included the full range
of issues arising out of insurance coverage, availability, and affordability for hurricanes
and storms and the executive, administrative, legislative, and judicial framework for
addressing such issues.
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The seven Recommendations are an integrated and highly interdependent set of
proposals that begin with a major goal of reducing the nature and extent of post
hurricane (catastrophe) litigation. This is accomplished first by suggesting that
the coverage of the basic homeowners policy be changed to include damages
caused by wind driven storm surge and then lessening the nature and extent of
the risk of losses as much as possible over a 10 year period to increase access to
“available” and “affordable” insurance. Resolution of ambiguity regarding
causation is also shifted to the insurers and the National Flood Insurance
Program; two parties better able to resolve the boundaries of their respective
coverages, in ways that do not burden state and federal courts with excessive
litigation.
3.
Please Explain How the Proposed Policy Position will Address the Issue
This is the keystone Recommendation that cannot be summarized. It depends on
each element of the Recommendation and on all six of the associated
Recommendations to achieve an “available” and “affordable” optional policy or
endorsement for the insureds with the coverages that will reduce post hurricane and
storm litigation in the federal and state courts.
4.
Summary of Minority Views or opposition which have been identified:
TIPS extends its gratitude to the ex officio members of the Task Force
representing various stakeholders for their outstanding contributions to the
difficult work of the Task Force. However, it is important to stress that the
positions expressed in this Report and Recommendations, while resulting in an
overall general consensus, does not necessarily represent the opinions of the entire
ex officio membership or their respective policies.
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