Hurricane Laura: What Can Insurers Expect with Claims in Texas and Louisiana?

Based on our experience with prior hurricanes, here are answers to the most common questions we expect to see.

Both states enforce “unambiguous” flood exclusions and define terms by their plain language meanings. However, there will likely be public pressure on courts to find coverage.

Texas courts “presume parties intend what the words of the contracts say.”³ Consequently, “[i]n determining a question of insurance coverage, [Texas courts] look first to the language of the policy.”⁴ Texas courts “give the policy’s terms ‘their ordinary and generally-accepted meaning unless the policy shows the words were meant in a technical or different sense.’”⁵ “If a contract as written can be given a clear and definite legal meaning, then it is not ambiguous as a matter of law.”⁶ Therefore, so long as a flood exclusion is unambiguous, a Texas court will enforce it.⁷ However, “[t]erms in insurance policies that are subject to more than one reasonable construction are interpreted in favor of coverage.”⁸

Louisiana courts will similarly enforce unambiguous flood exclusions. In interpreting such exclusions, Louisiana courts give the word “flood,” when undefined in the policy, its “plain, ordinary” meaning.⁹ The Louisiana Supreme Court has held that the plain and ordinary meaning of flood “is the overflow of a body of water causing a large amount of water to cover an area that is usually dry.”¹⁰ This meaning encompasses both man-made and natural causes of flooding.¹¹ As such, Louisiana courts enforced unambiguous flood exclusions in Hurricane Katrina cases.¹²

The Fifth Circuit has addressed these types of endorsements a handful of times, primarily in cases arising out of hurricane-related flooding claims. Those cases have generally found that the endorsement is enforceable if the insurer properly calculates the deductible.¹³

However, we note that the Fifth Circuit has reached conflicting conclusions on the issue of applying flood sub-limits to the loss, depending on the specific policy language involved. For instance, one Fifth Circuit case addressed differing primary and excess policies to determine whether the flood sub-limits applied to losses arising out of Hurricane Katrina.¹⁴ The Fifth Circuit reached two different conclusions based on the precise language in the policies. It found that the language in certain policies created an ambiguity as to whether the flood sub-limit applied to the flood damage caused by hurricane, while the language in other policies unambiguously established that the flood sub-limit applied to all damage arising out of Hurricane Katrina.

This year, the Fifth Circuit decided a Hurricane Harvey case involving competing deductibles. In Pan Am Equities, Inc. v. Lexington Ins. Co., a policy had two competing deductibles — a $100,000 deductible for “flood” losses, and a much higher named storm deductible of 5 percent of the total insurable values at the time of loss at all locations involved in the loss or damage.¹⁵ The policy also included an anti-stacking clause indicating “if multiple deductibles apply, then the largest one trumps.”¹⁶ The court enforced the named storm provision, which it interpreted to cover “all loss” due to the storm, including Hurricane Harvey’s flood damage.¹⁷

Based on the foregoing, assessing how a court will treat a named-storm endorsement will likely depend on the specific language of the endorsement itself and the contents of the rest of the policy.

Texas courts follow the concurrent causation doctrine, while Louisiana courts adopt the efficient proximate cause doctrine as the default rule.

Texas recognizes the common-law doctrine of concurrent causation. Under the doctrine of concurrent causation, “[w]hen covered and excluded perils combine to cause an injury, the insured must present some evidence affording the jury a reasonable basis on which to allocate the damage.”¹⁸ Thus, an insured is able to recover only for damage caused by a covered peril.¹⁹ The burden is on the insured to plead and prove coverage under a policy.²⁰ “[F]ailure to segregate covered and noncovered perils is fatal to recovery.”²¹ Thus, if flood damage is excluded, then non-excluded surface water damage may be covered, and there will be an allocation.

In Louisiana, the efficient proximate cause doctrine is the default rule.²² In that regard, courts will look to the dominant and efficient cause of the loss.²³ In Roach, the Louisiana Supreme Court held “it is sufficient, in order to recover upon a windstorm insurance policy not otherwise limited or defined, that the wind was the proximate cause or efficient cause of the loss or damage, notwithstanding other factors contributing thereto.”²⁴

Yes, if they are unambiguous.

In JAW The Pointe,²⁵ the Supreme Court of Texas held that anti-concurrent causation clauses are enforceable. There, the clause at issue provided: “Lexington will not pay for any ‘loss or damage caused directly or indirectly by any’ excluded cause or event, ‘regardless of any other cause or event that contributes concurrently or in any sequence to the loss.’”²⁶ The Supreme Court of Texas stated: “[U]nder Texas law, the anti-concurrent causation clause and the exclusion for losses caused by flood, read together, exclude from coverage any damage caused by a combination of wind and water.”²⁷

Louisiana courts recognize that “insurance companies and their insured may opt-out of the efficient proximate cause doctrine by contract.”²⁸

Analysis of sewer back up claims will be a policy-by-policy analysis that must focus on whether the policy expressly excludes or includes damage caused by water that backs up from a sewer. Policies that use the standard ISO form language contain a standard “water” exclusion that expressly excludes any loss or damage from flood and surface water, which then also excludes damage caused by water that backs up from a sewer or drain. Yet, other policies expressly cover direct loss or damage from water or waterborne material that backs up through a sewer pipe or drain pipe.

Texas courts...