Miss. Judge Rules Some State Farm Policy Exclusions Unenforceable

Provisions in a State Farm Fire & Casualty Co. policy that exclude certain damage from Hurricane Katrina are unenforceable, a federal judge in Gulfport, Miss. has ruled.

A couple whose Long Beach home was damaged by the Aug. 29 storm is suing State Farm for denying their claim, arguing that the wording of their policy’s “flood exclusions” are ambiguous and cannot be enforced.

U.S. District Judge L.T. Senter Jr., in a ruling released Wednesday, said State Farm cannot rely on “ambiguous” language in a clause that is used to introduce what is excluded from coverage in its policies.

The judge agreed with State Farm that tidal surge is not covered.

However, he said a policy clause that purports to deny coverage when wind acts in any sequence with an excluded event, such as tidal surge, to cause damage is ambiguous.

To the extent State Farm contends the hurricane itself, the winds and rain, would constitute a weather condition that would completely relieve the company of liability for damage, Senter said he found “the policy is ambiguous and its weather exclusion therefore unenforceable in the context of losses attributable to wind and rain that occur during a hurricane.”

State Farm spokesman Phil Supple told The Associated Press that the insurer was pleased Senter had ruled that excluding tidal surge “is enforceable and valid.”

But he said Senter’s decision with regard to the provision known as the anti-concurrent clause “is inconsistent with prior existing court rulings in Mississippi that held State Farm policy language to be clear and unambiguous.”

“Both sides can claim victory here,” said J. Robert Hunter, former Texas insurance commissioner and currently director of insurance for the Consumer Federation of America. “When the damage is very clearly caused purely by flood, State Farm will win. But if there is wind damage or rain damage before flood damage, then State Farm may have to pay quite a bit.”

Hunter, who reviewed the judge’s ruling at request of The Associated Press, said the decision “means the plaintiffs’ case still has legs, at least for the part of the damage that can be attributable to wind.”

Senter said the question of how much damage to the couple’s home was caused by wind and water is a fact that must be decided at trial.

No trial date has been set in federal court in Gulfport.

“Of course, I cannot know at this juncture what the evidence will be,” Senter wrote. “But it is my opinion, upon a thorough review of the terms of the State Farm policy, that the damage attributable to wind and rain will be covered, regardless of whether an inflow of water caused additional damage that would be excluded from coverage.”

The lawsuit, filed in November by John and Claire Tuepker of Long Beach, is one of many spawned by a fierce debate over whether Gulf Coast homes were destroyed by Katrina’s wind or tidal water.

The ruling appears to strengthen the argument of State Farm customers on the Gulf Coast that their policies covered damage caused by Katrina’s winds even if their property was later slammed by the mighty storm’s tidal surge, said Richard “Dickie” Scruggs, who represents the couple as well as a number of others challenging insurance companies over the wind versus water issue.

“It’s judicial recognition that if destructive winds preceded destructive waters, the destructive waters become irrelevant,” Scruggs said.

In April, in a similar case involving Allstate Insurance Co., Senter ruled Allstate’s policy exclusions were enforceable. He said Allstate’s exclusions were “drawn quite broadly, and they have the clear purpose of excluding damage caused by inundation from coverage.”

Hundreds of lawsuits related to wind verses water damage are pending in state and federal courts.

On Thursday, more than 240 Gulf Coast homeowners filed a joint lawsuit against Nationwide Mutual Insurance Co. for refusing to cover property damage from Hurricane Katrina.

The federal suit, the latest in a string of similar suits that attorney Scruggs has filed against several insurance companies, claims Nationwide routinely denied policyholders’ claims without investigating whether Katrina’s wind or water was responsible for damage.
Instead, the suit alleges, Nationwide denied many claims on the basis of a “one-size-fits-all” engineering report that blamed all of the damage on “storm surge,” or wind-driven water. The insurer’s policies cover wind damage but damage from storm surge is excluded from coverage.