As Texas continues to rebuild in the aftermath of Hurricane Harvey, the extent of the damage Harvey left in its wake is just now being realized. To date, private insurers have seen more than 670,000 property insurance claims resulting from Harvey.[1] The Texas Department of Insurance reports that insurers have paid out more than $4.5 billion in Harvey claims, with the expected number projected to increase to $15.7 billion by the time all claims are reported and settled.[2] Of these claims, more than 354,000 are residential property claims, and around 37,000 are commercial property.[3]
Notably, of the insurance claims that have been submitted, the Texas Department of Insurance has reported that nearly 44 percent remain open.[4] For claims still open, as well as claims that are yet to be submitted, insurers should be aware that the conditions surrounding Harvey differ greatly from Ike, and as such will need to take a different approach to their claims handling. Damages from Ike were largely the result of a wind event, while the clear majority of Harvey claims are flood related. While wind damages are generally covered under Texas residential insurance policies, the waters are murkier with regard to Harvey related damages. Coverage for damage that is exclusively caused by flood is precluded under many residential policies. However, the majority of damage brought by Harvey is both wind and flood related. This brings to light the issue of how claims must be managed when both wind and flood combines to create an indivisible loss that cannot be readily segregated.
Fortunately, there is already doctrine in place in Texas that addresses this exact issue: the concurrent causation doctrine. Under Texas law, the concurrent causation doctrine provides that when a covered cause of loss (e.g., wind) and a non-covered cause of loss (e.g., flood) cause damage the insured may recover for the portion of the damage caused by the covered cause of loss.[5] Texas jurisprudence has established that the insured bears the burden to segregate the damage attributable solely to the covered cause of loss, which in cases related to Harvey, will likely be wind damage. However, Texas currently enforces Anti-Concurrent Causation clauses (“ACC Clause”), which alter the default doctrine contractually by excluding any damage directly or indirectly related to a non-covered cause of loss. The following is an example of a standard ACC clause:
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.
As more and more Harvey claims come through the court system, it will be interesting to follow the precedent courts set. If Texas courts continue to enforce ACC Clauses with the faithfulness that they currently do, this will lead to denial of nearly all residential Harvey claims with policies containing such a provision. However, many homeowners are filing claims under their residential policies in order to receive a denial so that they may apply for FEMA assistance. The continued enforcement of these ACC clauses during this massive influx of Harvey claims is sure to put tremendous economic pressure on FEMA for flood assistance. Should the Texas legislature, Congress, or regulatory authorities decide to insert themselves into the mix, it will likely be to soften the blow to FEMA, perhaps by removing some of the teeth from ACC Clauses.
It will be vital for insurers moving forward to pay close attention to the position courts take with respect to enforcing ACC clauses in the wake of this Harvey-sized volume of claims. Certainly, insurers should been keenly aware of the legal and political climate that forms the backdrop for Harvey- related claims. It would be surprising if, with all of the precedent soon to be established from the incoming influx of Harvey claims, the concurrent causation doctrine looks the same as it did before this started.
Posted by Bennett Moss
[1] See Nearly 670k Property Insurance Claims in Texas from Hurricane Harvey: TDI, Insurance Journal (Feb. 13, 2018), https://www.insurancejournal.com/news/southcentral/2018/02/13/480405.htm
[1] See Nearly 670k Property Insurance Claims in Texas from Hurricane Harvey: TDI, Insurance Journal (Feb. 13, 2018), https://www.insurancejournal.com/news/southcentral/2018/02/13/480405.htm
[2] Id.
[3] Id.
[4] Id.
[5] See Shannon O’Malley, Concurrent Causation and Texas Law, CAT-Law Navigator, http://www.catlawnavigator.com/p/concurrent-causation-and-texas-law.html
