presented by J. Lyle Donan, Co-Founder, Source7 Non-weather interior water claims are on the rise, and subrogating such claims could reduce indemnity, provide an opportunity to return deductibles to insureds, and hold the right people accountable. But at the adjuster level, referring claims to subrogation can result in more scrutiny and more uncertainty. Join […]
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LA - BAD FAITH - No Bad Faith by Insurer Where Insured Failed to Cooperate
The insured did not fulfill his duty to cooperate in the investigation of his personal contents claims following alleged hurricane damage. The insurer suffered prejudice given that most of the items claimed were no longer available for inspection and the photographic evidence was inadequate.
2024: CAT - Hurricane Beryl Bulletin - TX
INTRODUCTION Beryl made landfall at 4am CDT, Monday, 7/8/2024 as a Category 1 hurricane with maximum sustained winds of approximately 80 mph near Matagorda, Texas. Beryl caused over 2 million customers to be without power, most in the Houston metro area. Preliminary peak wind gusts of over 90mph were reported in Freeport, Texas and Brazoria, Texas. Beryl then weakened to a tropical storm and a tropical depression as it traveled north-northeast through east Texas. For more information about Hurricane Beryl, see PLRB’s Weather/CAT web page SPECIAL BULLETINS - Texas Department of Insurance On July 8, the Texas Department of Insurance issued 4 bulletins relating to Hurricane Beryl. These bulletins are B-0007-24, B-0008-24, B-0009-24, B-0010-24. The bulletins indicate they don't create specific requirements, but cooperation by every insurer will help ensure the fair treatment of consumers and provide for fair competition. Vacancy provisions TDI expects insurers to work with policyholders temporarily displaced by Hurricane Beryl. Insurers should suspend policy vacancy provisions as long as reasonably necessary. This doesn’t apply to a vacancy provision for policyholders who have moved permanently from their homes or businesses. Grace period for premium payments TDI expects insurers to work with policyholders affected by Hurricane Beryl who need more time to pay premiums to continue coverage. This may include minimizing penalties or charges for late payments, or temporarily suspending payment or repayment plans. TDI will work with insurers to minimize the effects of any suspension of premium payments, specifically regarding financial review requirements.This grace period doesn’t mean the forgiveness of premium.Claims adjusting and adjusters.TDI remindsinsurers that they may use nonresident and emergency adjusters to handle disaster-related claims. (Insurance Code Sections 4101.002(b) and 4101.101).Consumers have the right to contract with a licensed public insurance adjuster. (Insurance Code Section 4102.007). All public insurance adjusters must be licensed by TDI. The Insurance Code provides for both civil and criminal penalties for violating this license requirement. (Insurance Code Chapter 4102). Texas law includes several provisions to prevent conflicts of interest in the adjusting process. (Insurance Code Chapters 4101 and 4102). These include: Licensed adjusters may not adjust roofing losses for an insurer if the adjuster is a roofing contractor, provides or sells roofing services or products, or is a controlling person in a roofing-related business. A roofing contractor may not act as an adjuster or advertise to adjust claims for any property that the contractor is providing or may provide roofing services to. Contractors may provide estimates and discuss those estimates and other technical information with an insurer or its adjuster. Public adjusters TDI reminds licensed public adjusters about state laws concerning advertisements and solicitation in Insurance Code Chapters 4102. These laws say: Ads and signs must include the public adjuster’s address and license number. The name on the ad must match what is listed on the adjuster’s Solicitation of clients is prohibited during a disaster. Claim settlement TDI reminds insurers, adjusters, and contractors that: An insurer or its representative, or any other person, may not misrepresent the terms and provisions of a policy. (Insurance Code Section 543.001). An insurer may not engage in unfair claim settlement practices. Insurers must attempt to reach a prompt, fair, and equitable settlement of a claim in which liability has become reasonably clear. (Insurance Code Section 542.003(a) and (b)(4)). It’s illegal for contractors or roofers to offer to waive a deductible or promise a rebate for all or part of a deductible. (Insurance Code Chapter 707 and Business and Commerce Code Section 27.02). Wind losses TDI expects insurers that deny coverage for wind losses to tell policyholders to check whether they have separate coverage from the Texas Windstorm Insurance Association (TWIA) or another windstorm insurer if the damage was in a coastal county. Flood losses TDI expects insurers responding to flood loss questions and claims to provide information to their policyholders about possible help from the Federal Emergency Management Agency (FEMA). Flooded vehicles A title for a salvage or nonrepairable vehicle with damage caused exclusively by flood must include a “FLOOD DAMAGE” notation. Titles for flood-damaged vehicles must comply with Transportation Code Chapter 501, Subchapter E. TDI expects insurers to take steps to make sure Vehicle Identification Numbers and other information is accurate. Number of Deductibles Subsequently, on July 13, 2024, TDI issued bulletin B-0012-24 regarding storm deductibles. TDI indicated that insurers can make decisions on deductibles on a case-by-case basis. For example, an insurer can waive applying a second deductible in situations where an insurer has not adjusted the first claim or where repairs have not yet been made. TDI encourages insurers to evaluate these situations using a common-sense standard that is fair to consumers. COVERAGE SUMMARY Adjuster Licensing Staff adjusters, independent adjusters, and supervisors of adjusters must be licensed in Texas. Exceptions exist for lawyers, certain insurance company staff, and others such as photographers, estimators, detectives, engineers and other experts indirectly involved. In the event of a catastrophe, an emergency adjuster license may be issued to residents or nonresidents of Texas who may or may not be otherwise licensed adjusters; with some conditions. Furthermore, a nonresident adjuster must be licensed, except for adjusters adjusting a single loss, or catastrophe adjusters. See which states Texas will grant reciprocity in licensing below. Aggressive Contractors When dealing with aggressive contractors in Texas, there are several things adjusters should keep in mind. First, contractors may not act as a public adjuster unless they are licensed as such. Second, there is a related statute that addresses unlicensed roofing contractors. Third, there is a Texas statute which limits liability for insurance companies sued by policyholders following storm damage. Appraisal Courts in Texas have generally enforced appraisal clauses. Timeliness of an appraisal demand is to be determined in reference to the time the parties reach an impasse in the negotiations, not the time when their disagreement is apparent. Unreasonable delay in invoking appraisal may constitute waiver. In 2009, the Texas Supreme Court decided that causation could be decided by appraisal, however, courts have acknowledged difficulty in determining whether an appraiser has exceeded its authority when considering causation issues in an appraisal. Appraisal awards generally may not be set aside unless (1) the award was made without authority; (2) the award was the result of fraud, accident, or mistake; or (3) the award was not made in substantial compliance with the terms of the contract. Assignment of Benefits Pre-loss assignment of benefits is generally prohibited. However, there is authority in Texas which adopts the minority view (in contrast to most other jurisdictions) enforcing anti-assignment provisions to the assignment of post-loss benefits. Causation Where property loss is caused by concurrent perils, one of which is insured against and the other of which is specifically excluded, the Texas Supreme Court has held that, unless the insured can successfully segregate that portion of his damages caused by the insured peril and that peril alone, the insured recovers nothing. Where the insured can successfully segregate the damage caused only by the insured peril from the damage caused by a combination of insured and specifically excluded perils, the insured recovers only the percentage of the damage caused solely by the insured peril. The majority of states in which enforcement of the anti-concurrent causation or broad preface has been litigated have upheld its application. Texas follows the majority of states on this issue: it enforces the preface. Forms Texas policies may contain a windstorm and hail deductible endorsement, such as the Windstorm or Hail Percentage Deductible endorsement, ISO HO 03 12 05 11. Another form to be aware of is the ISO HO 23 05 05 11 endorsement (Actual Cash Value Loss Settlement Windstorm or Hail Losses to Roof Surfacing- Texas), which modifies the loss settlement provision in the policy with respect to a covered loss for roof surfacing caused by the peril of windstorm or hail. Some policies in CAT designated areas may contain a Windstorm or Hail Exclusion, such as the ISO HO 04 70 06 02. Finally, some policyholders in CAT prone areas may obtain windstorm coverage through the Texas Windstorm Insurance Association (TWIA). Information regarding TWIA and its forms, may be accessed on its website here. Loss of Use: Personal Lines While ALE is available under Texas DOI homeowners forms as well as ISO and other standard forms, Civil Authority (personal lines) coverage is not available under the standard Texas DOI homeowners forms. However, insurers in Texas are permitted to use their own policies, and most other policies contain coverage for Civil Authority. Note, however, such coverage is usually dependent upon there first being damage to a neighboring premises, and then the authorities prohibited access to the insured’s premises in response to such damage. Loss of Use: Commercial Lines Civil Authority (commercial lines) claims must be evaluated in light of the policy language; older forms typically leave ambiguous the geographical zone of damage leading to the prohibition of access, whereas newer forms often specify a 1-mile radius. Under either policy type, the prohibition of access to property must be “due to” damage that already occurred, and the damage was within the geographical zone prescribed by the policy. Ordinance or Law Texas courts have refused to enforce Ordinance or Law exclusions when there is a total constructive loss and when the Ordinance or Law exclusion conflicts with the state’s valued policy laws. (See Hamburg-Bremen Fire Ins. Co. v. Garlington and Scanlan v. Home Ins. Co.) In Wong v. Monticello Ins. Co., the court upheld the applicability of the ACC preface for O/L Exclusion. Sewer Backup v. Flood Water damage caused by water from sewers, and sumps, is commonly excluded from coverage under standard property insurance forms. For an additional premium, some insurers offer endorsements or coverage extensions that cover such damage. Although policy language varies, most sewer backup and sump overflow coverage is offered under policies or endorsements that retain the water damage exclusions for flood and surface water and water below the surface of the ground. The question therefore arises: when and how do these exclusions prevail over the specific coverage provided by the sewer backup and sump overflow endorsements? Depending on the policy language and the particular facts, the courts have adopted several analytical approaches. Spoilage Where off-premises interruption of power plays a role in the spoilage of perishables, there is a question of coverage. For example, suppose the insured building sustains little or no damage but the power to the premises is interrupted long enough for spoilage to occur. Or, suppose the refrigerator, freezer, or dwelling sustain direct damage by hurricane winds without immediate loss to perishables, but the power to the premises is interrupted off premises at about the same time. Gray areas if occur where both (1) covered lightning or windstorm and (2) excluded water damage or off-premises power failure are factors. Standard Fire Policy Tex. Ins. Code art. 5.35 (Insurance Code of 1951, Title I, Chapter 5, Subchapter C, section 5.35) provides that the Insurance Commissioner shall adopt “standard” forms; it is not a “standard fire policy” statute per se. Trees The 2000 edition of the ISO HO policies provide limited coverage for trees under the Additional Coverage for Trees, Shrubs, And Other Plants if damaged by one of the enumerated perils, which include lightning, but not windstorm or any sort of water damage. The Additional Coverage for Debris Removal is applicable to “tree(s) felled by the peril of Windstorm or Hail” if “the tree(s) damages a covered structure.” This coverage under the 2000 edition is limited to $1,000 per loss regardless of the number of fallen trees, but no more than $500 of this limit will be paid for the removal of any one tree. The Additional Coverage for Reasonable Repairs would probably cover the cost of removal of a tree limb in danger of falling onto the house and causing additional damage as a “reasonable cost incurred by you for necessary measures taken solely to protect against further damage.” Vacancy Per TDI bulletins B-0007-24, B-0008-24, B-0009-24, B-0010-24, TDI expects insurers to work with policyholders temporarily displaced by Hurricane Beryl. Insurers should suspend policy vacancy provisions as long as reasonably necessary. This doesn’t apply to a vacancy provision for policyholders who have moved permanently from their homes or businesses. Valuation Texas is a Valued Policy Law state. Therefore, in situations where the Valued Policy Law applies, its provisions will control determination of valuation. With respect to other kinds of losses, different standards apply to different kinds of property. ACV of commercial real property generally is measured by fair market value. Court decisions on ACV of residential real property (not governed by the Valued Policy Law) are mixed and the results may depend on the kind of policy language involved. As a general rule, under standard Texas homeowners forms, courts have held that ACV for partial residential building losses is to be measured at the cost of repairs with no deduction for depreciation. With respect to both residential and commercial personal property, Texas courts have generally applied a flexible standard similar to the broad evidence rule, with fair market value as the starting point with other factors to be considered depending on the circumstances. Exceptions, however, may be found with respect to commercial personal property in special contexts such as manufacturing and wholesaling. Texas courts have offered some guidance, with mixed outcomes, regarding whether an insurer may deduct contractor’s overhead and profit. In one case, the court held overhead and profit (and sales tax) were improperly deducted from an ACV award; in another, the insurer was allowed to depreciate overhead and profit (and sales tax) from the ACV award based on the contract language. Valued Policy Law Texas is a valued policy law state. The law applies to total losses, which includes constructive total losses. The law specifies that the total loss be “by fire.” Consequently, the valued policy law should not apply to loss caused by any of the covered perils typically associated with a hurricane event (such as windstorm, hail, or lightning), unless one of those perils triggers a total fire loss (for example, when a lightning strike ignites a fire that leads to total loss of a dwelling). Windstorm, Hail and Cat Deductible As noted in the Forms – Texas Property Forms section discussed above, many property policies in Texas include an endorsement that contains a windstorm and hail deductible. For example, some homeowners forms may have the Windstorm or Hail Percentage Deductible endorsement, ISO HO 03 12 05 11. Similar endorsements are also available for commercial property policies (ISO CP 03 21 10 12). ADJUSTER LICENSING Below is a summary of Texas adjuster licensing requirements. For access to the various statutes referenced below, as well as a more complete discussion, see PLRB’s Texas Adjuster Licensing Annotation. Staff and Independent Adjusters Staff adjusters and independent adjusters must be licensed in Texas. Tex. Ins. Code Ann. § 4101.001 and § 4101.051 . In addition, supervisors of adjusters must also be licensed. Tex. Ins. Code Ann. § 4101.001 . Exceptions exist for lawyers, certain insurance company staff, and others such as photographers, estimators, detectives, engineers and other experts indirectly involved. Tex. Ins. Code