Tuepker v. State Farm Fire Cslt

REVISED November 28, 2007
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 6, 2007
No. 06-61075
Charles R. Fulbruge III
Clerk
John and Claire Tuepker
Plaintiffs-Appellees-Cross-Appellants
v.
State Farm Fire & Casualty Company
Defendant-Appellant-Cross-Appellee
Appeal from the United States District Court
for the Southern District of Mississippi
Before GARWOOD, JOLLY, and STEWART, Circuit Judges.
GARWOOD, Circuit Judge:
This case arises from the unprecedented destruction brought to the
Mississippi Gulf Coast by Hurricane Katrina in August 2005. The hurricane
completely destroyed the home of plaintiffs-appellees-cross-appellants, John and
Claire Tuepker (“the Tuepkers”). Their residence and the property contained
therein were insured by defendant-appellant-cross-appellee, State Farm Fire
and Casualty Company (“State Farm”). When State Farm refused to
compensate the Tuepkers for their losses, the Tuepkers on November 21, 2005
sued State Farm in the district court below, federal jurisdiction being based on
diversity of citizenship. State Farm filed a motion to dismiss the complaint
No. 06-61075
under FED. R. CIV. P. 12(b)(6). The district court denied the motion. This
interlocutory appeal is before us under 28 U.S.C. § 1292(b).
CONTEXT FACTS AND PROCEEDINGS BELOW
(a) Proceedings
The Tuepkers’ complaint identified their State Farm issued “Homeowner’s
Policy,” with policy period August 9, 2005 to August 9, 2006, and attached a
“representative copy of the subject policy.” The complaint alleged, inter alia,
that “[o]n August 29, 2005 . . . the insured residence and the personal contents
therein were completely destroyed by hurricane wind, rain, and/or storm surge
from Hurricane Katrina . . . This loss was covered under the subject policy.
There is nothing left of the insured residence or contents but a slab.” The
complaint further included the allegations that
“. . . regardless of whether the total damage to Plaintiffs’ insured
property was caused by hurricane wind, storm surge proximately
caused by hurricane wind, or both, the so-called ‘flood’ exclusion,
which State Farm defines in the subject policy and in its denial
letter as ‘flood, surface water, waves, tidal water, tsunami, seiche,
or overflow of a body of water, or spray from any of these, all
whether or not driven by wind,’ is not applicable here and in any
event, is modified by the ‘Hurricane Deductible’”
and that “[t]his ‘flood’ exclusion is ambiguous and deceiving when read in
conjunction with . . . the ‘Hurricane Deductible’.” The relief sought in the
complaint includes, inter alia, declaratory relief, and the declarations sought
include a declaration “that any damage to Plaintiffs’ insured residence and
property caused by ‘storm surge’ is not excluded under the subject policy” and
“that the subject policy’s ‘flood’ exclusion is not applicable and is ambiguous.”
State Farm, in late December 2005, filed a motion to dismiss the complaint
under FED. R. CIV. P. 12(b)(6) and 9(b) asserting, inter alia, that in respect to the
declaratory relief sought, the complaint “fail[s] as a matter of law, because the
claims for insurance coverage are barred by the plain language of the Plaintiffs’
policy,” that the policy’s “water damage exclusion is valid and enforceable, and
2
No. 06-61075
unambiguously excludes losses that would not have occurred ‘in the absence’ of
water damage” and “applies to water damage from ‘hurricane’ and ‘storm surge’,”
and that “[t]he hurricane deductible endorsement does not provide coverage for
hurricane damage not covered under the policy, including ‘storm surge’ damage,
nor does it render the policy ambiguous.”
