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To protect against a catastrophic loss, homeowners prudently calculate what it would cost to completely rebuild at today’s prices, insure their property against wind damage for at least that amount and purchase flood insurance and also additional coverage for their home’s contents.
Ready for the hurricane? There is a potential problem. It lies in the wording of the “anti-concurrent causation” clause contained in most of the insurance policies issued today, including those of the South Carolina Wind and Hail Association (the wind pool). It reads something like this:
“We do not cover loss to any property resulting directly or indirectly from any of the following. Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss. . . “Loss resulting from water or water-borne material damage described below is not covered even if other perils contributed, directly or indirectly to cause the loss. “Water and water-borne material damage means. . . flood, surface water, waves, tidal waves, overflow of a body of water, spray from these, whether or not driven by wind."
What does this language mean? According to an insurance company officer who testified in federal court in a post-Katrina case, it means that the company did not have to pay claims for property destroyed by wind if the property had been also touched by water -- even in cases where the wind damage occurred first and the flooding took place long after.
Efforts of insurers after Hurricane Katrina to avoid paying damages they claimed were from flooding produced numerous high-profile, class action lawsuits. The rulings of the United States District Court will affect future claims settlements. Where damage is caused by flooding, the insurer does not have to pay because the policy excludes water damage. The anti-concurrent liability language in insurance policies is ambiguous; the more reasonable interpretation is that the policy covers that portion of the damage caused by wind and does not cover that portion of the damage caused by water. Accordingly, insurers cannot cancel coverage for wind damage simply because it occurs with water damage. In seeking to enforce the flood exclusion, the insurance companies bear the burden of proof. Where damage is from both wind and water, insurers have to provide evidence sufficient to allow a jury to segregate the two causes. If that evidence is insufficient to segregate the two, the insurer has to pay the full value of the policy. In attributing losses to wind, however, policyholders bear the burden of evidence.
Remember how things were after Hurricane Hugo? The center of the eye arrived at the South Carolina coast just before midnight on the night of September 21-22, 1989. Just before it crossed Sullivan’s Island near Breach inlet a high-level measurement recorded 161 mph winds at 12,000 feet. Estimates put Hugo’s ground level sustained winds as high as 138 mph, with higher level gusts. Not a single one of the 923 buildings on Sullivan’s Island escaped damage. More than 60 were totally destroyed.
Hugo confronted insurance companies with the greatest property loss from any natural disaster in American history to that time. Companies responded quickly, in a relatively short period mobilizing resources and sending some 3,600 adjusters into damaged areas to handle some 340,000 claims, an effort South Carolina’s Chief Insurance Commissioner would later describe as “the insurance industry's finest hour.”
In the aftermath of the storm, the authors, Sullivan’s Island residents, obtained a series of grants from The Citadel Development Foundation to undertake a comprehensive survey of the hurricane experience. One part of the research dealt with perceptions of treatment by insurance companies.
Some findings:
While three out of every four insurance claims were settled within four months, only half of the people were satisfied with their settlements. One policyholder in four was either dissatisfied with the settlement or indifferent. More than a quarter had not been compensated for losses they thought their policies covered. Another quarter reported the information they received about their damage differed from adjuster to adjuster. One policyholder in every eight took some action such as hiring an attorney, contacting the media, writing the state insurance commission, or hiring an engineer to substantiate their damage claims. Some did all of the above. Six months after the hurricane, one policyholder in every three had changed insurance companies.
The post-Hugo insurance experience was extremely stressful. Asked to rank events that had severely impacted their lives, more than one-third of those surveyed put dealing with insurance companies at the top of their list, ahead of the shock of a death in the family or divorce.