Ann. § 4101.002 . Catastrophe Adjuster In the event of a catastrophe, an emergency adjuster license may be issued to residents or nonresidents of Texas who may or may not be otherwise licensed adjusters. The emergency adjuster does not have to receive a Texas adjuster license before beginning work as an emergency adjuster, but must submit an application for an emergency adjuster license within five (5) days of commencing work. To obtain a catastrophe license, the resident or non-resident must apply to the commissioner and must be certified by a licensed Texas adjuster or a company licensed in Texas. An emergency adjuster license will remain in force for 90 days and may be renewed for an additional 90 days. The fee for an emergency adjuster license is $20, which is payable within 30 days after the license is issued. Tex. Ins. Code Ann. § 4101.101 . See also tp://www.tdi.texas.gov/licensing/agent/revagtemeradj.html , from the Texas Department of Insurance. Nonresident adjusters do not have to be licensed in Texas to adjust losses arising out of a catastrophe. Tex. Ins. Code Ann. § 4101.002 . Nonresident Adjuster In the State of Texas, a nonresident adjuster must be licensed, except for adjusters adjusting a single loss, or catastrophe adjusters. The specifics regarding reciprocity and nonresident adjuster licensing are set forth in PLRB’s Texas Adjuster Licensing Annotation. Also note that a nonresident adjuster is not required to hold a license to adjust a single loss in Texas, to adjust losses arising out of a catastrophe common to all those losses, or to act as a temporary substitute for a licensed adjuster. See Tex. Ins. Code Ann. § 4101.002(b). Commissioner’s Bulletin # B-0008-24 TDI reminds insurers that they may use nonresident and emergency adjusters to handle disaster-related claims. (Insurance Code Sections 4101.002(b) and 4101.101). Consumers have the right to contract with a licensed public insurance adjuster. (Insurance Code Section 4102.007). All public insurance adjusters must be licensed by TDI. The Insurance Code provides for both civil and criminal penalties for violating this license requirement. (Insurance Code Chapter 4102). Texas law includes several provisions to prevent conflicts of interest in the adjusting process. (Insurance Code Chapters 4101 and 4102). These include: Licensed adjusters may not adjust roofing losses for an insurer if the adjuster is a roofing contractor, provides or sells roofing services or products, or is a controlling person in a roofing-related business. A roofing contractor may not act as an adjuster or advertise to adjust claims for any property that the contractor is providing or may provide roofing services to. Contractors may provide estimates and discuss those estimates and other technical information with an insurer or its adjuster. Public adjusters TDI reminds licensed public adjusters about state laws concerning advertisements and solicitation in Insurance Code Chapters 4102. These laws say: Ads and signs must include the public adjuster’s address and license number. The name on the ad must match what is listed on the adjuster’s Solicitation of clients is prohibited during a disaster. AGGRESSIVE CONTRACTORS Following CATS, insurers are sometimes forced to deal with an increasing number of aggressive contractors who may make unreasonable demands and/or attempt to negotiate on behalf of the insured. In some cases, the insured might even have assigned its benefits to the contractor. For a discussion of ways to make sure aggressive contractors are acting within the law, see PLRB’s Aggressive Contractor’s Annotation – TX. In our annotation, we note that Public Adjusters must be licensed in Texas. For specific regulations on point, see PLRB, Adjuster Licensing Annot., Texas . Since 2003, Texas has required licenses for public adjusting. However, when it became apparent that many unlicensed roofing contractors were ignoring the law, the Texas Legislature in 2013 strengthened these provisions to apply specifically to roofers in two ways. First, a licensed public adjuster may not adjust a loss related to roofing damage if the adjuster is also roofing contractor or is a controlling person in a roof related business. Second, if a roofing contractor is a licensed public adjuster, it may not adjust a loss for which it is simultaneously providing roofing services. See Tex. Ins. Code sec. 4101.251, 4102.163. Related Hailstorm Litigation Law On May 18, 2017, the Texas legislature approved House Bill 1774 (often referred to as “Hailstorm” Litigation Bill), which limits liability for insurance companies sued by policyholders following storm damage. Originally, the bill addressed litigation following hailstorms, but the bill was later amended to also apply to other types of severe weather. The bill intends to curb abusive litigation conduct typically seen after a severe weather event by making the following changes: Requires 60-days’ notice to be filed with an insurer before a suit is filed in order to permit the insurer an opportunity to address any outstanding claim issues Reduces penalties imposed on insurers sued for offering too little money on storm claims ( (18% interest rate reduced to 5% plus the prime rate or applicable rate per the Finance Code) Makes it more difficult for those suing to collect attorney fees Also, the Texas Insurance Department issued the following consumer notice to address some questions related to the law, noting that the law: Does not apply to claims with the Texas Windstorm Insurance Association (TWIA). Does not apply to claims with the National Flood Insurance Program (NFIP). Applies to claims made under an insurance policy providing coverage for real property, such as homes and other buildings. The legislation also applies to claims made under the Fair Access to Insurance Requirements (FAIR) Plan Association. Requires policyholders to provide notice before filing a lawsuit. The legislation also makes changes to the requirements for inspections related to a lawsuit, recovering attorney’s fees, and statutory penalty interest. The law is codified in sections Tex. Ins. Code Ann.§ 541.156. Settlement Offer, Tex. Ins. Code Ann. § 542.060. Liability for Violation of Subchapter, and Tex. Ins. Code Ann. § 542A .001-.007 Certain Consumer Actions Related to Claims for Property Damage. APPRAISAL Appraisal in Texas exploded in use after Hurricane Ike in 2008, because many federal courts encouraged the use of the appraisal as they became inundated with lawsuits. In recent years, the use of appraisal itself has led to increased litigation, especially after the enactment “Hailstorm Litigation Bill” (codified in sections Tex. Ins. Code Ann. § 541.156, Tex. Ins. Code Ann. § 542.060, Tex. Ins. Code Ann. § 542A.001-007), which created presuit notification requirements. With increased use of appraisal in Texas, appraisal itself has led to increased litigation. Specifically, the subjects of appraisal litigation have included disputes over appraisal demands, causation, and insureds seeking additional payment after an award is paid, including damages under the Texas Prompt Payment Act (Tex. Ins. Code § 542.054). There are many issues that arise from a policy’s appraisal provision, including: (1) the scope of the appraisal; (2) the initiation of the appraisal; (3) the qualifications for appraisers and umpires; and (4) the process and effect of the appraisal award. In hurricane-related losses, causation and valuation disputes may arise, and the policy’s appraisal provision may be invoked, triggering these issues. Enforcement of Appraisal Clauses In Texas, courts have generally enforced appraisal clauses. See Vanguard Underwriters Ins. Co. v. Smith, 999 S.W.2d 448 (Tex. App. 1999; reh. den. 8/13/99) [reviewed at PLRB, Prop. Ins. L. Rev. 5480 (2000)] and Poteet v. Kaiser, No. 2-06-397-CV, 2007 WL 4371359, (Tex. App. – Fort Worth 12/13/07) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. 7514 (2008)]. However, at least one court did not enforce an appraisal demand where an insured’s suit included a bad faith claim along with a breach of contract claim. See In re: Terra Nova Ins. Co., 992 S.W.2d 741 (Tex.App. 1999). Initiation of Appraisal Clauses Submission of a sworn proof of loss, upon request by the insurer, was a condition precedent to invoking appraisal. See Great Lakes Ins. SE v. Horton Fam. Tr., LLC, No. 7:19-CV-00138-O, 2021 WL 1117171 (N.D. Tex. Mar. 24, 2021) [reviewed at PLRB, Prop. Ins. L. Rev. 10946 (2021)] and GuideOne Mut. Ins. Co. v. First Baptist Church of Brownfield, 495 F. Supp. 3d 428 (N.D. Tex. 2020) [reviewed at PLRB, Prop. Ins. L. Rev. 10810 (2020)]. The U.S. District Court for the Northern District of Texas applying Texas law held because the policyholder failed to satisfy this condition, the appraisal panel lacked the authority to issue an award, and the award was declared void. The insurer’s participation in the appraisal process, after the policyholder unilaterally obtained appointment of an umpire from a state trial court, did not waive any condition precedent. The notice-prejudice rule did not apply to a policyholder’s failure to comply with the proof of loss requirement. Timeliness of an appraisal demand is to be determined in reference to the time the parties reach an impasse in the negotiations, not the time when their disagreement is apparent. An impasse occurs when the parties reach a “mutual understanding that neither will negotiate further.” The timeliness of an appraisal demand depends upon the facts of the claim and has been the subject of many cases with varying outcomes across time periods. See Hamorsky v. Allstate Vehicle and Property Ins. Co., No. 4:19-CV-00084, 2020 WL 1929420 (E.D. Tex. 4/21/20) [reviewed at PLRB, Prop. Ins. L. Rev. 10641 (2020)] (appraisal demand by policyholder timely ten months after filing suit when it was made one-month after parties reached an impasse in mediation); In re Continental Casualty Co., No. 14-10-00709-CV, 2010 WL 3703664 (Tex.App.- Hous. 14th Dist.) 9/23/10) [reviewed at PLRB, Prop. Ins. L. Rev. 8099 (2010) ] (4 months was timely). If the appraisal is initiated after the filing of a lawsuit, Texas courts will not typically abate (i.e., temporarily suspend court proceedings related to a lawsuit) proceedings pending the outcome of the appraisal. See Leedy v. State Farm Lloyds, No. 1:15-CV-123-P-BL, 2016 WL 519135 (N.D. Tex.) (01/14/2016) (U.S. District Court for the Northern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9382 (2016)] (where the appraisal process is formally demanded after litigation is initiated, the proceedings need not be abated while the appraisal proceedings go forward). If the appraisal is demanded prior to the commencement of litigation, a lawsuit may not be commenced until the outcome of the appraisal. See State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 07/03/09) [reviewed at PLRB, Prop. Ins. L. Rev. 7827 (2009) ]; In re Continental Casualty Co., No. 14-10-00709-CV, 2010 WL 3703664 (Tex.App.- Hous. 14th Dist.) 9/23/10) [reviewed at PLRB, Prop. Ins. L. Rev. 8099 (2010) ] (Appraisal is a condition precedent to filing suit). Waiver of Appraisal Unreasonable delay in invoking appraisal may constitute waiver. Hamorsky v. Allstate Vehicle and Property Ins. Co., No. 4:19-CV-00084, 2020 WL 1929420 (E.D. Tex. 4/21/20) (U.S. District Court for the Eastern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10641 (2020)]. Under Texas law, the timeliness of an appraisal demand is to be determined in reference to the time the parties reach an impasse in the negotiations.” In Hamorsky, an appraisal demand made by the policyholder, ten months after she filed suit, was timely when it was made one month after the parties reached an impasse in mediation. The court determined that a one-month delay was reasonable and did not evince an intentional waiver of the policyholder’s right to appraisal. Martinez v. Nationwide Gen. Ins. Co., No. 3:19-CV-01541-X, 2020 WL 3606399 (N.D. Tex. 07/02/2020) (United States District Court for the Northern District of Texas, applying TX law) [reviewed at PLRB, Prop. Ins. L. Rev. 10714 (2020)]. The right to appraisal was not waived by the insured where there was no evidence that the parties had reached an impasse or that, even if there had been an impasse, that the insured unreasonably delayed requesting appraisal. In Texas, waiver requires three elements to be met: (1) the parties reach an impasse; (2) after the impasse, an unreasonable amount of time passes before a party invokes the appraisal process; and (3) that unreasonable delay prejudices the other party. An “impasse” is generally defined as “a mutual understanding that neither will negotiate further. Here, there was evidence, including the insurer’s motion for a continuance while the parties worked toward a settlement, that the parties had not reached an impasse simply by virtue of the insured’s suit. Further, even if there was an impasse, the insured’s appraisal demand was not unreasonably delayed where it was made between 3 to 11 months of the dates of the alleged impasse. Scope of Appraisal While federal courts interpreting Texas law once held that appraisal could not be used to determine either coverage or causation, in 2009, the Texas Supreme Court decided that causation could be decided by appraisal. State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 7/03/09) [reviewed at PLRB, Prop. Ins. L. Rev. 7827 (2009)]. Coverage issues still may not be decided by appraisal, but what is and is not a coverage issue is not always clear. Courts have acknowledged difficulty in determining whether an appraiser has exceeded its authority when considering causation issues in an appraisal. Whether an appraiser has improperly decided causation generally involves a case-by-case, fact-intensive inquiry. For example, in Tippett v. Safeco Ins. Co. of Indiana, No. 02-19-00152-CV, 2020 WL 827143 (Tex. App. 02/20/2020) [reviewed at PLRB, Prop. Ins. L. Rev. 10607 (2020)], an appraisal panel did not have authority to decide whether the exclusion for cosmetic damage to metal roofing precluded coverage for hail-damaged roof because that was a liability question reserved for the court. The parties did not dispute that hail caused the damage to the homeowner’s roof. Rather, the insurer contended that the roof damage was cosmetic in nature and therefore excluded. The appellate court found in part that the determination of whether the roof damage was cosmetic as meant in the exclusion was a liability determination, not an amount of loss or causation one. Moreover, when a loss to property has several causes, appraisers may assess the amount of damage and leave causation to be resolved by the courts. Thus, when an insurer denies coverage, appraisers can still set the amount of the loss in case the insurer turns out to be wrong. See In re Southern Insurance Co., No. 09-111-00022-CV, 2011 WL 846205 (Tex. App. – Beaumont 3/10/11) [reviewed at PLRB, Prop. Ins. L. Rev. 8213 (2011)]. In OM Indus. Products Corp. v. Nationwide Prop. and Cas. Ins. Co., No. 4:19-CV-03896, 2020 WL 5554065 (S.D. Tex. 9/16/20) (U.S. District Court for the Southern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10791 (2020)], an appraisal award did not conclusively determine whether interior water damage, allegedly caused by rain from Hurricane Harvey, was the result of a covered cause of loss first damaging the roof or walls of the insured building, through which rain then entered, causing damage to business personal property and the interior of the building. The insurer initially denied coverage on the grounds that (1) no damage was the result of Hurricane Harvey and (2) no covered cause of loss caused any of the damage to the roof system. The policyholder demanded appraisal, and the appraisers issued an award valuing the building loss at $6,235 and the loss of business personal property at $121,028. The insurer refused to pay, asserting that the damage was not covered by the policy. The court decided that the appraisal award did not conclusively establish the insurer’s liability when the insurer disputed whether the damage was the result of a cause of loss covered by the policy. Although appraisers may have to separate loss caused by a pre-existing condition from loss due to a covered event, they cannot determine whether an insurer is liable under the terms of the policy. Under a Texas Windstorm Insurance Association (TWIA) policy, the policyholder’s sole remedy to dispute the amount of the claim that is accepted for coverage is to request an appraisal. See Texas Windstorm Insurance Assoc. v. Jones, 512 S.W.3d 545 (Tex.App. – Houston (1st Dist.) 12/15/16) [reviewed at PLRB, Prop. Ins. L. Rev. 9626 (2017)]. Effect of the Appraisal Award Appraisal awards generally may not be set aside unless (1) the award was made without authority; (2) the award was the result of fraud, accident, or mistake; or (3) the award was not made in substantial compliance with the terms of the contract. See Floyd Circle Partners, LLC v. Republic Lloyds, No. 05-16-00224-CV, 2017 WL 3124469 (Tex. App. July 24, 2017) [reviewed at PLRB, Prop. Ins. L. Rev. 9803 (2017)]. Acceptance of or tender of a timely payment of a binding and enforceable appraisal award bars a policyholder from maintaining a breach of contract claim against the insurer. National Sec. Fire & Cas. Co. v. Hurst, 523 S.W.3d 840 (Tex. App. 2017), reh’g denied (July 25, 2017) (Court of Appeals of Texas, 14th Dist., applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9756 (2017)] (tender of award sufficient to bar breach of contract suit). However, under recent Texas law, timely appraisal payments may not bar actions based on the Texas Prompt Payment of Claims Act. See Barbara Techs. Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019), reh’g denied (Dec. 13, 2019), 2019 WL 2666484 (dissent), 2019 WL 2710022 (concurring and dissenting) [reviewed at PLRB, Prop. Ins. L. Rev. 10376 (2019)] and Ortiz v. State Farm Lloyds, 589 S.W.3d 127 (Tex. 2019), reh’g denied (Dec. 13, 2019) [reviewed at PLRB, Prop. Ins. L. Rev. 10377 (2019)]. In Rodriguez v. Safeco Ins. Co. of Ind., No. 23-0534, 2024 Tex. LEXIS 93 (Feb. 2, 2024) [reviewed at PLRB, Prop. Ins. L. Rev. (2024)], the Texas Supreme Court held that the plain language of section 542A.007(a) was clear that the payment of the appraisal award [plus any possible statutory interest] extinguished a plaintiff’s right to attorney’s fees because the full payment meant there would be no remaining claim under the insurance policy. In Lakeside FBBC, LP v. Everest Indem. Ins. Co., No. SA-17-CV-491-XR, 2020 WL 1814405, — F.Supp.3d — (W.D. Tex. 4/08/20) Appeal filed (No. 20-50358. 5th Cir. 5/04/20) (U.S. District Court for the Western District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10676 (2020)], an insurer was not required to pay full replacement cost pursuant to an appraisal reward when the policyholder did not repair or replace the damaged property. Under these circumstances, the insurer’s actual cash value payment could not be considered a breach of contract that would trigger damages under the Texas Prompt Payment of Claims Act for failure to pay the full amount. Instead, the only issues with regard to TPPCA damages were (1) whether the insurer acted in accordance with TPPCA in their requests for information, investigation, and pre-appraisal payments; and (2) if the pre-appraisal payments were timely, whether the amounts were reasonable relative to the final appraisal award. The court concluded that the insurer complied with the TPPCA deadlines with regard to the claims arising from a 2016 hailstorm, and that the pre-appraisal payments were reasonable where the final appraisal award was 2.159 times greater than the pre-appraisal payments. With regard to the policyholder’s claims arising from a 2017 tornado, the TPPCA deadlines were never triggered because the insurer never received all the items reasonably requested. In Richland Trace Owners’ Ass’n v. Landmark American Ins. Co., No. 05-20-00944-CV, 2022 WL 1076177 (Tex. App.–Dallas 4/11/2022) (Court of Appeals of Texas, Dallas, applying Texas law) [reviewed at PLRB, Ins. L. Rev. 11297 (2022)], an appraisal award for damage caused by singular 2017 hailstorm, covered by the 2017 policy, did not preclude the policyholder from seeking coverage for damage to the same property caused by a 2016 hailstorm. The appraisal award reflected a loss caused by a singular hailstorm subject to a singular policy, and the only storm listed was a March 2017 hailstorm. Viewed in the light most favorable to the policyholder, the appraisal award only resolved the issue of the damage caused by a specific occurrence and determined the amount of loss caused by that storm. Having failed to prove that the appraisal award accounted for any loss that the property suffered as a result of the 2016 hailstorm, the insurer was not entitled to summary judgment on the ground that the appraisal award resolved all claims involving hail damage to the property. For a more detailed overview of Texas case law on appraisal, see PLRB, State-by-State Annot., Appraisal: Texas. For a general discussion of Appraisal under the ISO Homeowners, Commercial and Businessowners Forms, see PLRB, Homeowners Annot. Key HO103; PLRB, Commercial Property Annot. Key CP639; and PLRB, Businessowners Prop. Annot. Key BP71, respectively. ASSIGNMENT OF BENEFITS Pre Loss Assignment of Benefits Prohibited Most insurance policies include an anti-assignment or non-assignment policy provision which typically provides that a policyholder may not transfer his rights and duties to another without the insurer’s consent. Generally, such provisions are enforced where a policyholder attempts a “pre-loss” assignment of the policy. Post Loss Assignment of Benefits Permitted A grayer area has arisen out of anti-assignment provisions where the assignment involves “post-loss” benefits. However, there is authority in Texas which adopts the minority view (in contrast to most other jurisdictions) enforcing anti-assignment provisions to the assignment of post-loss benefits. For example, in Melinder v. Texas Farmers Ins. Co., No. 10-Civ-0516, 2014 WL 198219 (S.D.Tex. 1/15/14) [reviewed at PLRB, Prop. Ins. L. Rev. 8846 ], the court held that an anti-assignment clause invalidated a mortgagee’s post-loss assignment of insurance proceeds to the mortgagor. Also, in Dr. Michael Hoffman & Assoc. v. St. Paul Guardian Ins. Co., No. 05-04-00902-CV, 2005 WL 1950848 (Tex. App. – Dallas 8/16/05) [reviewed at PLRB, Prop. Ins. L. Rev. 6980 (2005)], the court held that an anti-assignment clause in a commercial property insurance policy was enforceable against the buyer of the insured property, to whom the insured had assigned its claim. In the absence of written consent by the insurer, the insured may not assign its rights to proceeds under the policy even when the assignment is made after the loss occurred. The critical issue regarding whether an insured’s attempt to assign its benefits post-loss will be whether the policy at issue contains an anti-assignment provision that is sufficiently clear that such an assignment is not permitted without the insurer’s consent. Waiver Note, however, in a case involving a first-party auto insurance claim, Safeco Ins. Co. of Am. v. Clear Vision Windshield Repair, LLC, No. 14-17-00103-CV, 2018 WL 6175914, — S.W.3d —- (Tex. App.– Houston (14th Dist.) 11/27/18) the court found that the insurer waived its right to enforce an anti-assignment clause against claims for auto glass repairs made by a third-party auto glass repair firm, to whom policyholders had assigned their rights under their policies. The fact that the insurer had repeatedly paid the repair firm’s invoices directly, with regard to other claims, precluded the insurer’s right to enforce the anti-assignment clause against a claim presented by the same repair firm. For a further discussion of this issue, see PLRB’s Assignment of Benefits Annotation – TX. CAUSATION TEXAS CASE LAW ON CONCURRENT CAUSATION Indistinguishable Loss by Concurrent Perils Where property loss is caused by concurrent perils, one of which is insured against and the other of which is specifically excluded, the Texas Supreme Court has held that, unless the insured can successfully segregate that portion of his damages caused by the insured peril and that peril alone, the insured recovers nothing. Texas Supreme Court cases supporting this rule include: Coyle v. Palatine Ins. Co. , 222 S.W.2d 973 (Tex. 1920) Hardware Dealers Mut. Ins. Co. v. Bergland , 393 S.W.2d 309 (Tex. 1965) Paulson v. Fire Ins. Exchange , 393 S.W.2d 316 (Tex. 1965) United States Fidelity & Guaranty Co. v. Morgan , 399 S.W.2d 537 (Tex. 1966) Travelers Indemnity Co. v. McKillip , 469 S.W.2d 160 (Tex. 1971). In McKillip, both a windstorm (covered peril) and a snowstorm (excluded peril) could have damaged the insureds’ turkey barn. The court held that in order to recover for the loss, the insureds had to prove either that the “damage was caused solely by the windstorm,” or what part of the damage was caused by the windstorm. The court required this evidence from the insureds despite the fact that the jury found that the dominant and efficient cause of the damage to the insureds’ turkey barn was windstorm. Thus, to recover at all where there are multiple concurrent causes, the insured must be able to segregate the damages attributable solely to the covered peril. For additional Texas cases on wind/water issues, see Appendix here. Some recent decisions are summarized below: Shree Rama, LLC v. Mt. Hawley Ins. Co., No. 23-40123, 2023 WL 8643630 (5th Cir. (Tex.) 12/14/2023) (unpublished) (U.S. Court of Appeals for the Fifth Circuit, applying TX law) [reviewed at PLRB, Prop. Ins. L. Rev. (2023)]. Texas concurrent causation doctrine required the policyholder to either (1) prove that a covered peril (wind) was the sole cause of the loss or (2) segregate damage from a covered peril (wind) and from damage from an excluded peril (wear-and-tear). Because the policyholder offered no evidence to suggest that wind from Hurricane Hanna was the sole cause of any of the damage to the roof, it could only recover if it could provide a jury with a reasonable basis for separating covered damage from excluded damage. The court rejected the policyholder’s arguments that unsettled questions of law existed as to whether a policyholder must prove the extent to which the property suffered pre-existing damage due to wear and tear. To the extent there are such questions, they only arise when the policyholder is alleging that a covered peril was the sole cause of the damage claimed. That was not the case here because it was clear that the policyholder’s claims were based on damage for which it previously filed a claim, prior the any damage caused by the hurricane. Anthon Minor, Ltd. v. State Automobile Mutual Ins. Co., No. SA-21-CV-01180-JKP, 2023 WL 352935 (W.D. Tex. 1/20/2023) (U.S. District Court for the Western District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 11522 (2023)]. Segregation of damages, between hail storms that occurred prior to and during the policy period, was not required when the policyholder’s evidence was sufficient for a reasonable jury to conclude that the damage was caused solely by a storm that occurred during the policy period. Concurrent causation doctrine did not require additional evidence for the policyholder’s claim to survive the insurer’s motion for summary judgment. The policyholder’s evidence was sufficient for a reasonable jury to find that a May 2020 storm caused the claimed damage to the property. Although the insurer presented some evidence of damage caused by prior storms, the policyholder’s evidence was sufficient to allow a reasonable jury to apportion any damage caused by this storm, even if it determined some damage occurred outside the policy period. Advanced Indicator and Mfg., Inc. v. Acadia Ins. Co., No. 21-20092, 2022 WL 4731473, — F.4th — (5th Cir. (Tex.) 10/03/2022) (U.S. Court of Appeals for the Fifth Circuit, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 11451 (2022)]. In Texas, “when covered and non-covered perils combine to create a loss, the insured is entitled to recover that portion of the damage caused solely by the covered Peril.” Failure to do so results in no coverage. An insured may carry its burden by putting forth evidence demonstrating that the loss came solely from a covered cause or by putting forth evidence by which a jury may reasonably segregate covered and non-covered losses. Accordingly, because a jury could reasonably find that all of the policyholder’s loss comes from a covered cause, the concurrent causation doctrine did not bar recovery. Methodist Hospitals of Dallas, v. Affiliated FM Ins. Co., No. 21-10424, 2021 WL 6140253 (5th Cir. (Tex.) 12/29/2021) (unpublished) (U.S. Court of Appeals for the Fifth Circuit, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 11182 (2022)]. Texas concurrent causation doctrine declares, “when ‘excluded and covered events combine to cause’ a loss and ‘the two causes cannot be separated,’ concurrent causation exists and ‘the exclusion is triggered’ such that the insurer has no duty to provide the requested coverage.” Therefore, the policy’s exclusion for changes in temperature or relative humidity precluded coverage for damage to surgical supplies that occurred when power surges, due to a thunderstorm, caused the “chillers” in the insured hospital to shut down, which, in turn, caused temperature and humidity to rise. As a result, various medical supplies were rendered unfit for use. Methodist Hospitals of Dallas v. Affiliated FM Insurance Co., No. 3:20-CV-1504-B, 2021 WL 718365 (N.D. Tex. 2/24/21) (U.S. District Court for the Northern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10905 (2021)]. An exclusion for changes in temperature or relative humidity precluded coverage to damage to surgical supplies that occurred when power surges, due to a thunderstorm, caused the “chillers” in the insured hospital to shut down. The policyholder argued that because the temperature/ humidity exclusion had no anti-concurrent causation preface, the temperature/ humidity exclusion could only apply if a change in temperature or humidity was the sole cause of the loss. The court rejected the argument on the ground that Texas concurrent causation doctrine determines how such exclusions should be applied. Under this concurrent-causation doctrine, “when ‘excluded and covered events combine to cause’ a loss and ‘the two causes cannot be separated,’ concurrent causation exists and ‘the exclusion is triggered’ such that the insurer has no duty to provide the requested coverage.” Starco Impex, Inc. v. Landmark American Ins. Co., No. 1:19-CV-00039, 2020 WL 3442842 (E.D. Tex. 6/03/20) (magistrate’s report and recommendation) (U.S. District Court for the Eastern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10705 (2020)]. Wind and interior water damage claim under a commercial policy, arising from Hurricane Harvey, was dismissed because the policyholder failed to provide sufficient evidence that it could segregate excluded and pre-existing damage from damage caused by covered causes of loss. Under Texas “concurrent cause” doctrine, when covered and non-covered events combine to cause a loss, the policyholder may only recover the portion of the damage caused by the covered event. The policyholder in this case failed to meet its burden of providing sufficient evidence from which a reasonable jury could segregate covered and non-covered damage. Although the policyholder contended that its evidence showed that it “mitigated” prior storm damage to the roof and water damage to the interior by making repairs, the court viewed the same evidence as establishing that prior damage existed. In the absence of evidence showing that the policyholder could segregate pre-existing damage from new covered damage, the insurer was entitled to summary judgment dismissing all the policyholder’s claims. Ironwood Bldg. II, Ltd. v. AXIS Surplus Ins. Co., No. SA-19-CV-00368-XR, 2020 WL 1234641 (W.D. Tex. 3/13/20) (U.S. District Court for the Western District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10619 (2020)]. The settlement of a replacement cost claim for tornado damage, following hail damage that occurred the year before but was never repaired, would depend on whether the hailstorm and the tornado were concurrent, rather than independent causes. The policyholder may have the burden of segregating the hail damage from the tornado damage if the hailstorm and the tornado were concurrent causes of the damage. Under the Texas concurrent cause doctrine, “an insured may still recover even if he or she suffers damage from both a covered and non-covered peril.” Under such circumstances, the insured is entitled to recover that portion of the damage caused by the covered peril. But “where a loss is caused by a covered peril and an excluded peril that are independent causes of the loss, the insurer is liable.” Seahawk Liquidating Trust v. Certain Underwriters at Lloyds London, 810 F.3d 986, 995 (5th Cir. (Tex.) 2016) [reviewed at PLRB, Prop. Ins. L. Rev. 9343 (2016)] (emphasis added). Generation Trade, Inc. v. Ohio Sec. Ins. Co., No. 3:18-CV-0434-K, 2019 WL 3716427 (N.D. Tex. 08/06/2019) (United States District Court for the District of Texas, applying TX law) [reviewed at PLRB, Prop. Ins. L. Rev. 10463 (2019)]. Concurrent causation issue involved a genuine issue of material fact where the policyholder presented new evidence that roof damage was caused by covered hail storm, not pre-policy period storms. At the summary judgment phase where concurrent causation is at issue, the insured had the burden of producing evidence that would allow a jury to segregate covered from non-covered loss. One Way Investments, Inc. v. Century Surety Co. , No. 3:14-CV-2839-D, 2016 WL 5122124 (N.D. Tex. 9/21/16) (U.S. District Court for the Northern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9593 (2016) ]. A wind and hail damage claim under a commercial policy was dismissed because the policyholder failed to provide evidence that segregated damage from covered causes