The district court, in its May 23, 2006 order, denied State Farm’s motion
to dismiss “in accordance with” its Memorandum Opinion of the same date, in
which the court, inter alia, construed, as a matter of law, a number of the
relevant provisions of the State Farm policy, primarily including the policy’s
“Water Damage” exclusion clause and the clause, which introduces that and
other related exclusions, commonly known as the “anti-concurrent-causation
clause” or “ACC Clause.” The court also addressed the policy’s hurricane
deductible endorsement and its personal property coverage “windstorm or hail”
peril, as well as the burden of proof. The opinion holds that “interpretation of
the terms of an insurance policy present questions of law, not fact” and that
“where the terms of an insurance policy are clear and unambiguous, they are to
be enforced as written.” It further holds that
“Losses directly attributable to water in the form of a ‘storm
surge’ are excluded from coverage because this damage was caused
by the inundation of plaintiffs’ home by tidal water from the
Mississippi Sound driven ashore during Hurricane Katrina. This is
water damage within the meaning of that [the ‘Water Damage’]
policy exclusion. The exclusion found in the policy for water damage
is a valid and enforceable policy prevision.
...
Under applicable Mississippi law, where there is damage
caused by both wind and rain (covered losses) and water (losses
excluded from coverage) the amount payable under the insurance
policy becomes a question of which is the proximate cause of the
loss. To the extent that the State Farm policy is inconsistent with
3
No. 06-61075
this settled rule of Mississippi law, the exclusionary language is
invalid.”
The court also held the “anti-concurrent-causation clause” ambiguous and
ineffective to exclude damage proximately caused by wind or rain, stating:
“I also find that the language in the State Farm policy that
introduces subsection 2 of SECTION I - LOSSES NOT COVERED
is ambiguous. The provisions in question purport to exclude from
coverage losses that would otherwise be covered, such as wind
damage, when that covered loss happens to accompany water
damage (an excluded loss).
...
I find that this language in the State Farm policy creates
ambiguities in the context of damages sustained by the insured
during a hurricane. These provisions purport to exclude coverage
for wind and rain damage, both of which are covered losses under
this policy, where an excluded cause of loss, e.g. water damage, also
occurs. I find that these two exclusions are ambiguous in light of
the other policy provisions granting coverage for wind and rain
damage and in light of the inclusion of a ‘hurricane deductible’ as
part of the policy.
To the extent that plaintiffs can prove their allegations that
the hurricane winds (or objects driven by those winds) and rains
entering the insured premises through openings caused by the
hurricane winds proximately caused damage to their insured
property, those losses will be covered under the policy, and this will
be the case even if flood damage, which is not covered, subsequently
or simultaneously occurred.”
The court further held that State Farm had “the burden of proving that
the [Water Damage] exclusion applies to the plaintiffs’ claims.”
State Farm, after the court denied its motion to alter or amend, then
moved the court to certify to this court under section 1292(b) its May 23, 2006
order and opinion as involving the controlling legal question of whether “the
anti-concurrent cause language in State Farm’s homeowner’s policies is
4
No. 06-61075
ambiguous and unenforceable.” The Tuepkers opposed the motion as limited to
that one particular issue but acknowledged that the criteria for section 1292(b)
certification were met “provided . . . that all of the rulings made by the Court on
the substantive legal issues surrounding interpretation of the State Farm
contract are also certified for appeal.” Thereafter, the district court, on
September 27, 2006 issued its order certifying under section 1292(b) its May 23,
2006 order and opinion interpreting the State Farm policy in the noted respects
as involving controlling questions of law as to which there is substantial ground
for difference of opinion and that an appeal will materially advance the ultimate
termination of the litigation.1 The order states that “This certification is limited
to the interpretation of the various provisions of the subject insurance policy
under the factual circumstances presented.”
In October 2006, both State Farm and the Tuepkers timely filed with this
court their respective petitions for permissions to appeal under FED. R. APP. P.,
Rule 5, and on November 21, 2006 a motions panel of this court granted those
petitions.2
(b) Policy provisions
The State Farm homeowner’s policy had two relevant property coverage
provisions. These are contained in its “SECTION I - YOUR PROPERTY
COVERAGES” and are as follows:
“SECTION I - LOSSES INSURED
1
The order notes, inter alia, that in the May 23 opinion: “The Court determined that
the water damage exclusion is valid and that storm surge is nothing more than a flood, but
that the anti-concurrent cause clause (especially when combined with a hurricane deductible
endorsement) does not negate coverage for damage which is caused by the covered risk of wind.
