Corban v. USAA, No. 2008-IA-00645-SCT, ___ So. 3d ___, (Miss., October 8, 2009)

In Corban, the Supreme Court of Mississippi addressed three issues that were the focal point of much of the Katrina litigation.

(1) Whether “storm surge” is included in a “water damage” exclusion.

(2) The interpretation and application of an Anticoncurrent Causation Clause .

(3) Which party bears the burden of proof. 

The case came to the Court as an interlocutory appeal from the circuit court, where the Corbans filed suit claiming, among other things, breach of their insurance contract. The Corban’s home was damaged during Katrina, and they sought compensation under their standard all-risk homeowners policy with USAA. Citing the policy’s Anticoncurrent Causation Clause (ACC), USAA denied coverage for damage to the structures caused by wind because they were also damaged by water. The ACC read:

SECTION I-EXCLUSIONS
1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

To resolve the three issues, the Court declared, “Our role is to render a fair reading and interpretation of the policy by examining its express language and applying the “ordinary and popular meaning” to any undefined terms.” In doing so, the Court used the following rules of contract interpretation: clear and unambiguous contracts are interpreted as written; if a contract contains ambiguous or unclear language, the ambiguities are resolved in favor of the non-drafting party; ambiguities exist when a policy can be logically interpreted in two or more ways, and one logical interpretation provides coverage; a term that is not defined within the policy is not necessarily ambiguous; the common meaning of the term will prevail; exclusions and limitations on coverage are also construed in favor of the insured; and language in exclusionary clauses must be “clear and unmistakable,” as those clauses are strictly interpreted.

1) Whether the circuit court erred in finding that “storm surge” is included in the “water damage” exclusion.

The Corbans argued that “storm surge” was a covered peril because “[t]he policy itself defines ‘water damage’ and purposely does not include storm surge within that definition.” USAA argued that “storm surge” is obviously an “excluded peril” under the “water damage” exclusion. Citing Mississippi and Fifth Circuit caselaw, the Court sided with USAA, holding that “storm surge” is contained unambiguously within the “water damage” exclusion. “Storm surge” was plainly encompassed within the “flood” or “overflow of a body of water” portions of the “water damage” definition, and no other logical interpretation existed.

(2) Whether the circuit court erred in finding that the ACC clause is applicable in the case sub judice.

To resolve this issue, the Court parsed the language of the ACC clause. First, the Court considered the term “loss.” The court noted a “loss” is incurred by an insured and typically, but not always, follows “damage” to his or her property. “Loss” occurs at that point in time when the insured suffers deprivation of, physical damage to, or destruction of the property insured. The Court further noted that once a loss occurs, caused by either a covered peril (wind) or an excluded peril (water), that loss is not changed by any subsequent cause or event. “The insured's right to be indemnified for a covered loss vests at time of loss. Once the duty to indemnify arises, it cannot be extinguished by a successive cause or event.”

Next, the Court looked at the term “concurrently.” Based on the plain meaning of the term, the Court concluded: “the exclusion applies only in the event that the perils act in conjunction, as an indivisible force, occurring at the same time, to cause direct physical damage resulting in loss.” In this case, though, the perils acted in sequence, not concurrently, to cause different damage, resulting in separate losses.

The Court then considered the phrase, “in any sequence.” The term was contained within an exclusionary clause for “water damage” losses, but not defined in the policy. Given the Court’s determination that loss occurs at the point in time when the insured property is damaged, the phrase “in any sequence” conflicted with other provisions of the USAA policy, creating ambiguity. The provisions, which allowed USAA to determine the value of covered property at the time of a loss or the instant immediately preceding it, irreconcilably conflicted with the “in any sequence” language. Because the phrase had two interpretations, equally reasonable, the rules of contract interpretation mandated the interpretation that gave the Corbans greater indemnity. Thus, the Court concluded that the “in any sequence” language in the policy could not be used to divest the Corbans of their right to be indemnified for covered losses.

In sum, the Court explained that different perils from a hurricane generally, but not without exception, result in separate damage and loss. The ACC clause applies only “if and when covered and excluded perils contemporaneously converge, operating in conjunction, to cause damage resulting in loss to the insured property.” If the insured property is separately damaged by a covered or excluded peril, the ACC clause does not apply. If the Corban’s property first suffered damage from wind, resulting in a loss, whether additional “[flood] damage” occurs was of no consequence, as they would have suffered a compensable wind-damage loss. Conversely, if the property was first damaged by flood, resulting in a loss, and then wind damage occurred, they could only recover for losses attributable to wind. Those issues were for a jury to decide.

(3) Which party bears the burden of proof.

Generally, under all-risk policies, the insured has the initial burden to prove that the loss occurred. The burden then shifts to the insurer, to prove any affirmative defense. Accordingly, the Corbans are required to prove a “direct, physical loss to property described.” Thereafter, USAA has the burden to prove, by a preponderance of the evidence, that the losses are excluded by the policy as flood damage.

Court Slip Opinion