of loss from damage from excluded causes of loss, as required by Texas concurrent causation doctrine. The insurer contended that the claimed damage to the roof, air conditioning units, and the interior was the result of excluded wear and tear and improper construction. The policyholder claimed that a severe hail storm damaged the building. The burden was on the policyholder to segregate damage attributable solely to wind and hail from damage due to excluded causes. Having failed to do that, the policyholder’s claim was dismissed with prejudice. The policyholder also failed to provide any evidence that the requested repairs were reasonable and necessary. Seahawk Liquidating Trust v. Certain Underwriters at Lloyds London , No. 15-30324, 2016 WL 233384, — F.3d — (5th Cir. (Tex.) 1/19/16) (U.S. Court of Appeals for the Fifth Circuit, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9343 (2016) ]. Texas concurrent causation doctrine applied in determining coverage for loss of a contract with one of the policyholder’s customers as a result of damage to the insured drilling rig. Although the doctrine generally applies to physical damages, the loss of contract coverage required that the damage to the insured property, which caused the loss of the contract, be covered under the policy. Texas concurrent cause doctrine provides that where a loss is caused by a covered peril and an excluded peril combine to cause a loss, the loss is excluded from coverage unless the policyholder can produce evidence sufficient to establish a reasonable basis for determining the proportionate share of the loss that was covered. Consequently, when misaligned legs (a covered peril) at most combined with the defective hydraulic-jacking system (an excluded peril) to cause the damage, there was no coverage for the loss of the contract. Fire Insurance Exchange v. Kennedy , No. 02-11-00437-CV, 2013 WL 441088 (Tex. App. – Fort Worth 1/31/13) [reviewed at PLRB, Prop. Ins. L. Rev. 8630 (2013) ]. Segregation of covered water damage, caused by an accidental discharge of water from a leaking toilet, from non-covered damage was evidenced by (1) testimony regarding the damages sustained, (2) submission of a $4,800 estimate for the cost of repairing mold damage, which the jury was told to deduct from the $51,900 claimed, (3) jury instructions directing the jury to award damages for costs of repair “caused solely by a covered peril,” and (4) the jury’s finding, which the insurer did not challenge, that the policyholder suffered $42,000 in damages caused by a covered peril. Under Texas law, the doctrine of concurrent causation, which requires segregation of damages, simply requires that the policyholder prove that the damages claimed are covered by the policy. All Saints Catholic Church v. United National Ins. Co. , 2008 WL 2426703, — S.W.3d — (Tex. App. – Dallas 2008), reviewed at PLRB, Prop. Ins. L. Rev. 7580 (2008) . Replacement cost coverage applied to deteriorated shingles that suffered direct damage as a result of hail but not to deteriorated shingles that were not touched by hail. Although the hail-damaged shingles could not be replaced without replacing the entire roof, due to the deteriorated state of all the shingles, only the cost of replacing the hail-damaged shingles was covered. The court reached this result by applying Texas concurrent causation doctrine, under which damage caused by a covered cause of loss (hail) was covered, and damage caused by excluded perils (wear and tear and latent defect) was not covered. Poteet v. Kaiser , 2007 WL 4371359, (Tex. App. – Fort Worth 2007) (unpublished), reviewed at PLRB, Prop. Ins. L. Rev. 7514 (2007) . The initial reported damage from soot was considered a covered event under the policy, attributable to “sudden and accidental damage from smoke.” However, the insurer later claimed that non-covered perils (i.e. not sudden or accidental), including candles and the fireplace could have caused or contributed to the loss. Under these circumstances, the insureds failed to meet their burden under the concurrent causation doctrine. Kelly v. Travelers Lloyds of Texas Ins. Co. , 2007 WL 527911 (Tex. App. – Houston 14th Dist. 2007), reviewed at PLRB, Prop. Ins. L. Rev. 7282 (2007) . The insureds admitted that the mold in their home was caused by window and roof leaks, non-covered perils, as well as plumbing leaks, which were covered. The insurer also pointed to other factors, such as the 1994 flood and the conditions in the storage facilities. The insureds had the burden of segregating the damage attributable solely to a covered event under the Texas doctrine of concurrent causes. Failure to segregate covered and noncovered perils is fatal to recovery. Fire Insurance Exchange v. Sullivan , 2006 WL 278254 (Tex. App. – Houston 14th Dist. 2006), reviewed at PLRB, Prop. Ins. L. Rev. 7036 (2006) . Concurrent causation of water and mold damage resulted in a percentage allocation of damages according to covered and excluded causes. More specifically, repair of a dwelling damaged by water and mold from accidental discharge (covered) and wear and tear of the roof (excluded) and dampness of atmosphere and extremes of temperature (excluded), resulted in a jury question to establish the percentage of the loss attributable to each cause. Once the jury arrived at the percentage of the loss attributable to accidental discharge, the court was bound to use that figure to calculate the loss. Travelers Personal Security Ins. Co. v. McClelland , 2006 WL 133509 (Tex. App. Houston 1st Dist. (2006), reviewed at PLRB, Prop. Ins. L. Rev. 7020 (2006) . Texas concurrent causation doctrine did not require insureds to prove what damage was solely attributable to a covered cause of loss but only to provide evidence sufficient for a jury to have a reasonable basis for determining the proportion of damage attributable to a covered cause of loss. In a case involving a claim that foundation damage was caused by a covered plumbing leak rather than excluded natural causes, the court upheld the jury’s verdict that 80% of the damage was caused by the plumbing leak. The court rejected the insurer’s argument that the insureds’ evidence, which included: (a) testimony by the insureds’ engineer that natural causes contributed to the foundation damage and (b) a diagram showing the part of the home most directly affected by the plumbing leak, failed to establish that any part of the foundation damage was caused solely by the plumbing leaks. The court concluded that the insureds only had to establish that some proportion of the damage was caused by the plumbing leaks, rather than identifying a particular part of the damage that had been caused solely by the leaks. Garza v. Allstate Texas Lloyds , No., 2005 WL 2388254 (USDC S.D.Tex. 2005) reviewed at PLRB, Prop. Ins. L. Rev. 6964 (2005) . Texas concurrent causation doctrine places the burden on the insured to present evidence that will allow the trier of fact to segregate covered from non-covered losses. The insured’s expert’s report indicated both that there were signs of water leakage, upon which the insured based his claim, and that maintenance and/or condensation may have been factors in causing the damage, excluded causes cited by the insurer. Under these circumstances, the insured failed to meet its burden of presenting evidence that would allow a trier of fact to segregate covered from uncovered losses. Therefore, his claims for this damage were dismissed. Wallis v. United Services Auto, Ass’n , 2 S.W.3d 300 (Tex. App. 1999), reviewed at PLRB, Prop. Ins. L. Rev. 5458 (2000) . Concurrent causation doctrine precluded coverage for damage to a foundation caused by excluded earth movement and covered accidental discharge from a plumbing system. In Texas the doctrine of concurrent causation provides that where a covered and non-covered peril combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril. Thus, the insured has the burden of proof as to evidence of the damage that can be attributed to the covered peril. In this case the insured failed to present any evidence regarding how much of the damage was caused by plumbing leaks. Distinguishable Losses by Concurrent Perils It follows from these decisions that where the insured can successfully segregate the damage caused only by the insured peril from the damage caused by a combination of insured and specifically excluded perils, the insured recovers only the percentage of the damage caused solely by the insured peril. (But see a possible variation in the Sullivan and McClelland cases discussed above under this heading, possibly allowing an insured to show what percentage of the total loss was caused by a covered peril without segregating.) Although the Texas courts have adhered to the view that coverage is determined by whether the proximate cause of the loss was an insured peril, the Texas Supreme Court has consistently rejected the “dominant and efficient cause” test of determining the liability of the insurer where one concurrent cause is a peril insured against and the other concurrent cause is specifically excluded. As stated in Coyle, “the rule invoked, that where there is no order of succession in time and there are two concurrent causes of a loss in which the damage done by each cannot be distinguished, the predominating cause will be deemed the proximate cause, can have no application.” Some of the Texas Court of Civil Appeals cases do speak in terms of “dominant and efficient cause” when dealing with wind and/or water losses, but these cases are clearly contrary to the often reaffirmed formulation of the Texas Supreme Court just explained. For example, the Supreme Court’s 1971 decision in McKillip and subsequent decisions relying upon McKillip specifically rejected the dominant and efficient cause rationale. The Texas Supreme Court has specifically rejected the insured’s argument that the presence of “hurricane” as an insured peril negates the application of the water exclusions to loss caused by water. See Hardware Dealers Mut. Ins. Co. v. Berglund and Paulson v. Fire Ins. Exchange cited above. Contrast the use of the dominant and efficient cause test where the first peril causes the second. Texas courts tend to view the immediate cause as dominant. For example, In Lambros v. Standard Fire Ins. Co., 530 S.W.2d 138 (Tex. App. 1975), settling damage was allegedly caused by water below the surface of the ground. The “water below the surface” exclusion had been deleted from the policy for an extra premium. The insured argued that all losses caused by water below the surface should therefore be covered, despite the presence of the settling exclusion. The court disagreed, stating: Even after this plaintiff-oriented rewriting, it is clear that loss caused by settling, etc., is not covered. The cause of the settling is irrelevant, unless [the settling exclusion] is also rewritten to limit it to settling, etc., not caused by underground water. We conclude that the deletion of the subsurface water exclusion did not eliminate [the settling exclusion] or limit it to settling not caused by underground water. 530 S.W.2d 138, 140. For a more detailed general discussion of the Texas concurrent causation doctrine see, PLRB Texas – Proximate Cause . INSURED’S BURDEN OF PROOF It is one thing to state the abstract rule that the insured can recover nothing where the loss is caused by a combination of an insured and an excluded peril, but it is quite another thing to apply that rule to a hurricane situation where it may sometimes be difficult to determine whether wind or water or a combination of both damaged insured property. In many states the burden of proving that loss occurred due to an excluded peril, especially under all risk coverage, rests on the insurer. Not so in Texas, however, as discussed below. The Texas law on concurrent causation (above), provides that as long as the insurer merely alleges the specific exclusionary provisions upon which it relies in denying liability, the insured has the burden of proving either (1) that the entire loss was caused solely by an insured peril and that no part of the loss was caused by the excluded perils alleged by the company, or (2) that a certain percentage of the insured’s loss was caused solely by an insured peril. In the first instance the insured recovers the full amount of his loss while in the second instance the insured recovers only that portion of his loss caused solely by the insured peril. The rationale for this Texas rule as to burden of proof was explained by the Texas Supreme Court in Hardware Dealers Mut. Ins. Co. v. Berglund, 393 S.W.2d 309 (Tex. 1965): Here the insurance company pleaded specific exclusions which were set forth in the policy and thus raised issues of contract coverage. The burden of producing evidence to demonstrate that their losses were not attributable to the pleaded excluded hazards rested upon [insureds]. Shaver v. National Title & Abstract Co., 361 S.W.2d 867 (Tex.Sup. 1962); T.I.M.E. Inc. v. Maryland Casualty Co., 157 Tex. 121, 300 S.W.2d 68 (1957). See 8 Texas Bar Journal 36 (1945). As the matter is specifically covered by Texas decisions and our Rules of Civil Procedure, cases based upon the practice rules of other jurisdictions have little or no application here. [In response to motion for rehearing:] In deference to the motion it should be stated that we do not hold nor did we intend to infer that Rule 94 ‘binds this Court to freeze forever the burden of proof’ relating to the exclusionary clauses of an insurance policy. By its express terms, the rule provides that it shall not ‘be construed to change the burden of proof on such issue as it now exists.’ The rule relates to pleadings, but impliedly recognized that there was a doctrine extant in this State which controlled the burden of proof at the time the rule was adopted. The argument over the onus probandis relating to exceptions from the general liability assumed in an insurance policy is an old one and is not altered by the use of an ‘all risks’ clause which is simply a statement of general liability in its broadest form. In Travelers’ Ins. Co. v. Harris, 212 S.W. 933 (Tex. Comm. App. 1919, holding approved by the Supreme Court) the problem was thoroughly considered with the citation of numerous authorities and it was said: “. . . Those courts which treat the contracts as being general, and the clauses declaring what they shall not cover as ‘stipulations added to the principal contract to avoid the promise of the insurer by way of defeasance or excuse,’ hold that these clauses are defensive, and must be pleaded and sustained by the insurer; while the courts which construe the exception clauses as ‘taking something out of the general portion of the contract, so that the promise is to perform only what remains after the part excepted is taken away,’ place the burden of pleading and proof upon the assured to negative them by showing that his cause of action does not come within the exception. (Here follows citation of authorities.) “In view of the decisions by our Supreme Court, and the indication made in granting the writ in this case, we are of the opinion that the burden rests upon the plaintiff to show that her cause of action does not fall within the excepting clause. Cases discussing the insured’s burden of proof included the following: Prime Time Family Entertainment Center, Inc. v. Axis Ins. Co., No. 11-18-00241-CV, 2020 WL 6108263, — S.W.3d — (Tex. App. — Eastland 10/16/20) (Court of Appeals of Texas, Eastland, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10823 (2020)]. The burden of segregating covered and non-covered losses had to be met by the policyholder when it was seeking additional payments from the insurer for hail damage to the roof of its commercial building. The insurer’s payment of approximately $175,000 for repairs did not excuse the policyholder from segregating covered hail damage from pre-existing damage, when it filed suit seeking to recover the $750,000 it spent to replace the roof. The insurer obtained, through discovery, an email sent by the policyholder’s agent to the contractor, who originally installed the roof, a month before the hailstorm, which described pervasive leaks in the roof, as well as other documents demonstrating a history of roof issues and warranty claims during the six years prior to the hailstorm. Relying on this evidence, the insurer invoked Texas concurrent causation doctrine and moved for summary judgment on the basis that the policyholder could not meet its burden of segregating covered losses from non-covered losses. When the policyholder failed to offer any evidence from which a jury could reasonably allocate damages between covered and non-covered perils, the insurer’s motion was granted and the case dismissed. Starco Impex, Inc. v. Landmark American Ins. Co., No. 1:19-CV-00039, 2020 WL 3442842 (E.D. Tex. 6/03/20) (magistrate’s report and recommendation) (U.S. District Court for the Eastern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10705 (2020)]. Wind and interior water damage claim under a commercial policy, arising