Court Ruling Favors Insurer, Industry

On August 30, 2007, the 5th Circuit U.S. Court of Appeals ruled in favor of insurers and the industry in Leonard v. Nationwide saying Nationwide’s anti-concurrent causation (ACC) clause is not ambiguous, and Mississippi law does not pre-empt its application to hurricane claims.

Although the original ruling favored Nationwide, the company appealed the portion of the ruling that found its ACC clause was unenforceable. Nationwide’s ACC states: “We do not cover loss to any property resulting directly or indirectly from any of the following. Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss.” 

The previous ruling indicated the clause was ambiguous. The Court of Appeals ruled that:

• Nationwide’s ACC clause is not ambiguous, and Mississippi law does not pre-empt its application to hurricane claims.
• Because the ACC clause is unambiguous, the Leonards had to demonstrate that the clause is prohibited by Mississippi case law, statutory law, or public policy. The Court said that “[n]one of these sources of state law restricts Nationwide’s use of the ACC clause to preclude recovery for concurrently caused hurricane losses . . . Mississippi insurance law, in fact, lends some support to Nationwide.”
• The Court found that just because parties disagree about the meaning of a provision in a contract, it does not mean the contract is ambiguous under the law.
• The ruling notes that the Mississippi Supreme Court previously said “[I]nsurance companies must be able to rely on their statements of coverage, exclusions, disclaimers, definitions, and other provisions, in order to receive the benefit of their bargain and to ensure that rates have been properly calculated.”
• It also refutes the Leonard’s contention that “storm surge” is not flooding but is a “separate, distinct peril unique to hurricanes.” The Court said that storm surge is not a “unique meteorological phenomenon” and in fact is “little more than a synonym for a “tidal wave” or wind-driven flood, both of which are excluded.” 

Read about the original District Court ruling.