In addition, this Court held that Plaintiffs bear the burden of proving allegations that
hurricane wind (and resulting damages when the direct force of wind causes an opening in a
roof or wall and the rain enters through this opening), while the exclusion is an affirmative
defense on which the Defendant carries the burden.”
2
Thereafter, the district court stayed further proceedings before it pending resolution
of the appeal.
5
No. 06-61075
COVERAGE A - DWELLING
We insure for accidental direct physical loss to the property
described in Coverage A, except as provided in SECTION I -
LOSSES NOT INSURED.
COVERAGE B - PERSONAL PROPERTY
We insure for accidental direct physical loss to property described
in Coverage B caused by the following perils, except as provided in
SECTION I - LOSSES NOT INSURED.”
There next appear subparagraphs “1.” through “16.” in each of which a Coverage
B covered peril is listed and described, subparagraph “2" of which is as follows:
“2. Windstorm or hail. This peril does not include loss to property
contained in a building caused by rain, snow, sleet, sand or dust.
This limitation does not apply when the direct force of wind or hail
damages the building causing an opening in a roof or wall and the
rain, snow, sleet, sand or dust enters through this opening.
This peril includes loss to watercraft of all types and their trailers,
furnishings, equipment, and outboard motors, only while inside a
fully enclosed building.”
The next portion of the property coverages section of the policy is entitled
“SECTION I - LOSSES NOT INSURED.” It consists of three parts (numbers
“1.”, “2.” and “3.”),3 the second of which (“2.”) commences as follows:
“2. We do not insure under any coverage for any loss which would
not have occurred in the absence of one or more of the following
excluded events. We do not insure for such loss regardless of: (a) the
cause of the excluded event; or (b) other causes of the loss; or (c)
whether other causes acted concurrently or in any sequence with
the excluded event to produce the loss; or (d) whether the event
occurs suddenly or gradually, involves isolated or widespread
3
Part “1.” of “SECTION I - LOSSES NOT INSURED” lists in its subparagraphs “a.”
through “n.” diverse exclusions stated to apply only to “any loss to the property described in
Coverage A.” None of these are now at issue or otherwise here relevant. Part “3.” to
“SECTION I - LOSSES NOT INSURED” relates to exclusions “under any coverage for any loss
consisting of one or more of the items below.” None of these are now at issue or otherwise here
relevant.
6
No. 06-61075
damage, arises from natural or external forces, or occurs as a result
of any combination of these.”
This is the noted “anti-concurrent-causation clause” or “ACC Clause.”
Immediately after it there next appear subparagraphs “a” through “f” in each of
which an excluded event under “2.” is listed and described, subparagraph “c.” of
which is as follows:
“c. Water Damage, meaning:
(1) flood, surface water, waves, tidal water, tsunami, seiche,
overflow of a body of water, or spray from any of these, all whether
driven by wind or not;
(2) water or sewage from outside the residence premises
plumbing system that enters through sewers or drains, or water
which enters into and overflows from within a sump pump, sump
pump well or any other system designed to remove subsurface water
which is drained from the foundation area; or
(3) water below the surface of the ground, including water
which exerts pressure on, or seeps or leaks through a building,
sidewalk, driveway, foundation, swimming pool or other structure.
However, we do insure for any direct loss by fire, explosion or theft
resulting from water damage, provided the resulting loss is itself a
Loss Insured.”