from Hurricane Harvey, was dismissed because the policyholder failed to provide sufficient evidence that it could segregate excluded and pre-existing damage from damage caused by covered causes of loss. Under Texas “concurrent cause” doctrine, when covered and non-covered events combine to cause a loss, the policyholder may only recover the portion of the damage caused by the covered event. The policyholder in this case failed to meet its burden of providing sufficient evidence from which a reasonable jury could segregate covered and non-covered damage. Although the policyholder contended that its evidence showed that it “mitigated” prior storm damage to the roof and water damage to the interior by making repairs, the court viewed the same evidence as establishing that prior damage existed. In the absence of evidence showing that the policyholder could segregate pre-existing damage from new covered damage, the insurer was entitled to summary judgment dismissing all the policyholder’s claims. Ironwood Bldg. II, Ltd. v. AXIS Surplus Ins. Co., No. SA-19-CV-00368-XR, 2020 WL 1234641 (W.D. Tex. 3/13/20) (U.S. District Court for the Western District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10619 (2020)]. The settlement of a replacement cost claim for tornado damage, following hail damage that occurred the year before but was never repaired, would depend on whether the hailstorm and the tornado were concurrent, rather than independent causes. The policyholder may have the burden of segregating the hail damage from the tornado damage if the hailstorm and the tornado were concurrent causes of the damage. Under the Texas concurrent cause doctrine, “an insured may still recover even if he or she suffers damage from both a covered and non-covered peril.” Under such circumstances, the insured is entitled to recover that portion of the damage caused by the covered peril. But “where a loss is caused by a covered peril and an excluded peril that are independent causes of the loss, the insurer is liable.” Seahawk Liquidating Trust v. Certain Underwriters at Lloyds London, 810 F.3d 986, 995 (5th Cir. (Tex.) 2016) [reviewed at PLRB, Prop. Ins. L. Rev. 9343 (2016)] (emphasis added). Certain Underwriters at Lloyd’s of London v. Lowen Valley View, L.L.C., 892 F.3d 167 (5th Cir. 6/06/18) (U.S. Court of Appeals for the Fifth Circuit, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10057 (2018)]. Hail damage to the roof of the insured hotel was not the insurer’s responsibility because the policyholder failed to offer evidence that would allow a trier of fact to segregate covered damage from non-covered damage In Fire Insurance Exchange v. Kennedy, No. 02-11-00437-CV, 2013 WL 441088 (Tex. App. – Fort Worth 1/31/13) [reviewed at PLRB, Prop. Ins. L. Rev. 8630 (2013) ], the court held that under Texas concurrent causation doctrine, where covered and excluded perils combine to cause a loss, the insured has the burden to segregate the covered and excluded damages. Applying this standard, the court found that the insured properly segregated covered water damage, caused by an accidental discharge of water from a leaking toilet, from non-covered damage. In Pierre v. Potomac Ins. Co. of Illinois, 583 F.Supp.2d 806 (N.D.Tex. 3/06/08) [reviewed at PLRB, Prop. Ins. L. Rev. 7718 (2009) ], the court held that the insured had the burden of showing the amount of damage caused by the covered peril in accordance with Texas causation doctrine. Although the insured did not have to establish the amount with mathematical precision, he had to offer evidence that would provide some reasonable basis for a jury to determine how much of the damage was attributable to a covered peril. In Curtis v. State Farm Lloyds, No. Civ. A. H-03-1025, 2004 WL 1621700 (S.D. Tex. 2004), reviewed at PLRB, Prop. Ins. L. Rev. 6776 (2004) , a mold damage claim was dismissed because the insureds failed to protect their property and make necessary repairs after they first discovered and reported damage caused by a plumbing leak. Although some of the damage may have been covered as an ensuing loss under the policy, the insureds could not recover for that damage because they were unable to segregate the covered damage from the damage that was not covered. Under Texas concurrent causation doctrine (unique to Texas and unlike concurrent causation doctrine elsewhere), an insured bears the burden of segregating and proving damage attributable solely to a covered event. In Wong v. Monticello Ins. Co., (Tex. App. 2003), reviewed at PLRB, Prop. L. Ins. Rev. 6652 (2004) , the court noted that Texas concurrent causation doctrine rejects efficient proximate causation doctrine and puts the burden on the insured to segregate damage caused by a covered peril when an excluded peril combines with a covered peril to cause the loss. In that case, even if the covered perils of explosion and high winds “were among the reasons” the city ordered demolition of the building, the demolition was the result of “non-covered perils” as well. Since the building was demolished and the insured’s property destroyed as a result of enforcement of a city ordinance, an excluded peril, there would be no way the insured could identify damage caused solely by a covered peril. In Allison v. Fire Ins. Exchange (Tex. App. 2002), 98 S.W.3d 227, 258 (Tex. App. – Austin 2002, pet. granted, judgm’t vacated w.r.m.) [text here ], the court held that: [A]n insured may only recover for the amount of damage caused solely by the covered peril. The burden is on the insured to prove coverage. The insured must therefore present some evidence upon which the jury can allocate the damages attributable to the covered peril. Id. Because allocation is central to the claim for coverage, an insured’s failure to carry the burden of proof on allocation is fatal to the claim. The insured must attempt to segregate the loss caused by the covered peril from the loss caused by the excluded peril. 98 S.W.3d. at fn. 33 (citations omitted). For additional cases on the shifting of the burden of proof, see Texas Law on Concurrent Causation, above. CASE LAW ON ANTI-CONCURRENT CAUSATION LANGUAGE The majority of states in which enforcement of the anti-concurrent causation or broad preface has been litigated have upheld its application. Texas follows the majority of states on this issue: it enforces the preface. Following are recent Texas cases in which the anti-concurrent causation clause was involved: Independence Barbershop, LLC v. Twin City Fire Ins. Co., No. A-20-CV-00555-JRN, 2020 WL 6572428, — F.Supp.3d — (W.D. Tex. 11/04/20) (U.S. District Court for the Western District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10838 (2020)]. An exclusion in a virus endorsement generally precluded coverage for COVID-related claims. The anti-concurrent causation preface to the exclusion meant that even if damage (a) caused by a virus could be viewed as distinct from damages caused by (b) having to shut down a business to sanitize it after learning that someone infected had been present or by (c) closing down a business because of government orders intended to stop the spread of a disease caused by a virus, the virus would be still be a contributing cause to damages caused by (b) and (c). Consequently, all COVID-19 related damages would be excluded. Diesel Barbershop LLC v. State Farm Lloyds, No. 5:20-cv-00461-DAE, 2020 WL 4724305 (W.D. Tex 8/13/20) (U.S. District Court for the Western District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10737 (2020)]. In a case involving coverage for COVID-19 losses, the court agreed with the insurer that the anti-concurrent causation preface to the virus exclusion meant that it barred coverage, regardless of “whether other causes acted concurrently or in any sequence with the excluded event to produce the loss. Safeco Ins. Co. of Indiana v. Moss , No. 03-16-00879-CV, 2017 WL 2856750 (Tex. App. – Austin 6/29/17) (Court of Appeals of Texas, Austin, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9778 (2017) ]. A surface water exclusion precluded coverage for damage caused by rainwater, which entered an electrical conduit and flowed into the insured home. The court, however, decided that it need not reach the issue of whether rainwater could lose its character as surface water by simply flowing into a man-made structure. The anti-concurrent causation preface to the exclusion at issue in this case precluded coverage because even if the water changed in character by the time it entered the home, the accumulation of surface water in the electrical basin indirectly caused the loss by forcing other non-surface water to flow through the conduit and into the home. Tsai v. Liberty Mutual Ins. Co. , No. 01-14-0077, 2015 WL 6550769 (Tex. App. – Houston (1st Dist.) 10/29/15) (Texas Court of Appeals – Houston, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9286 (2015) ]. A surface water exclusion applied to water that originated as water that overflowed from a planter holding shrubs, which a neighbor installed on the boundary between his property and the policyholders’ property. Excess water from the neighbor’s sprinkler system accumulated in the mulch at the base of the shrubs, and at some point, combined with rain. When the water accumulated to the height of the edging that surrounded the shrubs, it flowed onto the ground and migrated to the policyholders’ home, where it entered next to the foundation and caused damage to the policyholders’ wood floors. Even if the sprinkler system was the primary source of the water, the surface water exclusion would preclude coverage because: (1) the policy expressly stated that the exclusion applied to water damage “caused by or resulting from human or animal forces or any act of nature”; and (2) “natural” rainwater contributed to the loss, and thus the exclusion would apply as a result of its anti-concurrent causation preface, regardless of whether water from the sprinkler system was surface water. The water also did not lose its character as surface water when it accumulated in the mulch surrounding the shrubs, flowed onto the ground, and migrated to the policyholders’ home. Jaw The Pointe, L.L.C. v. Lexington Ins. Co. , No. 13-0711, 2015 WL 1870054, — S.W.3d — (Tex. 4/24/15) (Supreme Court of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9147 (2015) ]. An anti-concurrent causation preface to a flood exclusion was given effect by the Texas Supreme Court. Ordinance or law coverage did not cover the costs to demolish the insured apartment complex so it could be rebuilt after it was damaged by wind and flood from Hurricane Ike. The City of Galveston required that the property be rebuilt in accordance with current building code requirements because the property suffered “substantial damage” — meaning damage that equaled or exceeded 50 percent of the market value of the structure. Coverage under the policy’s Ordinance or Law and the Demolition and Increased Cost of Construction endorsements was only triggered if enforcement of an ordinance or law was caused by a covered loss. The anti-concurrent causation preface to the flood exclusion precluded coverage because flood, along with wind, caused the damage that led to enforcement of the building code. Whether the total value of the wind damage was greater than 50% of the market value of the property (as estimated by the policyholder’s experts), was irrelevant because what mattered was what actually caused the City to enforce the ordinances, rather than what might have been sufficient for enforcement. The evidence conclusively established that wind damage and flood damage combined to cause the City to enforce the ordinances. Consequently, the anti-concurrent causation preface to the flood exclusion operated to defeat the ordinance or law and demolition coverages because no covered loss caused the code enforcement. Concurrent causation analysis under Texas common law does not apply when the relevant policy language has an anti-concurrent causation provision. Bilotto v. Allied Property & Casualty Insurance Co. , Civil Action No. SA-13-CA-721-FB. 2015 WL 241218 (W.D. Tex. 1/16/15) (U.S. District Court for the Western District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9092 (2015) ], Earth Movement and Water Under the Surface exclusions precluded coverage for damage to the insured building caused, in part, by three plumbing leaks beneath the foundation. Although the policy covered loss or damage caused by accidental discharge of water from a plumbing system, the anti-concurrent preface to the earth movement and water exclusions precluded coverage, regardless of whether water escaping from the plumbing system contributed concurrently or in any sequence to the loss. The earth movement exclusion applied to loss or damage caused by both natural and manmade causes as a result of the anti-concurrent causation preface to the earth movement exclusion. ARM Properties Management Group v. RSUI Indemnity Co. , No. 09-50653, 2010 WL 4386787 (USCA 5th Cir. 11/05/10) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. 8126 (2010) ]. Anti-concurrent causation preface to water damage exclusion in a Primary property insurance policy was incorporated into the Second-Layer excess policy. Consequently, the Second-Layer excess insurer was not liable for combined (covered) wind and (excluded) water damage from Hurricane Katrina, even though the Primary insurer and the First-Layer excess insurer both paid their policy limits for the loss. Claunch v. Travelers Lloyds Ins. Co. , No. 4:07-CV-548-A, 2008 WL 114844 (USDC N.D.Tex. 2008) reviewed at PLRB, Prop. Ins. L. Rev. 7477 (2008) . Water damage exclusions preceded by anti-concurrent causation language precluded coverage for basement flooding regardless of whether the sole cause of the water was the mechanical breakdown of the insured’s sump pump. The water damage exclusions prevailed over the Equipment Breakdown under the insured’s businessowners policy. All possible sources of the water were excluded under the provisions of the water damage exclusions for surface water, water that backs up or overflows from a sump, and water under the ground surface pressing on, or flowing, or seeping through basements or doors, windows or other openings, “all whether naturally occurring or due to man-made or other artificial causes.” Lexington Ins. Co. v. Unity/Waterford-Fair Oaks, Ltd. , 2002 WL 356756 (N.D.Tex. 2002), reviewed at PLRB, Prop. Ins. L. Rev. 6259 (2002) . Mold damage was excluded under a manuscript Pollution and Contamination Exclusion that listed fungi as one of the excluded contaminants and was prefaced with anti-concurrent causation language. The court decided that mold proliferation, resulting from rain entering the buildings, qualified as a “release, discharge, escape, or dispersal” of an excluded contaminant. The anti-concurrent causation preface to the policy’s faulty maintenance exclusion also precluded coverage for interior water damage caused, in part, by inadequate maintenance of the roofs of the insured’s apartment buildings. The court rejected the insured’s theory that the exclusion applied to the grounds and nearby property but not to the buildings. Wong v. Monticello Ins. Co. , 2003 WL 1522938 (Tex. App. 2003), reviewed at PLRB, Prop. L. Ins. Rev. 6652 (2004) . Anti-concurrent causation preface made the governmental action and ordinance or law exclusions apply to loss of the insured’s property that occurred when the city ordered demolition of the building in which her restaurant was located. The court held that the exclusions applied even if the demolition order was issued in response to high winds and an explosion on adjacent property, both covered perils under the policy. For a more detailed general discussion of the anti-concurrent causation preface, as well as links to other states’ treatment of the preface, see, PLRB, Anti-concurrent Causation Preface: Introduction . FORMS – TEXAS FIRST PARTY PROPERTY Many property policies in Texas include an endorsement that contains a windstorm and hail deductible. For example, some homeowners forms may have the Windstorm or Hail Percentage Deductible endorsement, ISO HO 03 12 05 11, which provides: The following special deductible is added to the policy: With respect to the peril of Windstorm Or Hail, for any one loss, we will pay only that part of the total of all loss payable that exceeds the windstorm or hail percentage deductible. The dollar amount of the windstorm or hail deductible is determined by multiplying the Coverage A Limit Of Liability shown in the Declarations by the deductible percentage amount shown in the Schedule above. No other deductible in the policy applies to loss caused by windstorm or hail. All other provisions of this policy apply. Similar endorsements are also available for commercial property policies (ISO CP 03 21 10 12) and businessowners policies (BP 03 13 01 10). Another form to be aware of when dealing with windstorm losses in Texas is the ISO HO 23 05 05 11 endorsement (Actual Cash Value Loss Settlement Windstorm or Hail Losses to Roof Surfacing- Texas). This endorsement modifies the loss settlement provision in the policy with respect to a covered loss for roof surfacing caused by the peril of windstorm or hail. “Such loss will be subject to actual cash value loss settlement” instead of “repair or replacement cost without deduction for depreciation.” The BP form has a similar endorsement (BP 14 04 07 13 Windstorm or Hail Losses To Roof Surfacing – Actual Cash Value Loss Settlement). Finally, some policies covering properties located in the Catastrophe Area designated by the Texas Department of Insurance may contain a Windstorm or Hail Exclusion in Texas Endorsement (ISO HO 04 70 06 02), which deletes coverage for the peril of windstorm or hail in all forms, and excludes windstorm or hail for Forms HO 00 03 and HO 00 05. The exclusion does not apply to direct loss by fire or explosion resulting from windstorm or hail. A similar exclusion may be endorsed to commercial property policies (ISO CP 10 57 06 07) and businessowners policies (BP 01 20 11 14). Note that policyholders in Catastrophe Areas may obtain windstorm coverage through the Texas Windstorm Insurance Association (TWIA). Information regarding TWIA and its forms, may be accessed on its website here. LOSS OF USE: PERSONAL LINES Texas Standard Form Language For many years, Texas insurers were required to use standard Department of Insurance (DOI) forms for residential property insurance. Since 2003, insurers have been given the option of either using their own forms or endorsements, as long as they are submitted to and approved by the Department prior to use, or using the standard Texas DOI forms issued prior to June 11, 2003. As a result of these changes, insurers may be adjusting claims under either their own forms or standard Texas DOI forms. Therefore, it is important to recognize some of the differences between Loss of Use coverage under forms similar to the ISO HO-3 and standard Texas DOI forms such as the Texas HO-B. Texas DOI forms typically cover Loss of Use (personal lines) as follows: EXTENSIONS OF COVERAGE . . . . 