Fifth Circuit Issues Important Katrina Coverage Decision in Broussard
On April 7, 2008, the Fifth Circuit Court of Appeals issued another important opinion in the coverage disputes arising out of Hurricane Katrina. In Broussard v. State Farm Fire and Cas. Co., the Fifth Circuit examined several rulings made by District Judge L.T. Senter.
In Broussard v. State Farm Fire and Cas. Co., Slip Copy, 2007 WL 113942 (S.D. Miss. 2007), Judge Senter directed a verdict for the plaintiffs on the issue of whether all-risk coverage language required State Farm to prove which portion of the loss was caused by wind and which portion was caused by water. In Broussard, State Farm’s expert was testified that there was a 75% probability that somewhere between 0% and 35% of the damage was caused by wind. However, State Farm denied the claim on the basis that the property was completely destroyed by the storm surge and there was a flood exclusion in State Farm’s policy. Judge Senter held as follows:
- Because plaintiffs met their burden by stipulation to prove a loss caused by wind damage, the burden of proof shifted to State Farm to establish, by a preponderance of the evidence, that portion of the total loss that was caused by flood rather than wind. The policy obligated State Farm to pay any portion of the loss that it could not prove by preponderance of the evidence was caused by flood.
- Because State Farm did not introduce evidence from which any finder of fact could reasonably determine which part of the loss was attributable to water as opposed to wind, no reasonable juror could find that State Farm met its burden of proof. Therefore, Judge Senter award the limits of insurance based on the stipulation that plaintiffs’ house was totally destroyed and that wind caused some part of the damage.
Broussard, 2007 WL 113942 at *3. Judge Senter also directed a verdict that State Farm lacked a legitimate or arguable reason for its decision to deny the claim and instructed the jury to consider awarding punitive damages against State Farm. The jury returned a punitive damage award for 2.5 million dollars, which Judge Senter subsequently reduced to one (1) million dollars.
A recent district court opinion took the approach to burden allocation that many anticipated from the Fifth Circuit’s Broussard opinion. In Legacy Condominiums, Inc. v. Landmark American Insurance Company, the Court wrote, “[i]f the insurer shows an exclusion applies, the burden shifts back to the insured to establish an exception to the exclusion.” The Court added, “[a]lthough the Mississippi Supreme Court has never spoken directly on point, authority from the Fifth Circuit supports the proposition that the burden returns to the insured.” Id. (citing Guaranty Nat. Ins. Co. v. Vic Manufacturing Co., 143 F.3d 192, 194 (5th Cir. 1998)). However, in the Broussard appeal, the Fifth Circuit focused on the Mississippi Supreme Court’s Hurricane Camille opinions and reached a different conclusion.
The Fifth Circuit reversed and affirmed Judge Senter’s decisions as follows:
- The Fifth Circuit reversed Judge Senter’s JMOL against State Farm. The Fifth Circuit found that there was sufficient evidence on both sides of the causation questions such that a reasonable juror could have found in favor of either party. Accordingly, the jury and not the Court should have decided the causation and related liability questions.
- Perhaps most significantly, the Fifth Circuit rejected State Farm’s burden shifting approach to causation questions in this context. The Court cited several Mississippi cases holding that the burden does not shift back to the insured once the insurer has provided proof of damage caused by an excluded peril under a “named peril” policy. The Fifth Circuit then extended that logic by way of an Erie guess to causation analysis under an “open peril” policy. The Court suggested that the proper procedure is to instruct the jury on the burdens of both parties, the insured and the insurer, and then to leave causation questions in the hands of the properly instructed jury.
- The Fifth Circuit held that Judge Senter erred in issuing a punitive instruction based on State Farm’s conduct in adjusting the claim. The Court found that while State Farm should be liable for any wind damage caused prior to the storm surge, its conduct in denying coverage did not rise to the level of malice necessary to justify punitive damages. Notably however, the Court suggested that other extracontractual damages (attorneys’ fees, court costs, etc…) may be appropriate on remand
- The Fifth Circuit affirmed Judge Senter’s denial of State Farm’s transfer of venue motion. The Court took note of the detailed voir dire procedure employed by the Court and was satisfied that Judge Senter did not abuse his discretion in denying State Farm’s motion, which was based primarily upon pre-trial publicity related to Hurricane Katrina.
Note that the anti-concurrent causation (“ACC”) clause was not a factor in Broussard because, as the Fifth Circuit observed, State Farm waived it as an affirmative defense. Therefore, Broussard should be considered along with the Fifth Circuit’s opinions in Tuepker v. State Farm Fire & Casualty Co., 507 F.3d 346 (5th Cir. 2007) and Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007), both of which involved the operation of ACC clauses.
For more information, contact David Pharr or Alex Purvis.