The policy also includes a “Hurricane Deductible Endorsement” which
provides:
“The following Deductible language is added to the policy:
Deductible
The Hurricane deductible percentage (%) shown in the
Declarations applies only for direct physical loss or
damage to coverage property caused by wind, wind
gusts, hail, rain, tornadoes, or cyclones caused by or
resulting from a hurricane as defined above. The
deductible for loss caused by each hurricane occurrence
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No. 06-61075
is the amount determined by applying the deductible
percentage (%) shown in the Declarations to the
COVERAGE A - DWELLING limit shown in the
Declarations.
In the event of a hurricane loss, this deductible will
apply in place of any other deductible stated in the
policy. In no event will this deductible be less than the
Section I deductible amount shown in the Declarations.
All other policy provisions apply.”4
DISCUSSION
As the court below correctly ruled, and as all parties recognize, the
governing substantive law is that of Mississippi. We address the proper
interpretation and legal effect of the State Farm policy under Mississippi law,
and hence our review is de novo. Leonard v. Nationwide Mutual Ins. Co., 499
F.3d 419, 428 (5th Cir. 2007); Gladney v. Paul Revere Life Ins. Co., 895 F.2d 238,
241 (5th Cir. 1990); Anglin v. Gulf Guaranty Life Ins. Co., 956 So. 2d 853, 859
(Miss. 2007).
4
This endorsement begins with the following definitions:
“Definitions
As used in this endorsement hurricane means a storm system that has been
declared to be a hurricane by the National Hurricane Center of the National
Weather Service. The duration of the hurricane includes the time period, in this
state:
1. beginning at the time a hurricane watch or hurricane warning is issued
for any part of this state by the National Hurricane Center of the
National Weather Service;
2. continuing for the time period during which the hurricane
conditions exist anywhere in this state; and
3. ending 24 hours following the termination of the last hurricane
watch or hurricane warning for any part of this state by the
National Hurricane Center of the National Weather Service.
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No. 06-61075
We limit our discussion to the issues raised by the parties on appeal:
Whether damage resulting to the Tuepkers’ home from the storm surges is an
excluded peril that is not covered by the policy; whether the ACC Clause in the
State Farm policy is ambiguous; and whether the efficient proximate cause
doctrine applies in this case. For the reasons stated below, we affirm in part,
reverse in part, and remand.
A. Water Damage Exclusion
State Farm urges this court to affirm the district court's conclusion that
the Water Damage Exclusion is valid under Mississippi law and that it includes
losses attributable to storm surge. The Tuepkers argue that damages caused by
storm surge are not excluded from coverage by the Water Damage Exclusion.
The Water Damage Exclusion states that water damage includes damages
caused by, among other things, flood, waves, tidal water, and overflow of a body
of water, “all whether driven by wind or not.” These words accurately describe
the influx of water into the Tuepkers’ home that was caused by the Katrina
storm surge. Furthermore, courts have held that similarly worded water
damage exclusions apply to flooding that occurs during a hurricane. See In re
Katrina Canal Breaches Litig., 495 F.3d 191, 214 (5th Cir. 2007) (concluding that
under Louisiana law, similar water damage exclusions in insurance policies are
unambiguous and that flooding resulting from the damage to the levees during
Hurricane Katrina “fits squarely within the generally prevailing meaning of the
term ‘flood,’” and is, thus, excluded from coverage by the policies); Bilbe v.