2. LOSS OF USE. If a loss caused by a Peril Insured Against under Section I makes the residence premises wholly or partially untenantable, we cover: a) additional living expense, meaning any necessary and reasonable increase in living expense you incur so that your household can maintain its normal standard of living. b) fair rental value, meaning the fair rental value of that part of the residence premises usually rented to others by you less any expenses that do not continue. The total limit of liability for all loss of use is 20% of the Coverage A (Dwelling) limit of liability. This is additional insurance and does not reduce the Coverage A (Dwelling) limit of liability. The deductible clause does not apply to loss of use coverage. Payment will be for the reasonable time required to repair or replace the damaged property. If you permanently relocate, payment will be for the reasonable time required for your household to become settled. The periods of time for loss of use are not limited by expiration of this policy. Texas Homeowners Form B (Texas HO-B) (2002). [Other Texas DOI forms may have different policy limits, such as the HO-A, which only covers 10% of the Coverage A limit.] The key differences are as follows: 1. “Loss Caused by a Peril Insured Against” Triggers Coverage The phrase “a loss caused by a Peril Insured Against under Section I” differs from the ISO HO-3, which uses “a loss covered under Section I.” 2. Residence Premises Made “Wholly or Partially Untenantable” The phrase “makes the residence premises wholly or partially untenantable” differs somewhat from the ISO HO-3, which uses “makes that part of the residence premises where you reside not fit to live in” for ALE and “that part of the residence premises not fit to live in” for fair rental value. As a practical matter, the resulting coverage may be the same. For case law on this language, see “Texas Case Law on Additional Living Expenses” below. 3. No Civil Authority Coverage The Loss of Use coverage under standard DOI personal lines forms contain no specific provisions for Additional Living Expenses incurred when civil authorities prohibit access to the insured premises. The ISO HO-3 and most other homeowners forms contain such coverage, but the Texas DOI forms apparently do not. 4. Section I Exclusions – Texas HO-B Has No Exclusions for Power Failure or Sewer Backup and No Anti-Concurrent Causation Preface The Section I Exclusions under the Texas HO-B, the multi-peril homeowners form, contain no exclusion for loss or damage caused by power failure. There is an exclusion for “loss to electrical devices or wiring caused by electricity other than lightning,” but the Texas Supreme Court has ruled that this does not apply to loss of power. See Blaylock v. American Guarantee Liability Ins. Co., 632 S.W.2d 719 (Tex. 1982) [reviewed at PLRB, Prop. Ins. L. Rev. 1243 (1982)] (where the court said, “We cannot extend the exclusion for loss ’caused by electricity’ to a loss in which a lack of electricity was a contributing factor.” Id. at 722). The Texas HO-B also lacks an exclusion for loss or damage caused by water that backs up from sewers or drains or overflows or is discharged from a sump. See State Farm Lloyds v. Marchetti, 962 S.W.2d 58 (Tex. App. 1997) [reviewed at PLRB, Prop. Ins. L. Rev. 5024 (1998)] (water that backed up through basement drain from overtaxed public storm system was a covered cause of loss for damage to a home and its contents). The Section I Exclusions do generally exclude “loss caused by or resulting from flood, surface water, waves, tidal water, or tidal waves, overflow of streams or other bodies of water or spray from any of these whether or not driven by wind.” They also exclude loss by “earthquake, landslide or earth movement” as well as some other perils typically found in the Section I Exclusions in standard ISO forms. However, none of these Section I Exclusions are prefaced with the broad, anti-concurrent causation language found in most standard property insurance forms today. (“We do not insure for loss caused directly or indirectly by any of the following…. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”) The absence of the broad preface should not affect coverage analysis for property damage claims since Texas law on concurrent causation generally produces the same result (i.e. that coverage only attaches if damage is caused entirely by a covered peril or if damage from a covered peril can be segregated from damage from excluded perils – see discussion of Concurrent Causation above). However, the absence of the preface together with the wording of the Loss of Use coverage – loss by a Peril Insured Against (rather than a covered loss) that makes the premises “partially” untenantable – may preclude the arguments, which can be made under other forms, that ALE coverage does not attach unless or until no peril among the Section I Exclusions is causing untenantability. (See arguments presented under subsections 2 and 3 in “Loss of Use: Covered and Excluded Perils Combine – Three Approaches” in discussion of ISO form language below). Loss of Use Under Non-DOI Personal Lines Forms Under policies similar to the ISO HO-3 homeowners form that have been approved for use in Texas, loss of use claims may be analyzed as follows: Civil Authority Under the HO-3, loss of use due to a prohibition of access by Civil Authority is only covered if the prohibition is the “result of direct damage to neighboring premises by a Peril Insured Against.” (ISO HO 00 03 10 00). The meaning of “neighboring premises” is unclear, but by analogy to “adjacent property” used in older commercial civil authority clauses, it could be interpreted as requiring loss in the immediate vicinity, although not necessarily right next-door. In South Texas Medical Clinics, P.A. v. CNA Financial Corp., Civil Action No. H-06-4041, 2008 WL 450012 (USDC S.D.Tex 2/15/08) [reviewed at PLRB, Prop. Ins. L. Rev. 7719 (2009)], Civil Authority coverage did not apply to business interruption losses that occurred as a result of a mandatory evacuation order that was issued because Hurricane Rita was projected to hit land nearby. Although there was evidence that the judge who issued the evacuation order relied, in part, on reports of damage to property that had already occurred in Florida, the order was not issued “due to” such damage as required for coverage under the policy. The fact that some damage occurred elsewhere before the order was issued was one item of information the judge received indicating the nature of the threat posed by the storm. The evacuation order was not issued “due to” that damage but rather was issued because of fear or anticipation of harm from the storm (harm that did not, in fact, occur because Hurricane Rita changed course and made landfall elsewhere. Loss of Use: Only Covered Perils Cause Loss of Use Assuming no involvement of excluded flood or surface water or any other peril excluded under the anti-concurrent causation preface, there will be coverage for loss of use if a covered peril or perils make the residence premises unfit to live in. Case law on whether the premises are “untenantable” under the Texas HO-B form probably would apply in determining whether the premises were “unfit” to live in. Under the additional living expenses and fair rental value provisions, coverage is for the shortest time required to repair or replace the windstorm damage, or, in the event the insured permanently relocates elsewhere, for the shortest time required for the insured’s household to settle elsewhere. Civil authority coverage only applies for a maximum period of two weeks. Loss of Use: Covered and Excluded Perils Combine – Three Approaches When both insured windstorm damage and damage from perils excluded under the anti-concurrent causation preface (such as flood, surface water, or off-premises power failure) are factors resulting in the uninhabitability of the insured premises or the action of civil authority, coverage is a gray area. The following discusses three possible approaches to coverage interpretation. We are not aware of any case law addressing this issue in the context of personal lines. 1. Causation by Any Covered Peril Results in Coverage Coverage D does not itself contain the broad anti-concurrent causation language that prefaces the Section I – Exclusions for water damage and off-premises power failure (“We do not insure for loss caused directly or indirectly by any of the following…. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”) Coverage D states that the additional living expenses (ALE) and fair rental value (FRV) coverages apply “[i]f a loss covered under Section I makes [the premises] not fit to live in.” The civil authority coverage applies if use is prohibited “as a result of direct damage to neighboring premises by a Peril Insured Against in this policy.” These statements might reasonably be interpreted to mean that there is coverage as long as “a loss covered under Section I” is one of the proximate causes of the dwelling being unfit, or as long as “a Peril Insured Against” was one of the proximate causes of the damage to neighboring premises which results in the denial of access to the residence premises by the civil authority. 2. Causation by a Combination of Excluded and Covered Perils Results in No Coverage The water damage and power failure exclusions nevertheless are Section I Exclusions and, as such, apply to all Section I coverages, including Coverage D. These Section I Exclusions apply “regardless of any other cause or event contributing concurrently or in any sequence to the loss.” As noted above in the discussion above on Concurrent Causation, most courts have given such language literal effect. Therefore, it may be argued that Coverage D should not apply if excluded water damage or off-premises power failure were one of the causes rendering the dwelling unfit (ALE or FRV) or prompting the denial of access by civil authority. Under this theory, no coverage would be provided for the length of time required to repair damage caused by excluded water damage or off-premises power failure perils (ALE or FRV), or any time during which access to the premises was denied because of damage to neighboring premises by the excluded water damage or off-premises power failure perils (civil authority). Coverage would only exist for any additional time, if any, required to repair damage due to windstorm, lightning, or another covered peril (ALE or FRV), or any additional time, if any, during which access is denied because the damage to neighboring premises involved windstorm, lightning, or another covered peril. 3. First-In-Time Approach to Coverage Another approach to analyzing the availability of Coverage D in this scenario is to determine which cause of uninhabitability or denial of access was first in time. In some situations, this may be practical, but in others it may not be possible to determine the exact sequence of events. If this approach can be practically applied, it will result in ALE or FRV coverage when the windstorm, lightning, or other covered peril occurs first and already renders the premises unfit for occupancy before excluded water damage or off-premises power failure perils affect the premises. It will result in civil authority coverage when the civil authority denies access because of first-in-time windstorm, lightning, or other covered peril damage nearby or at least would have denied access even in the absence of later nearby damage by excluded water damage perils or the effect of off-premises power failure. Under this theory, coverage would be provided for the entire time required to repair the covered first-in-time covered damage (ALE or FRV) or during which access is denied by civil authority because of first-in-time covered damage. Under this theory, the water damage and off-premises power failure exclusions would not apply to these time periods because excluded water damage or off-premises power failure simply would not have been the cause of the uninhabitability in light of the sequence of events. Of course, under this theory, if damage first occurs by excluded water damage or if the premises are first rendered uninhabitable by the effect of off-premises power failure, Coverage D does not apply until the effects of such excluded perils are remedied, and then only for any additional period required to deal with the effects of second-in-time covered causes of loss. Texas DOI Adoption of Four Endorsements Covering Additional Living Expenses On August 18, 2006, the Commissioner adopted four optional endorsements to provide coverage for additional living expenses under Order No. 06-0859. The optional endorsements are for use with homeowners, condominium, and tenant insurance policies. Endorsements HO-115 and HO-115A provide coverage for policyholders who incur additional living expenses when a civil authority orders a mandatory evacuation. For purposes of Endorsement No. HO-115 and HO-115A, “mandatory evacuation” is defined as “an evacuation ordered by any civil authority of all or part of the population from an area under its jurisdiction.” Endorsements HO-116 and HO-116A provide coverage for policyholders who incur additional living expenses as a result of an extended loss of utilities. The optional endorsements became effective for use on September 16, 2006 with the appropriate rate and rule filings. Texas Case Law on Additional Living Expenses Texas case law on Additional Living Expenses is based on the Texas HO-B. However, cases dealing with untenantability and the kinds of expenses covered probably would apply to the comparable provisions in other homeowners forms. Sullivan v. State Farm Lloyds, Civil Action No. 3:05-CV-2000-L, 2008 WL 1775407 (USDC N.D.Tex. 4/15/08) [reviewed at PLRB, Prop. Ins. L. Rev. 7554 (2008)]. Additional Living Expenses were no longer payable after the insured sold his home to a company he owned as sole shareholder and president. Although the insurer voluntarily paid the expenses for two years before it learned the insured had sold the house, it was not estopped from refusing to continue to pay the expenses. Nor was the insurer bound by the oral agreement the insurer allegedly made with the insured to pay him $29,000 a month until the mold damage to his home was repaired. Only written changes to an insurance contract were enforceable under the terms of the policy. The court did not quote all the policy language, however, even with the language quoted, it was not clear what, if anything, the sale of the house had to do with the cause of its being unfit to live in. If the house in question was listed as the “residence premises” in the declarations, and if the insurer did not permanently locate somewhere else, a post-loss sale to the insured’s privately owned corporation would not appear to change the dwelling’s status as the “residence premises.” Therefore, if the loss that caused the insured to move out were a covered loss, and the insured had not permanently relocated, the sale would not appear to impact the cause that triggered