The most difficult post-Hugo problems arose where dwellings were totally destroyed or knocked off their foundations. It was difficult to tell whether wind or water had been the primary cause of damage. Many people felt whipsawed as adjusters for wind carriers said homes had been damaged or destroyed by water and flood policy adjusters said the opposite. Many of these wind/water causation disagreements were resolved after a team of volunteer civil engineers from Clemson University, The Citadel, USC and elsewhere presented in an open meeting on the island convincing evidence that the important initial damage had been caused by the hurricane winds that breeched the structures, removed roofs and collapsed walls. The later arriving tidal surge floated and scattered the debris. In short, the engineers gave policyholders expert evaluations to enable them to successfully attribute damage to the correct source.
The “anti-concurrent causation” clause in most of today’s insurance policies and the court decisions in the post-Katrina cases have made things more difficult for policyholders who will be engaged in future disputes over wind versus water damage.
The homes in Figure 1 were photographed a month or so after Hurricane Hugo. Apportioning the damage in cases such as these appears relatively straightforward because the major damage was clearly caused by wind.
The homes shown in Figures 2 and 3 were photographed at the same time. Reduced to rubble, what proportion of the destruction was caused by wind? The tidal surge? If moved from their foundations by water, were the structures heavily damaged by wind first? If so, is there a basis for claiming wind damage? Were homes blown off their foundations or did they float off? Did wind separate the roof from the structure before the tidal surge moved the home? How does anyone know? It will be important for the right decisions to be made after future storms because a lot of money is at stake. You can buy as much wind insurance as you feel you need. The flood insurance maximum, $250,000, will not rebuild many coastal homes.
While the post-Katrina litigation is establishing a framework within which future claims will be adjusted, that process is by no means complete. Developments thus far raise many questions.
At present, in South Carolina, most private insurers and the South Carolina Wind and Hail Association (the wind pool) have protected themselves against having to pay for flood damage by including anti-concurrent causation language in their policies. But as the post-Katrina litigation along the Gulf Coast has shown, insurers can use this clause aggressively to calculate wind/water damage disputes to their advantage.
We already know that the post-Hugo insurance process was stressful. As the insurance claim process after a future storm promises to be more complicated and potentially more contentious, there is a clear public interest in The State of South Carolina doing several things now. For this to happen, people must voice their concerns.
First, people need to become more aware of the implications of the concurrent liability clause. This can be accomplished through legislation, insurance commission guidelines, and a proactive government program to inform policyholders. And of course, insurance policies should be written in language the lay person can understand. In addition, the State should reinforce recent court decisions by declaring that in no case will an anti-concurrent liability clause be applied to deny wind coverage solely on the basis that flood damage occurred concurrently or sequentially.
The public needs to know how claims adjusters will go about their work, particularly how they will separate wind and water damage. That information is not readily available now. The Rates, Rules and Forms Manual of the South Carolina Wind and Hail Association states that when a major combined wind and flood event takes place, the SCWHA will implement a single adjuster program. But the insurance policies issued by the SCWHA do not reference this program and the Manual does not offer any insight into the methods by which an adjuster will allocate the proportions of damage attributable to wind and flooding. These things need to be spelled out and in public view. Once this is done, the language could also serve as a template to provide guidance to private insurers on how the State of South Carolina expects private insurers to proceed in the claims adjustment process. Improving the claims adjustment process will be one important step in successfully dealing with the pre- and post-hurricane stress people will face. Individual wind and water damage claims can be justifiably arguable. For example, in the case where only the slab remained, were Hurricane Hugo’s winds strong enough to completely destroy the structure before the tidal surge arrived? Both sides could find experts to argue their case. Some, pointing to the Category-5 high-level wind measurement and estimates of Category-4 ground level sustained winds, would answer, “Yes.” Others, noting the shortage of direct, on-site measurements, would cite a report from respected sources to argue that Hugo was barely a Category-1 in Charleston and answer, “No.”
Good data will be needed after a major natural disaster to facilitate the handling of claims. Everybody will benefit from having it available. As citizens we need to be proactive in voicing support to South Carolina lawmakers to begin identifying experts in a variety of disaster-related fields such as engineering, geography, computer modeling, transportation and communication to form task force teams to compile accurate information on wind speeds, water levels and other factors affecting wind and flood damage at storm locations. Their training and organization need to be provided for now. This proactive measure will enable resource groups to move quickly into disaster-affected areas to compile the data policyholders and insurance companies need when they need it most – immediately after the next major hurricane hits our coast.