Belsom & State Farm Fire and Cas. Co., No. 06-7596, slip op. at 4 (E.D. La. July
12, 2007) (finding that under Louisiana law, the State Farm ACC Clause and
Water Damage Exclusion at issue in this case are unambiguous and that water
damage caused by the inundation of the plaintiff’s home from tidal water from
Lake Pontchartrain “is water damage within the meaning of State Farm’s policy
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No. 06-61075
exclusion”).5 In interpreting an almost identical water damage exclusion and
applying Mississippi law,6 this court has found that “storm surge” is “little more
than a synonym for a ‘tidal wave’ or wind-driven flood,” both of which are perils
excluded by the State Farm policy. Leonard, 499 F.3d at 437. In Leonard, we
concluded that the lack of a specific reference to a “storm surge” in the water
damage exclusion did not render the policy ambiguous or allow the insured party
to recover for losses caused by the storm surge associated with Hurricane
Katrina. Id. at 435. Our opinion in Leonard specifically relied on the Katrina
Canal Breaches Litigation opinion and on the district court’s opinion here for the
holding that the Katrina “storm surge” was unambiguously excluded water
damage.7
We conclude that under Mississippi law, the Water Damage Exclusion is
valid and that the storm surge that damaged the Tuepkers’ home is a peril that
5
In support of their argument, the Tuepkers cite an unreported case from the United
States District Court in California, which held that a water damage exclusion similar to that
at issue in this case was ambiguous and that it did not “on its face . . . clearly exclude loss
caused by ‘storm surge’ or ‘wind-driven water.’” Northop Grumman Corp. v. Factory Mutual
Ins. Co., No. CV 05-08444, 2007 WL 2385134, *7 (C.D. Cal. Aug. 16, 2007). That case differs
significantly from the present case because the California district court based its decision in
large part on the different definitions of “flood” in the two policies involved in the case, the
“Primary Policy” and the “Excess Policy.” Id. In the Excess Policy, unlike in the Primary
Policy, the definition of “flood” did not include the language “whether driven by wind or not.”
Id. Thus, the Excess Policy language was ambiguous when read in combination with the
Primary Policy. Id. (“Specifically, it is not the mere omission of the phrase from the Excess
Policy that creates ambiguity. Rather, it is the deviation from the initial definition used in the
Primary Policy which creates uncertainty about whether “Flood” had different meanings in the
Primary and Excess Policies.”). Northrop is not controlling and does not in the least even
arguably support the Tuepkers’ argument that the Water Damage Exclusion here does not
clearly exclude losses caused by storm surge.
6
The water damage exclusion at issue in Leonard “explicitly exempt[ed] from coverage
damage caused by ‘flood ... waves, tidal waves, [and] overflow of a body of water ... whether or
not driven by wind.’” Leonard, 499 F.3d at 437.
7
Moreover, as discussed below, nothing in the Hurricane Deductible Endorsement
renders the Water Damage Exclusion ambiguous in this respect.
10
No. 06-61075
is unambiguously excluded from coverage under State Farm’s policy. Therefore,
we affirm the district court's ruling on this issue.
B. Anti-Concurrent-Causation Clause
The Tuepkers urge this court to uphold the district court's conclusion that
the ACC Clause was ambiguous. They argue that the ACC clause is
unenforceable because it conflicts with other provisions in the policy, namely the
express coverage for losses attributable to wind and the Hurricane Deductible
Endorsement. State Farm argues that the ACC Clause is not ambiguous
because it cannot be construed to have two or more reasonable meanings and it
does not conflict with any other provisions in the policy. We agree with State
Farm.
Under Mississippi law, if the words of an insurance policy are plain and
unambiguous, courts will afford them their ordinary meaning. Anglin, 956 So.
2d at 859.
This court has recently ruled that a Nationwide Mutual Insurance
Company ACC Clause, which is similar to that in the State Farm insurance
policy in this case, is not ambiguous under Mississippi law. Leonard, 499 F.3d at
430.8 The ACC Clause and subsequent water damages exclusion at issue in
Leonard read:
8
This finding is further supported by case law from both federal and Mississippi courts.