ALE coverage or the status of the property as the “residence premises.” State of Texas v. Allstate Insurance Co., Cause No. GN503652, 200th Judicial District Court of Travis County, Texas (Judge Lora J. Livingston, 1/20/06 opinion letter) (denial of State’s request for permanent injunction) [reviewed at Case Law Digest 2006]. Additional living expenses are only available when a hurricane or other insured peril causes physical loss or damage to the insured residence. “The mere existence of a hurricane which tangentially causes policyholders to be either without power or access to their home is not a peril insured against.” Id. Additional living expense coverage did not extend to costs associated with purchasing a permanent new home after the insured premises became uninhabitable due to mold. It was reasonable for a jury to decide that a reasonable period of time “to become settled” in a new permanent home would be two days and that the expenses associated with purchasing a new home did not constitute increased living expenses for that period. McMillin v. State Farm Lloyds, 2005 WL 2043847 (Tex. App. – Austin 2005) [reviewed at PLRB, Prop. Ins. L. Rev. 6968 (2005)]. Beacon National Ins. Co. v. Glaze , 114 S.W.3d 1 (Tex. App. – Tyler 2003). Written documentation of expenses was not a condition precedent for filing a claim for Additional Living Expenses. In this case the insureds lived in another house while their fire-damaged home was being repaired. The insurer disputed the amount of their claimed expenses (estimated at $1,000 a month for housing and $400 a month for food). The court held that they could meet the requirements of the Duties After Loss by either submitting to an examination under oath or providing receipts of their expenses. USAA v. Gordon, 103 S.W.3d 436 (Tex. App. – San Antonio 2002) [reviewed at PLRB, Prop. Ins. L. Rev. 6337 (2002)]. Additional living expenses cannot be recovered until they are actually incurred. Kondos v. Allstate Lloyds, No. Civ.A. 1:03-CV-1440, 2005 WL 1004720 (E.D. Tex. 4/25/05). Genuine issues of material fact precluded summary dismissal of ALE claims. The insurer contended it owed no more than two months of ALE for mold remediation based on its estimate that it would take no more than one month. The insureds sought ALE coverage for the eight to nine months it took for them to perform the mold remediation on their own. Ramirez v. State Farm Lloyds, No. CA-C-02-359-H, 2004 WL 612862 (S.D. Tex. 1/27/04). Applying the definition of untenantability adopted in Flores, the court concluded that genuine issues of material fact remained as to whether the insured home was untenantable in light of the fact that the insurer had paid ALE for five months before it refused to pay more. Issues of material fact also remained as to whether a reasonable period of time for repairs had expired after five months during which the policyholders failed to even begin mold remediation. Flores v. Allstate Tex. Lloyd’s Comp., 229 F. Supp. 2d 697 (S.D. Tex. 2002). In ruling on the admissibility of evidence concerning the health hazards allegedly created by the presence of mold, the court decided that “an untenantable home is one which cannot be used for the purposes for which it is intended and cannot be restored, using ordinary repairs, without unreasonable interruption of the occupancy.” Id. at 700. The court adopted a reasonable person standard for determining untenantability. It rejected the subjective standard set forth in Hackbarth v. Ross, 1997 WL 633548 (Conn.Super.1997), where the court held that a dwelling may become untenantable merely because the occupant had a subjective belief of its untenantability so long as the subjective belief was reasonable. McDonald v. State Farm Lloyds, No. 3:00-CV-1829-R, 2001 WL 406379 (N.D.Tex. 4/17/01). In a case in which the insured homeowners could only live in three rooms of their house until smoke, fire, and electrical damage was repaired, the court decided that they were not entitled to additional living expenses based on their “inability to enjoy the full value of their home.” Although the court quoted the language of the HO-B provisions, it did not specifically discuss whether or not the home was “partially untenantable.” Instead, it focused on the phrase “increase in living expense you incur” and simply determined that the homeowners had failed to show any increase in expenses actually by them. The insured was able to recover additional living expenses incurred beyond eight months from the date of loss in Commonwealth Lloyd’s Ins. Co. v. Thomas, 678 S.W.2d 278 (Tex. Civ. App. 1984) [reviewed at PLRB, Prop. Ins. L. Rev. 1810 (1984)], even though the insured testified that he could have rebuilt the home within eight months with due diligence. The jury was not limited to the estimation of the length of time it would take to rebuild the home with due diligence, but was able to consider all of the circumstances. LOSS OF USE: COMMERCIAL LINES Civil Authority Commercial policy language may vary, but standard forms describe coverage as follows: ISO CP 00 30 10 12 When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises, provided that both of the following apply: (1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and (2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property. ISO CP 00 30 04 02 We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. The language of the older form quoted above broadly requires there be loss or damage to “property, other than at the described premises.” It does not provide any further details on the distance or location of this property, other than it must be “other than at the described premises.” This kind of form language contains no geographic limitation on the physical damage that prompts the civil authorities to prohibit access the premises but does require that physical damage somewhere be the cause of the authorities’ action. As a result, it is not clear how close the damage must occur in order to be considered a cause of the action. Evacuation Order Must Be “Due To” Damage, Not a Precautionary Measure In Evanston Ins. Co. v. AmSpec Holding Corp., No. 4:19-CV-1498, 2020 WL 6152190 (S.D. Tex. 10/20/20) (U.S. District Court for the Southern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10824 (2020)]. Civil authority coverage did not extend to the loss of business income and extra expense incurred as a result of the U.S. Coast Guard’s orders closing ports in advance of Hurricane Harvey. The insurer denied the claim on the basis that the Coast Guard’s orders were not issued as a result of physical loss of or damage to property but instead were issued as a precautionary measure in advance of Hurricane Harvey. The ports remained closed after the hurricane made landfall, but no new orders were issued. Even though the hurricane caused property damage once it made landfall, none of the Coast Guard orders were issued as a result of physical loss or damage to property. Consequently, there was no coverage for the policyholder’s loss of business income and extra expense incurred as a result of the port closures because there was no causal nexus between the orders and physical loss or damage. In South Texas Medical Clinics, P.A. v. CNA Financial Corp., Civil Action No. H-06-4041, 2008 WL 450012 (USDC S.D.Tex 2/15/08) [reviewed at PLRB, Prop. Ins. L. Rev. 7719 (2009)], Civil Authority coverage did not apply to business interruption losses that occurred as a result of a mandatory evacuation order that was issued because Hurricane Rita was projected to hit land nearby. Although there was evidence that the judge who issued the evacuation order relied, in part, on reports of damage to property that had already occurred in Florida, the order was not issued “due to” such damage as required for coverage under the policy. The fact that some damage occurred elsewhere before the order was issued was one item of information the judge received indicating the nature of the threat posed by the storm. The evacuation order was not issued “due to” that damage but rather was issued because of fear or anticipation of harm from the storm (harm that did not, in fact, occur because Hurricane Rita changed course and made landfall elsewhere. See also Kelaher, Connell & Conner, P.C v. Auto-Owners Ins. Co., No. 4:19-CV-00693-SAL, 2020 WL 886120 (D.S.C. 2/24/20) (U.S. District for the District of South Carolina, applying Carolina law) [reviewed at PLRB, Prop. Ins. L. Rev. 10591 (2020)]. Civil Authority coverage for lost business income was not triggered by a mandatory evacuation order issued by the governor before Hurricane Florence made landfall. The order was not issued “because of damage or destruction of property adjacent to the described premises.” The phrase “because of” unambiguously required the order of civil authority to have a connection, link, or nexus to existing damage or destruction of adjacent property when the order was issued. No evidence of such a connection was presented as the evacuation order was issued before the storm reached the area and no evidence was presented of damage elsewhere. Consequently, there was no coverage. Bamundo, Zwal & Schermerhorn, LLP v. Sentinel Ins. Co., No. 13-CV-6672 RJS, 2015 WL 1408873 (S.D.N.Y. 3/26/15) (U.S. District Court for the Southern District of New York, applying New York law) [reviewed at PLRB, Prop. Ins. L. Rev. 9132 (2015)]. Civil authority coverage did not apply to the insured law firm’s loss of business income while its offices in lower Manhattan were closed immediately before and for two months after Superstorm Sandy struck the area. There was no dispute that access to its premises was specifically prohibited by order of a civil authority during that time period. But the orders prohibiting access were the direct result of excluded flood, rather than a Covered Cause of Loss. Consequently, the policy flood exclusion barred the claim. The only exception was the initial evacuation order, which was issued before the storm hit. The Civil Authority Coverage, however, did not begin until 72 hours after the evacuation order was issued. By that time a subsequent order had been issued which was the direct result of flooding. Consequently, there was no time period in which there was Civil Authority coverage for the policyholder’s loss of business income. Similarly, in Peacock Auto., LLC v. Granite State Ins. Co., No. 22-1283, 2024 U.S. App. LEXIS 3701 (S.C.) 4th Cir. 02/16/2024) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. (2024)], Civil Authority coverage was not triggered by evacuation order issued in anticipation of Hurricane Dorian where the order was issued as a precautionary measure and not as a direct result of damage to property. Although the policyholder argued that the evacuation order was issued after the hurricane caused significant damage to the Bahamas, the Governor’s evacuation order made no reference to that property damage or to property damage anywhere else as a basis for its issuance. (The form did not contain newer one-mile radius language). For a more nuanced approach from a federal district court in a different jurisdiction (Louisiana), see Pathology Laboratory, Inc. v. Mt. Hawley Ins. Co., No. 2:21-CV-01558, 2021 WL 3378596 (W.D. La. 8/03/21) (U.S. District Court for the Western District of Louisiana, applying Louisiana law) [reviewed at PLRB, Prop. Ins. L. Rev. 11059 (2021)]. Civil Authority coverage was triggered by a combination of government orders, including a mandatory evacuation order and subsequent business closure orders. Although the evacuation orders were first issued before Hurricane Laura made landfall, in part, in anticipation of physical damage, the orders continued after the damage occurred. Business closure orders did not need to specifically address the insured premises. It was sufficient that they were issued due to hurricane damage in the area. Because the policyholder alleged facts sufficient to show that access to its facilities was prohibited and that the orders were based on physical damage, the insurer’s motion to dismiss was denied. This approach was followed in another Lousiana case, Townsley v. Ohio Sec. Ins. Co., No. 2:21-CV-00293, 2021 WL 4901767 (W.D. La. 10/20/21) (U.S. District Court for the Western District of Louisiana, applying Louisiana law) [reviewed at PLRB, Prop. Ins. L. Rev. 11148 (2021)]. Issuance of evacuation orders before the hurricane made landfall did not preclude civil authority coveage. Civil Authority Coverage was triggered by extension of the pre-storm mandatory evacuation order after Hurricane Laura made landfall and caused substantial damage. Precisely when coverage began would depend on when the initial order was extended. Damage Within One Mile Radius Requirement of 2007/2012 Editions In the 2007 and subsequent editions of the ISO CP 00 30 form, the issue of whether an action of civil authority in any given situation is due to physical damage elsewhere or is actually based on threat of damage to the described premises — is mooted. In the 2007 and subsequent editions of the CP form, the triggering damage must be “within a one-mile radius of the described premises.” In addition, the 2007 and subsequent editions of the form requires that the action of civil authority “must be taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action [must be] taken to enable a civil authority to have unimpeded access to the damaged property.” Under the broader language in older editions of the ISO CP 00 30 forms, some courts found civil authority coverage when the order of civil authority was issued out of fear of damage at the described premises, rather as a result of damage elsewhere. In contrast, under the 2007 and subsequent editions, the drafters have been emphatic in restricting the potential breadth of this coverage. In particular, in the 2007 and subsequent editions, the damage that triggers the action of civil authority must occur within one mile from the described premises. Further, the action of civil authority ” must be taken in response to dangerous physical conditions resulting from the damage [caused by a Covered Cause of Loss] or [from] continuation of the Covered Cause of Loss that caused the damage, or the action [must be] taken to enable a civil authority to have unimpeded access to the damaged property .” To modify the “within one-mile radius” requirement, one can purchase the ISO CP 15 32 06 07, Civil Authority Changes form. Using this endorsement, the insured can increase the “one-mile radius” requirement up to the amount of miles specified in the schedule. Duration Civil Authority Coverage could potentially extend for up to 3 or 4 weeks, or some other amount of time as prescribed by the policy language. However, this is not a guaranteed amount of time, but rather is a maximum. The issue that often arises from this language is when does Civil Authority Coverage end. The limited case law we are aware of from other jurisdictions suggests that coverage ends when access is restored: Civil Authority coverage automatically ended when government officials lifted an evacuation order approximately ten days after it was issued. Although the policy did not expressly state that coverage would end once access was allowed, the court concluded that prohibited access was unambiguously required as a condition for continued coverage. The evacuation order in this case was issued on August 28, 2005, after Hurricane Katrina had made landfall in Louisiana, and was rescinded effective September 9, 2005. The court rejected the insured’s argument that it was entitled to coverage for the 30-day maximum period allowed under the policy. Magee v. National Fire Ins. Co. of Hartford, No. 2007 CA 0474, 2008 WL 46285 (La. App. 1st Cir. 2/08/08) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. 