Bob Sargent at Specialty Insurance Blog reports on a release by the Insurance Commissioner of the State of Mississippi urging insurers to give their policyholders, particularly individual homeowners, every benefit of the doubt in assessing what is or is not covered in the wake of Hurricane Katrina.
The essential problem lies in the fact that most homeowners policies cover losses caused by wind or caused by water (such as rain after the roof has flown off) that gets into the home because of wind, but they do not cover losses caused by surface waters and flooding. In sorting out these claims, insurers are going to be facing some challenging causation questions. The Commissioner's statement in part:
In some situation, there is either very little or nothing left of the insured structure and it will be a fact issue whether the loss is caused by wind or water. In these situations, the insurance company must be able to clearly demonstrate the cause of the loss. I expect and believe that where there is any doubt, that doubt will be resolved in favor of finding coverage on behalf of the insured. In instances where the insurance company believes the damage was caused by water, I expect the insurance company to be able to prove to this office and the insured that the damage was caused by water and not by wind.
In other words, in cases of total or near-total loss of a structure, the Commissioner intends to assume that the building blew over before it was washed away -- which in many cases is undoubtedly true.
The majority of homeowners insurance policies are written on what used to be called an "all risks" basis (before clever insurance litigators and some courts started taking that phrase "all risks" a little too literally for insurers' tastes): They cover loss to the insured property from all causes except those that are expressly excluded. Under California law -- and I suspect Mississippi follows the same rule -- the burden under an "all risks"-type policy is always on the insurer to show that a specifically-excluded cause produced the loss before the insurer can deny the claim. The Commissioner's statement is consistent with that rule.
What remains to be seen is whether the Commissioner intends to apply the same presumptions to the minority of policies that are written on a "specified perils" basis, i.e., that are written to cover losses only if they are the result of a cause that is specifically included. FAIR Plan policies, for instance, are typically written on this limited basis, as are other bare-bones property policies. Under specified peril policies, the usual rule is that the insured has to prove that an explicitly covered event was the cause of the loss before the insurer becomes obligated on the claim. If the Mississippi Commissioner is intending to apply broad presumptions regardless of the actual terms of the particular insurance contract, he is arguably going too far. Still, one would be hard pressed not to join in Bob Sargent's bottom line:
Our hope is that the insurance industry is fair and reasonable in its handling of claims from Katrina.
[From its perch in warm, dry southern California, Decs&Excs' uninformed opinion is that much of the damage in Mississippi should be easily traced to wind and to exposure to water created by wind. In New Orleans, on the other hand, the predominant cause of the largest amount of property damage (outside of the high rise buildings downtown with their missing windows) is unquestionably flooding, which will only be insured for those who purchased specific coverage against it under the National Flood Insurance Program. Restoration, if any, of properties not insured against flooding will have to be funded by means other than insurance, such as government loans or grants, charitable assistance, and whatever personal assets the unfortunate property owner still has available.]
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UPDATE [090805]: In his own post linking Bob Sargent's, Doug Simpson considers what it means for insurers to do right in the face of catastrophe, and offers a vivid anecdote from 1835.
While this weblog has been on another of its practice-compelled hiatuses [hiati?], others have been vigorously pursuing the profusion of insurance issues flowing from Hurricanes Katrina and Rita. For those who have not been following these stories and who want to catch up, here is a quick catalog of legal webloggers who are on the case. 
