When disaster strikes it seems to happen all at once. Electric
lines spark, windows shatter, roofs tear off, sump pumps stop and
the lights go out. Homeowners see it this way. Insurance companies
-- and often the courts -- see it differently.
Major disasters such as hurricanes create huge losses for
property-casualty insurers, which don't want to pay out any more
than necessary. Private insurers have already abandoned the flood
insurance market, passing that responsibility on to the
government's Federal Emergency Management Agency (FEMA). And, very
quietly, insurers have been inserting a tongue twister called an
anti-concurrent causation (ACC) clause into their homeowners'
The ACC "allows insurance companies to skirt around disaster
coverage," says Jacqueline Young in the
Hastings Law Journal
The chicken or the egg?
There are nearly as many interpretations of the anti-concurrent
causation clause as there are federal and state courts, but ACC
usually means that if two losses occur at the same time and one of
covered by insurance, the other won't be either.
For example: You probably have a homeowner's policy that covers
you for wind damage. But if your house is destroyed by a wind and
flood event (such as a hurricane), the ACC clause can put the
kibosh on your entire claim. And the flood damage is only covered
if you have a separate flood insurance policy. Here are
home insurance basics
The ACC is the classic "which came first, the chicken or the
egg?" quandary that has been stumping courts. Now it is causing
anguish to disaster victims of Superstorm Sandy.
The ACC clause has been a small part of voluminous home
insurance policies each year since at least the 1980s, says
New York Times
. But insurers and homeowners alike didn't pay much attention until
2005, when Hurricane Katrina walloped the Gulf Coast, costing
insurers an estimated $38 billion in claims.
Homeowners who fled
Katrina struck and whose homes were leveled to the slab couldn't
tell whether wind or water, or both concurrently, caused the
'Ambiguous . . . and unenforceable'
Numerous court disputes erupted between homeowners and insurance
companies, and court decisions changed as often as the weather. But
U.S. District Court Judge L.T. Senter, who presided over nearly
1,500 Mississippi cases, issued
a key ruling
that -- ironically -- was applauded by both sides.
Judge Senter ruled that victims of Katrina
claim damages from private insurers if they could prove the damage
was caused by wind, but
claim damages caused by water unless they had flood insurance. As
for the ACC clause, Judge Senter dismissed it as "ambiguous … and
Despite this, many, if not most, property insurers still squeeze
an ACC clause into their home and business insurance policies, say
lawyers for disaster victims.
"Chances are you'll see it if you look hard enough," says
William "Chip" Merlin, whose law firm helped win a key decision on
Katrina coverage in Mississippi's state supreme court. "Check in
section of your contract."
The typical ACC clause reads like the one insurer Nationwide put
into its policies and which Judge Senter called ambiguous: "We do
not cover loss to any property resulting directly or
from any of the following [excluded perils]. Such a loss is
excluded even if another peril or event contributed concurrently or
in any sequence to cause the loss."
Not only have ACC clauses been part of homeowners policies in
recent years, they've also been expanded and the legalese
surrounding them tightened because insurers have won court
Consumer advocate Amy Bach, executive director of United
Policyholders, a non-profit consumer organization, says, "We've won
a couple of cases in state courts. But federal courts are generally
more conservative and most of our wins were wiped out." In federal
court a contract is a contract, plaintiffs' lawyers say, even if
the homeowner didn't understand it.
Insurers also employ a "wearing-down effect." The effort needed
to fight an anti-concurrent causation clause results in more
hurricane victims, already suffering from the loss of their homes
and financially strapped, choosing to settle rather than fight,
particularly if they have to hire both a lawyer and a claims
that the wind came before the water.
"Litigants may not live to see their cases decided," said
Philadelphia attorney Randy Maniloff in his analysis of the
Insurer vs. insured
Robert Hartwig, president of the Insurance Information Institute
(III), which represents the property-casualty industry, says that
without exclusionary clauses like the ACC rates would go up for
everyone and availability of home insurance will decline. Insurers
also lose "the benefit of certainty and predictability" in their
calculation of future losses, according to one California case in
which they were successful.
But opponents argue that the more certainty insurers have, the
less certainty homeowners have. "The insurer gains the benefit at
the expense of the insured," says Ron Reitz, president of the
National Association of Public Insurance Adjusters.
Reitz also rejects the argument that leaving ACC clauses in
policies cuts costs for policyholders. "I do not see premiums being
reduced with this reduction in coverage," he says.
Other critics of the ACC, like the Consumer Federation of
America (CFA), argue that -- - legal or not - an ACC clause is "bad
public policy" because it gives insurers a "trapdoor" to get out of
offering the basic coverage that policyholders expect and paid for,
says a study by Kimberly Myers at the University of Maryland.
The CFA has asked states to block ACC, but so far only
California, West Virginia and Washington have restricted its use,
Sandy follows Katrina
None of the states that limit use of ACC are among those
pummeled last year by Superstorm Sandy, which cost $70 billion in
damages, mostly in New York and New Jersey, and even left the III
offices in the dark for almost a week. The III says that 93 percent
of all claims from the October 2012 storm have been resolved with
insurance payouts totaling almost $19 billion.
But there are a lot of dissatisfied customers. Insurers rejected
thousands of business claims, says the
New York Daily News
reports "a growing number" of homeowners are seeking legal
Lawyers like Merlin say victims of Sandy might do better if they
float the remains of their homes from New York to New Jersey. He
and others representing clients in both jurisdictions say New York,
which is home to many property-casualty insurers, tends to be a
"conservative, insurance-friendly state" while New Jersey's
judiciary is "consumer-friendly."
In court, plaintiffs' lawyers are likely to claim negligence:
Insurance agents and brokers didn't explain what an ACC clause is.
According to one estimate at this year's s annual III meeting, less
than half of those who buy a home insurance policy actually u
what is included in their coverage. Even the chief executive of The
Hartford, Liam McGee, said that agents haven't done a good enough
job explaining their products.
Policyholders victimized by ACC and other legal language
probably should have shopped around for a policy with fewer
restrictive clauses, kept better track of their losses and, if
possible, remained in their home with a measuring tape, camera and
stopwatch to record what damage occurred at what time by wind and
But all that is water under the floor, so to speak. Now the only
answer may be to challenge your insurer in court, using a lawyer
and an independent claims adjuster.
Even if the case is lost, it could be won later in another
court. Since insurance is state-run, a state court decision may
trump a federal one, as it did in Mississippi. The whole issue is
now so "bastardized," in the words of Mark Bell in the
Connecticut Insurance Law Journal
, that lawyers seeking to find precedents will instead find an
Other states, other perils
If New York courts decide in favor of insurers, policyholders
may still have the last word. New York Gov. Andrew Cuomo appointed
J. Robert Hunter, CFA's director of insurance and a critic of
tactics such as ACC, to a commission on natural disasters. And the
state's Department of Financial Services says it is watching the
situation and will "intervene" if the issue becomes
The more people hurt by ACC, the more likely politicians will
take action, says Bach. Although Californians don't face
hurricanes, earthquakes and mudslides are considered "uncovered
perils." So it comes as no surprise that California has one of the
nation's tightest restrictions on ACCs.