See In re Katrina, 495 F.3d at 221 (finding that under Louisiana law, similarly worded State
Farm policies, which also included ACC Clauses, were unambiguous and enforceable, but not
addressing the impact of the ACC Clause in the policies); Bilbe, No. 06-7596, at 4 (granting
State Farm’s motion for summary judgment in a case with an identically worded ACC Clause
and water damage exclusion, and finding those two provisions to be clear and unambiguous);
Rhoden v. State Farm Fire and Cas. Co., 32 F. Supp. 2d 907, 912 (S.D. Miss. 1998) (finding an
ACC Clause worded identically to State Farm’s clause and the subsequent “earth movement”
exclusion in a homeowner’s policy to be unambiguous and clear under Mississippi law); Boteler
v. State Farm Fire and Cas. Co., 876 So. 2d 1067, 1070 (Miss. Ct. App. 2004) (finding State
Farm’s ACC Clause and earth movement exclusion to be “clear” and enforceable, and
determining that State Farm used “[u]nambiguous language of exclusion”). For its holding in
this respect our Leonard opinion specifically relied on, inter alia, Rhoden and Boteler, each
applying Mississippi law to the same ACC Clause present here.
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No. 06-61075
“1. 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. . . .
2. Water or damage caused by water-borne material . . .
(1) flood, surface water, waves, tidal waves, overflow of a body of
water, spray from these, whether or not driven by wind.” Id. at 430
(emphasis deleted).
The State Farm ACC Clause does differ from the Nationwide ACC Clause
in that it states that the policy does not cover “any loss which would not have
occurred in the absence of one or more of the following excluded events.”
However, this difference does not introduce any ambiguity or significantly
differentiate the clause from the ACC Clause at issue in Leonard. Both clearly
state that excluded losses – here, any loss which would not have occurred in the
absence of one or more of the excluded events – will not be covered even if a
nonexcluded event or peril acts “concurrently or in any sequence” with the
excluded event to cause the loss in question. Thus, Leonard governs this case,
and compels the conclusion that the ACC Clause in State Farm’s policy is not
ambiguous, and should be enforced under Mississippi law. As the Leonard
opinion directs, any damage caused exclusively by a nonexcluded peril or event
such as wind, not concurrently or sequentially with water damage, is covered
by the policy, while all damage caused by water or by wind acting concurrently
or sequentially with water, is excluded. Id. Thus, the ACC Clause in
combination with the Water Damage Exclusion clearly provides that indivisible
damage caused by both excluded perils and covered perils or other causes is not
covered. However, as State Farm has conceded in its briefs here and below, the
ACC Clause by its terms applies only to “any loss which would not have occurred
in the absence of one or more of the below listed excluded events”, and thus, for
example, if wind blows off the roof of the house, the loss of the roof is not
12
No. 06-61075
excluded merely because a subsequent storm surge later completely destroys the
entire remainder of the structure; such roof loss did occur in the absence of any
listed excluded peril.
Furthermore, contrary to the ruling of the district court, the Hurricane
Deductible Endorsement in the State Farm policy does not in any way render
the ACC Clause ambiguous. The Hurricane Deductible Endorsement clearly
states that a higher deductible percentage will apply for losses attributable to
hurricane occurrences. There is nothing in the language of the endorsement,
even when read in conjunction with the loss exclusion provisions, that expands
or changes any other aspect of the policy.
We addressed this issue in In re Katrina, 495 F.3d 191. There, the
plaintiffs argued that similar hurricane deductible endorsements would lead a
reasonable policyholder to expect their policy to cover damage resulting from a
storm surge caused by a hurricane despite the fact that the policies excluded
coverage for water damage. Id. at 220.9 Applying Louisiana law, this court held
that “the plain language of the hurricane-deductible endorsements indicates that
they do nothing more than alter the deductible for damage caused by a
9
That case involved a consolidation of multiple cases, and many of the policies at issue
in the litigation contained hurricane deductible endorsements. In re Katrina, 495 F.3d at 220.
As an example, the court provides a hurricane deductible endorsement from one policy, which
stated:
“We will pay only that part of the total of the loss for all Property Coverages
that exceeds the hurricane deductible stated on the Coverage Summary. The
hurricane deductible shown on the Coverage Summary applies to all covered
property for direct physical loss or damage caused directly or indirectly by a
hurricane as defined below. Such deductible applies regardless of any other
cause or event contributing concurrently on in any sequence to the loss. No
other deductible provision in the policy applies to direct physical loss caused by
a hurricane. In no event will the deductible applied for a hurricane loss be less
than the property deductible shown on the Coverage Summary.