 Dorothy Perrin Moore completed her Ph.D. at the University of South Carolina. She is an Emeritus Professor of Business Administration at The Citadel, where she held the title of Distinguished Professor of Entrepreneurship. In 2005 she was elected a Fellow in the United States Association of Small Business and Entrepreneurship. Her book Careerpreneurs,Lessons from Leading Women Entrepreneurson Building A Career Without Boundaries, received the 2000 ForeWord Magazine Book-of-the-Year Award in the field of Business.
 Jamie Wallace Moore, an Emeritus Professor of History at The Citadel, where he was a Citadel Development Foundation Faculty Fellow, completed his Ph.D. at the University of North Carolina-Chapel Hill. He is a former member of the United States Department of the Army Historical Advisory Committee, a past president of the South Carolina Historical Association. His recent collection of his father’s stories, GrowingUp in Davie County, ReflectionsFrom One Hundred Years Ago, published by the History Press, received an Honorable Mention in the 2005 ForeWordMagazine Book-of-the-Year Awards.
Their recent book, Island in the Storm: Sullivan’s Island and Hurricane Hugo, published last year by The History Press, is a finalist in the 2006 ForeWord Magazine Book-of-the-Year Awards in the field of Local History.
The language is from a Nationwide Homeowners Policy in force prior to Nationwide’s cancellation of coverage on the barrier islands.
Joseph B. Treaster, “The Devil in the Details: A Small Insurance Clause Is a Big Issue in Hurricane Claims,” New York Times, August 4, 2006; Associated Press, “State Farm Settles Katrina suit,” Wall Street Journal, March 21, 2007, D3. Reporting on a case in Mississippi, Treaster quotes this exchange between the homeowners’ attorney, John Griffin Jones, and a Nationwide executive. Treaster writes, Mr. Jones, “raised the prospect of a tree theoretically crashing through the roof of a house and rain water pouring in. If nothing else happened, all the damage would be covered. But, Mr. Jones asked, if a storm surge came two hours later and flooded the house, would everything below the water line be excluded from coverage? “Yes, sir,” Jeffrey Kline Gilbert, an executive in charge of Katrina claims at Nationwide, replied. “Under the anti-concurrent clause provision, right?’’ Mr. Jones asked. “Yes, sir.’’ “How is a guy like . . . going to know that when he is buying one of these policies? How is he going to know it is going to get that technical that you have an anti-concurrent clause provision that if any water touches the property, he is on his own?’’ “First,’’ Mr. Gilbert said, “by reading the policy.’’
Buente v. Allstate Property & Insurance Co. No. 1:05 CV 712 LTS JMR; Tuepker v. State Farm Fire & Casualty Co., No. 1:05 CV 559 LTS JMR; Leonard v. Nationwide Insurance Co., No. 1:05 CV 475 LTS-RHW; Broussard v. State Farm Fire & Casualty Co., No. 1:06 CV 00006 LTS-RHW.
Jamie W. Moore and Dorothy Perrin Moore, Island in the Storm: Sullivan’s Island and Hurricane Hugo (Charleston: The History Press, 2006), p. 107.
The research resulted in a series of peer-reviewed publications, one of which, “Insurance Company Effectiveness Under Extreme Conditions: Lessons from a Consumer Test,” Group and Organization Management. 20:3 (1995), pp. 355-380, bears directly on the topic of this article. More recently, the authors re-examined the data and undertook additional research in preparation for the publication of Island in the Storm.
Rates, Rules, and Forms Manual of the South Carolina Wind and Hail Underwriting Association, June 2006 edition, pp. I-7, IX 1-2..
Moore and Moore, Island in the Storm, p. 177.
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