Hurricane Harvey initially hit the Texas Gulf Coast with damaging winds
and storm surge. As it downgraded to a Tropical Storm, Harvey dumped the highest
amount of rainfall on the Houston area ever recorded from a single storm,
resulting in record flooding. In analyzing Harvey claims under a property
insurance policy, standard residential policies exclude flood, and most
commercial policies either exclude or sub-limit flood damage.
In Texas, the law and the typical adjustment practice is that wind and
flood damage from these kinds of events is segregated. Damage that is
exclusively caused by wind is covered, and damage caused exclusively by flood
is excluded (or sub-limited). Issues arise, however, when wind and flood
combine to cause “indivisible” loss that cannot be readily segregated.
How will property policies respond when two causes of loss – covered and
excluded – combine or operate sequentially to create the same damage?
- When covered and excluded perils combine to cause property damage, Texas applies the concurrent causation doctrine.
- The concurrent causation doctrine entitles an insured to coverage for that portion of damage caused by a covered cause of loss (wind), even when a non-covered cause of loss (flood) also damages the property.
- Under Texas law, unlike most jurisdictions, the insured bears the burden to segregate the damage attributable solely to the covered cause of loss (wind). The insured must:
- Show that a covered cause of loss caused damage to the insured’s property; and
- Provide some evidence to indicate the extent to which the covered damage injured the property (i.e. some basis to allocate the damage between wind and flood).
- Even though the insured bears the burden, the prudent adjustment practice is for insurers to investigate and thoroughly document the damage, and attempt to determine the amount of wind damage (and the amount of flood damage to the extend flood is covered and/or sub-limited).
- In a pure concurrent causation scenario, wind damage occurring prior to flood damage may be recoverable under the policy.
- Texas enforces Anti-Concurrent Causation clauses (“ACC Clause”), which alter the default concurrent causation doctrine. A typical ACC Clause, which is found in most standard policies, states:
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
- This language, in combination with a flood
exclusion, acts to exclude from coverage any damage caused by a combination of
covered and excluded perils. Stated differently, under an ACC clause, when
covered and non-covered perils combine to create “indivisible” damage, that
damage is excluded.
- When an ACC clause applies, the practical effect is that the sequence of the loss (i.e., whether the wind damage or the flood damage came first) becomes irrelevant.
- Whether damage is truly “indivisible,” however, is often the subject of significant dispute. The prudent adjustment practice is to extensively document the damage with photographs and video, and appropriate expert assistance may be required.
For more detail, please see “When Perils Combine – Concurrent Causation and Texas Law,” authored by Shannon O’Malley of Zelle LLP, published today in the Claims Journal.