Hurricane means wind, wind gust, hail, rain, tornado, cyclone or hurricane
which results in direct physical loss or damage to property by a storm system
that has been declared to be a hurricane by the National Weather Service . . .
.” Id.13
No. 06-61075
hurricane.” Id. We also found that the endorsements do not extend the scope
of the policies to cover floods. Id. See also Paulucci v. Liberty Mut. Fire Ins. Co.,
190 F. Supp. 2d 1312, 1322 (M.D. Fla. 2002) (finding that the deductible clause
did not modify the scope of the exclusion under the ACC Clause).
In pertinent part, the instant Hurricane Deductible Endorsement states:
“The Hurricane deductible percentage . . . applies only for direct
physical loss or damage to covered property caused by wind, wind
gusts, hail, rain, tornadoes, or cyclones caused by or resulting from
a hurricane . . . . In the event of a hurricane loss, this deductible
will apply in place of any other deductible stated in the policy. . . All
other policy provisions apply.”
Like the hurricane deductible endorsements at issue in In re Katrina, this clause
clearly only applies to the deductible, and does not affect the scope of coverage
under the policy. The list of enumerated perils covered by the Hurricane
Deductible Endorsement only includes perils that are covered under the policy
like wind, rain, and hail damage. It does not include any perils related to
flooding or any peril covered under the Water Damage Exclusion. The fact that
water damage is explicitly excluded from coverage and that the endorsement
concludes by stating that “[a]ll other policy provisions apply,” unambiguously
reflects that the endorsement does not enlarge or change the scope of coverage
under the policy.
In light of all of the relevant policy provisions, the ACC Clause is
unambiguous and enforceable. We accordingly reverse the holding of the district
court that State Farm’s ACC Clause is ambiguous under Mississippi law.
C. Efficient Proximate Cause Doctrine
The Tuepkers argue that the ACC Clause is not enforceable because it
conflicts with the “efficient proximate cause doctrine.” The district court agreed
to the extent of refusing to apply that clause when it might deny coverage that
would have been allowed under the “efficient proximate cause doctrine.” Under
that doctrine, when a loss is caused by the combination of both covered and
14
No. 06-61075
excluded perils, the loss is fully covered by the insurance policy if the covered
risk proximately caused the loss. See Leonard, 499 F.3d at 432. Under this
doctrine, if a policy covers wind damage but excludes water damage, the insured
may recover for damages if it can show that the wind (the covered peril)
proximately or efficiently caused the loss, notwithstanding that there were other
excluded causes contributing to that loss like flooding. Id. (citing Lititz Mut. Ins.
Co. v. Boatner, 254 So.2d 765, 767 (Miss. 1971)).
Mississippi courts have yet to indicate whether a homeowner’s insurance
policy may preclude recovery for damages resulting from the concurrent action
of wind and water in a hurricane. Id. at 431. However, in Leonard, we made an
“Erie guess” as to how the Mississippi Supreme Court would rule on the issue.
Id. The efficient proximate cause doctrine is the “default causation rule in
Mississippi regarding damages caused concurrently by a covered and an
excluded peril under an insurance policy.” Id. However, Leonard concludes that
ACC Clauses are enforceable under Mississippi law, and that they circumvent
the efficient proximate cause doctrine. See id. at 436 (“[W]e conclude that use
of an ACC clause to supplant the default causation regime is not forbidden by
Mississippi caselaw . . . , statutory law, or public policy.”). 10
Therefore, under Leonard, which binds us, and with which we in any event
agree, the ACC Clause in State Farm’s policy overrides the efficient proximate
cause doctrine. Accordingly, we reverse the district court’s holding that the ACC
Clause in the State Farm policy is invalid to the extent that it conflicts with the
efficient proximate cause doctrine.
