Policyholders Win Flood v. Wind Issue
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Insurance companies have long sought to avoid liability for hurricane damage to property they insure by claiming that a hurricane loss was caused by flood rather than wind.
It did not matter whether the initial loss was clearly caused by wind. If, after that initial wind loss, a flood occurred insurance companies could many times escape their liability by arguing that because the policy holder could not prove whether damage was caused exclusively wind that the policyholder did not prove its case.
The Supreme Court of Mississippi in an October 8, 2009 opinion made it much harder for insurance companies to avoid such claims in the state of Mississippi.
The case, Corban v. USAA held in essence that if an insurer sells a homeowners policy labeled "all risk", it cannot apply ambiguous or contradictory exclusions to deny a claim.
In addition, it held that :"If the property suffered damage from wind, and separately was damaged by flood, the insured is entitled to be compensated for those
losses caused by wind. Any loss caused by '[flood] damage' is excluded. If the property
first suffers damage from wind, resulting in a loss, whether additional '[flood] damage'
occurs is of no consequence, as the insured has suffered a compensable wind-damage loss.
Conversely, if the property first suffers damage from flood, resulting in a loss, and then wind
damage occurs, the insured can only recover for losses attributable to wind."
The defendant insurance company had argued that the wind and flooding losses were indivisible and that because flood damage was excluded, there could be no recovery. The court rejected this argument.
Significantly, the court also ruled that after the policyholders prove that their property was damaged, the burden shifted to the defendant insurance company : "to prove by a
preponderance of the evidence, that the causes of the losses are excluded by the policy, in
this case, '[flood] damage.'”
Read commentary on the case by the lawyers who represented the policyholders.