D. Proper Assignment of Burdens of Proof
10
In Leonard, in respect to this holding we relied in part on Mississippi law cases
involving the same State Farm ACC Clause. See, e.g., id. at 433-34 and n.8. We also relied
in part on the Mississippi Insurance Commissioner’s approval of policy forms having the ACC
Clause, which is likewise applicable here. Id. at 435.
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No. 06-61075
State Farm contends that the district court erred in assigning the parties'
respective burdens of proof under the “open peril” coverage for the residence and
the “named peril” coverage for the personal property. Under Mississippi law, the
plaintiff bears the burden of proving his right to recover under an insurance
policy. Britt v. Travelers Insurance Co., 566 F.2d 1020, 1022 (5th Cir. 1978). For
“named peril” coverage – here Coverage B - Personal Property – the plaintiff has
the burden of proving that any losses were caused by a peril covered by the
policy. Lunday v. Lititz Mut. Ins. Co., 276 So. 2d 696, 699 (Miss. 1973). Under
“open peril” coverage – here Coverage A - Dwelling – the plaintiff still has the
basic burden of proving his right to recover. Britt, 566 F.2d at 1022. However,
under “open peril” coverage “the insurer bears the burden of proving that a
particular peril falls within a policy exclusion,” and “must plead and prove the
applicability of an exclusion as an affirmative defense.” Leonard, 499 F.3d at 429;
see also Britt, 566 F.2d at 1022. State Farm argues that once an insurer has
provided evidence that an item of claimed damage resulted at least in part from
an excluded peril, the burden shifts to the insured to produce evidence as to
what portion of the damages were caused by perils covered by the policy.
However, the parties here entered into a “High-Low Agreement” under which
the Tuepkers will, for specified consideration varying in amount depending on
the outcome of this appeal, release State Farm from all claims related to this
case at the conclusion of all appeals, so this case will never return to the district
court for an actual trial.11 Thus, the questions that the parties raise regarding
11
On February 6, 2007, State Farm and the Tuepkers agreed to the amount of
liquidated damages that State Farm will pay the Tuepkers upon “the outcome of all appeals”
(“the High-Low Agreement”), one specified amount if “the final appellate decision on coverage
issues is favorable to State Farm,” and a significantly greater amount if that decision favors
the Tuepkers. The Tuepkers agreed to release State Farm from all claims at the conclusion
of all appeals of the case, so the case will not continue in lower courts. This type of agreement,
which liquidates damages to be paid upon the outcome of a case while maintaining a live case
and controversy between the parties with respect to the issues on appeal is permissible under
Havens Realty Corp. v. Coleman, 102 S.Ct. 1114, 1120 (1982), and Nixon v. Fitzgerald, 102
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No. 06-61075
the burden of proof are not relevant to the case and controversy at issue in this
court, and we will not expand upon previous precedents regarding those issues.
CONCLUSION
For the foregoing reasons, we affirm the judgment of the district court in
part, reverse it in part, and remand the case for further proceedings not
inconsistent with this opinion.12
AFFIRMED in part; REVERSED in part;
and REMANDED.
S.Ct. 2690, 2698 (1982).
12
Three of the parties’ motions were carried with the case.
On June 1, 2007, we entered an order expediting this appeal and setting it for oral
argument the week of September 3, 2007. The same day, the Tuepkers’ filed a motion to
certify determinative questions of law regarding State Farm’s ACC Clause and Water Damage
Exclusion to the Mississippi Supreme Court. We deny that motion because plaintiffs originally
chose to file this case in federal, not state, court, because the Fifth Circuit has set binding
precedent regarding the status of Mississippi law on these issues in Leonard, and also because
of the delay it would cause in the ultimate disposition of this case.
We grant State Farm’s motions to strike portions of United Policyholders’ and Owen &
Galloway’s amicus curiae briefs.
Finally, we deny the Tuepkers’ motion to supplement the record on appeal.
17