7497 (2008)]. In Kushner Lagraize, LLC v. Phoenix Ins. Co., Civil Action NO. 09-3376, 2009 WL 2922122 (USDC E.D.La. 9/09/09) [reviewed at PLRB, Prop. Ins. L. Rev. 7875 (2009)], civil authority coverage ended when the evacuation order was lifted and did not extend for three weeks, the period referenced in the policy and intended to be the limit on coverage. In Jones, Walker, Waechter, Poitevent, Carrere & Denegre, LLP v. Chubb Corp., Civil Action No. 09-6057, 2010 WL 4026375 (USDC E.D.La 10/12/10) [reviewed at PLRB, Prop. Ins. L. Rev. 8106 (2010)], the insured argued that once the Civil Authority coverage was triggered it ended at the earlier of 30 days later or when the business income losses ended. The court rejected this interpretation as contrary to the policy language, which focused on the impairment of operations “directly caused” by prohibition of access by a civil authority. The court stated: Once the evacuation order was rescinded…any impairment of operations was no longer directly caused by a civil authority’s prohibition of access. The fact that the policy expressly includes two measures of time when coverage will terminate assuming that the requirements for coverage remain in effect, does not suggest that once coverage attaches it is ongoing notwithstanding that the very requirements for that coverage are no longer met. Loss of Use: Caused Only By An Excluded Peril Needless to say, there is no coverage for business interruption caused solely by loss or damage by an excluded peril. The following are some notable Texas cases in which courts denied coverage because the business interruption was caused by excluded flood or surface water, which resulted from Tropical Storm Allison: Valley Forge Ins. Co. v. Hicks Thomas & Lilienstern, No. 01-03-00709-CV, 2004 WL 2903521, 174 S.W.3d 254 (Tex. App. 1s Dist. Houston 12/16/04). Heavy rains from Tropical Storm Allison caused the Buffalo Bayou to overflow and flood downtown Houston. Water flowed into a parking garage, through a pedestrian tunnel and into the Bank of America building, which housed the insured’s premises. The court held that the water that reached the building was excluded surface or floodwater. Consequently there was no coverage for business interruption caused by closure of the building. Hirsch & Westheimer, P.C. v. Northern Ins. Co. of New York, No. H-02-2480 (USDC S.D. Tex. 2004) [reviewed at PLRB, Prop. Ins. L. Rev. 6675 (2004)]. Business interruption coverage denied based on the same facts and reasoning as in Valley Forge above. The water that flowed into the Bank of America building was excluded surface water. Loss of Use: Caused Only By Covered Causes of Loss Assuming no involvement of excluded flood, surface water, off-premises power failure, or any other peril excluded under the anti-concurrent causation preface, there would be coverage for business interruption claims for the period from the time the policy states the coverage begins (in some policies 72 hours after the damage occurs), until the date when the property at the described premises should be repaired, rebuilt, or replaced with reasonable speed and similar quality (i.e., until the end of the specified period of restoration). Loss of Use: Covered and Excluded Causes Combine to Cause Business Interruption As to situations where both covered windstorm damage and excluded perils such as flood, surface water, or off-premises power failure are factors in causing the suspension of operations or action of civil authority, coverage is uncertain. The ISO commercial forms require that the suspension or action be “caused by” direct physical loss on the premises caused by or resulting from “any Covered Cause of Loss.” In situations where the covered windstorm is one of the causes of the interruption, it can be argued there should be coverage because the loss of use coverages refer to loss “caused by or resulting from” “any Covered Cause of Loss” and do not contain any anti-concurrent causation language. However, the anti-concurrent causation preface to the Section I Exclusions states that the insurer “will not pay for loss or damage” caused by those excluded perils, which would seem to indicate that the exclusions apply to all losses claimed under the policy. Therefore, it can be argued that these exclusions should apply to the loss that is the subject of the claim (for example, lost business income from business interruption) as well as to the physical loss or damage to property that triggers the loss of use coverage. Finally, one might argue that a first-in-time approach to coverage should be applied when a covered peril, such as windstorm, first causes damage that would trigger the loss of use coverage and only later excluded water damage or power failure occurs. This would afford coverage only for the period of time that it would take to repair the covered damage or for the time the denial of access by civil authority continues on the basis of the covered peril. (See the analogous discussion of loss of use claims under personal lines forms summarized above.) Under commercial forms, there are a few cases addressing the question of the effect of combined excluded and covered causes of loss as it relates to coverage for commercial loss of use under various policy forms (including some without standard anti-concurrent causation language). These include the following: Narricot Industries, Inc. v. Fireman’s Fund Ins. Co., No. 01-4679, 2002 WL 1247972 (USDC E.D. Pa. 9/30/02) [reviewed at PLRB, Prop. Ins. L. Rev. 6344 (2002)]. Civil authority coverage does not extend to losses resulting from actions by civil authority in response to damage from an excluded cause of loss, such as flood. Nor does it extend to losses resulting from actions due to a combination of covered hurricane damage and excluded flood damage when the policy’s flood exclusion is prefaced with anti-concurrent causation language. Fajardo Shopping Center, S.E. v. Sun Alliance Ins. Co. Of Puerto Rico, Inc., 167 F.3d 1 (1st Cir. P. R. 1999) [reviewed at PLRB, Prop. Ins. L. Rev. 5299 (1999)]. Hurricane Hugo was the proximate cause of damage to a shopping center, regardless of whether faulty workmanship may have contributed to the loss. Consequently, there was coverage for property damage and business interruption under a policy excluding loss due to “faulty design, specifications, workmanship, construction, or materials if a peril excluded by this policy contributes to the loss at any time.” Thornton White, Inc. v. Industrial Risk Insurers, 1992 Fire & Casualty Cas. (CCH) 11,168 (S.C. 3/30/92), opinion ordered withdrawn on grant of rehearing, 1992 WL 65700 (S.C. 5/06/92). In a case arising out of Hurricane Hugo, the Supreme Court of South Carolina found coverage for business interruption caused by a combination of covered on-premises windstorm damage to power lines and excluded off-premises power failure. The policy excluded “loss caused by or resulting from . . . interruption of incoming electricity . . . caused by an occurrence off the premises . . . unless physical damage not otherwise excluded in this policy ensues, then [Insurer] shall be liable for only ensuing loss resulting directly from such physical damage.” The court found coverage based on the ensuing loss clause. It reasoned that, due to ambiguity in the form, the physical damage to electrical lines need not have ensued from the off-premises interruption of power, but need only have ensued from the hurricane itself. Further, the court stated that “ensue” can mean to follow and does not necessarily imply a causal relationship. The opinion was withdrawn by mutual request of the litigants when the case was settled after oral arguments before the South Carolina Supreme Court, but before the opinion was issued. The opinion is not available from Westlaw or Lexis, but still may be available from the CCH Fire and Casualty Cases. Loyola University v. Sun Underwriters Ins. Co. of New York , 93 F.Supp. 186 (E.D. La. 1950), affirmed 196 F.2d 169 (5th Cir. 1952). Coverage for building damage and loss of rents was found where the insured had an eyewitness to testify that the building was destroyed by windstorm before water levels rose in the area. The court found that under these circumstances, where the damage by covered and excluded causes could be proven separate, there was no loss caused by a combination of covered and excluded causes. Special Issues Arising from Endorsements or Other Policies Another twist on the issue of mixed causes of loss is what happens if one cause, such as flooding or sewer backup, is excluded under the main policy but is covered under an endorsement or another policy – is there still a Covered Cause of Loss for the purposes of business interruption coverage, and if so, which policy limit or deductible applies? If two separate policies are involved, when can one insurer seek contribution from another? The answers to these kinds of questions depend on the language and structure of the forms and possibly the policy declarations. Examples of cases that have dealt with such issues include: For Kids Only Child Development, Inc. v. Philadelphia Indemnity Ins. Co., No. 05-07-00546-CV, 2008 WL 2877756, 260 S.W.3d 652 (Tex. App. – Dallas 7/25/08) reviewed at PLRB, Prop. Ins. L. Rev. 7601 (2008)]. Sewer backup limit applied to all claims arising from an incident in which the insured’s building was flooded with 4 to 6 inches of sewage due to a stoppage in the city sewer main. The special limit of $25,000 for sewer backup applied to claims for lost business income, extra expense, and debris removal, as well as property damage. Wichita Realty, LLC v. Continental Western Ins. Co., No 92,805, 2005 WL 1661511 (Kan. App. 7/15/05), revised opinion issued at 2005 WL 2128742 (Kan. App. 9/02/05) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. 6914 (2005)]. A sewer backup endorsement limit applied to the insured’s claim for property damage caused by sewer backup. The court rejected the insured’s argument that the endorsement amended the main policy so as to allow coverage for sewer backup under both the main policy and the endorsement. The insured, however, was allowed to recover extra expenses up to the policy’s $30,000 limit for Extra Expense. The court rejected the insurer’s argument that the endorsement’s $10,000 limit for Additional Coverage for sewer back up applied to both the property damage and Extra Expense claims. Urrate v. Argonaut Great Central Ins. Co., 881 So.2d 787 (La. App. 5 Cir. 2004) (order granting rehearing 9/27/04) (clarifying judgment interest award), writ denied, 891 So.2d 686, 2004-2644 (La. 1/7/05) (La. Jan 07, 2005) (NO. 2004-C-2644) and 891 So.2d 690, 2004-2685 (La. 1/7/05) (La. Jan 07, 2005) (NO. 2004-C-2685) [reviewed at PLRB, Prop. Ins. L. Rev.6758 (2004)]. Other insurance clause did not preclude a windstorm insurer’s liability for wind damage to the insured’s windows or loss of business income. Although most of the damage to the premises was the result of flooding and wave action, only covered by the insured’s flood insurance policy, the trial court properly found that windstorm caused the damage to the windows and that a portion of the business income losses was attributable to wind damage to the entire premises. The trial court’s award of double damages for bad faith was reversed on the basis that, in the absence of proof of actual damages as a result of bad faith, an insured is only entitled to a $5,000 penalty under Louisiana law (La. Rev. Stat. 22:1220(C)). Great American Ins. Co. v. Mesh Café, Inc., No. CO102-840, 2003 WL 21267942 (N.C. App. 6/03/03) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. 6433 (2003)]. Service interruption coverage applied to loss of electricity and water due to hurricane flooding. The court held that the phrase “direct physical loss or damage by a Covered Cause of Loss” was ambiguous because “Covered Cause of Loss” could be reasonably read as modifying only the word “damage.” Consequently, the insured was entitled to recover its lost business income, notwithstanding the policy’s exclusion for flooding, because the service interruption was the result of “direct physical loss.” [Note that in North Carolina, citation to unpublished opinions is “disfavored” but may be allowed if there is no published opinion on the issue. See Rule 30 of the North Carolina Rules of Appellate Procedure.] Altru Health Care System v. Amer. Protection Ins. Co., 238 F.3d 961 (8th Cir. N.D. 2001) [reviewed at PLRB, Prop. Ins. L. Rev. 5819 (2001)]. Flood coverage sublimit of liability applied to all losses resulting from flood, including business interruption by civil authority and extra expense, not just property damage. The policy’s $66,750,000 limit for business interruption losses therefore did not apply to $3,781,683 of interruption losses. Instead, the $1,500,000 flood sublimit applied to all losses, which together exceeded $5,000,000. The court reached this result based on examination of the nonstandard language. Stryker Corp. v. National Ins. Co., 187 F.Supp.2d 4 (D. Puerto Rico 2002) [reviewed at PLRB, Prop. Ins. L. Rev. 6240 (2002)]. Windstorm deductible did not apply to business interruption losses caused by a hurricane. Mark Andy, Inc. v. Hartford Fire Insurance Co., 229 F.3d 710 (8th Cir. Mo. 2000), modified on rehearing by 233 F.3d 1090 (8th Cir. Mo. 2000) [reviewed at PLRB, Prop. Ins. L. Rev. 5803 (2001)]. Policy did not unambiguously subject all losses cause by a flood, including business interruption and extra expense losses, to the flood sublimit. The court cited “an ‘All Other Perils (AOP) Sublimit’ declaration which stated as follows: ‘Liability for loss under this policy arising out of one Occurrence shall not exceed $38,500,000.’ ” Id. at 1092. In addition, it noted that “unlike the Flood Endorsement, which was silent on the matter of business interruption losses, the Transit Endorsement . . . specifically stated that it did not insure against loss resulting from the interruption of business.” Id. Therefore, reading the policy as a whole, the court concluded that “[a]t best, the insurance policy is ambiguous on the issue of business-interruption losses caused by a flood, and its axiomatic that ambiguous provisions in an insurance policy are construed against the insurer.” Med Imaging Center, Inc. v. Allstate Insurance Co., 818 F. Supp. 333 (M.D. Fla. 1993) [reviewed at PLRB, Prop. Ins. L. Rev. 3922 (1993)]. The policy did not clearly state that the sublimit at issue applied to all claims. Business interruption coverage was available without specific monetary limit for loss of income due to employee dishonesty although the optional coverage for employee dishonesty was specifically limited to $20,000 and the loss of income coverage was subject to the terms of the policy. Gilbert/Robinson, Inc. v. Sequoia Ins. Co., 655 S.W. 2d 581(Mo. App. 1983). Where the insured owned four restaurants, which were all damaged by a flood, the court held that the provision extending business interruption coverage was interrelated and dependent upon other provisions of the policy. Therefore an endorsement deleting the exclusion for flood damage and providing a $25,000 per location limit for flood loss applied to business interruption loss as well as direct loss to buildings and personalty. Victory Container Corp. v. Sphere Insurance Co., 448 F. Supp. 1043, 1044 (S. D. N.Y. 1978). The flood coverage limits appeared under the heading of “Property Limits,” with no indication they also applied to business interruption losses. The insured had a policy covering both property damage BY FLOOD and business interruption. The insurer alleged that the business interruption loss should be included with the property damage claim and subject to a single limit. The policy had a “property limit” applicable to loss by flood and a separate sub-limit applicable to valued business interruption. The court held that the business interruption loss was a loss separate from the property damage and accordingly was not included in the “property limit” for flood. Loss of Use: Determining Amount of Business Income Loss Disputes over how to determine the amount of business income loss arising from a catastrophe have led to litigation and some form changes. One issue has been whether the insured should recover (a) an amount equal to what the business would have earned had it not been damaged by the catastrophe, but had the catastrophe otherwise occurred as it did, or (b) an amount equal to what the business would have earned had the catastrophe itself not occurred. Businesses whose goods or services would be in unusually high demand in the wake of a catastrophe would recover much more if (a) is the proper measure of recovery. For a decision holding (a) to be the proper measure of recovery, see Stamen v. CIGNA Prop. & Cas. Ins. Co., No. 93-1005-CIV-DAVIS (USDC S.D. Fla. 1994) [reviewed at PLRB, Prop. Ins. L. Rev. 4169 (1995)] and Levitz Furniture Corp. v Houston Casualty Co., 1997 WL 218256 (USDC E.D.La. 4/28/97). For decisions holding (b) to be the proper measure of recovery, see American Auto. Ins. Co. v. Fisherman’s Paradise Boats, Inc., No. 94-0014-CIV-GRAHAM (USDC S.D. Fla. 1994) [reviewed at PLRB, Prop. Ins. L. Rev. 4167 (1995)] and Prudential LMI v. Colleton Enters., Inc., 976 F.2d 727 (Table) Unpublished Disposition (text in Westlaw) (4th Cir. S.C. 1992) [reviewed at PLRB, Prop. Ins. L. Rev. 3916 (1993)]. Based on the cases that denied increased recovery in this type of situation and the fact that the Stamen and Levitz Furniture cases were based on non-standard language, it is reasonable to limit the insured’s recovery to the amount it would have earned had there been no hurricane at all. Interestingly, the 1995 and subsequent versions of the ISO CP 00 30 provide, “(2) The likely Net Income of the business if no loss or damage had occurred, but not including any Net Income that would likely have been earned as a result of an increase in the volume of business due to favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses.” The 1996 and subsequent versions of the ISO BP 00 02 form contain similar language. What about the insured whose business would not increase following a hurricane, but would greatly decrease because the surrounding area was severely damaged? This issue is discussed in PLRB’s comments to Prudential LMI v. Colleton Enters., Inc., 976 F.2d 727 (Table) Unpublished Disposition (text in Westlaw) (4th Cir. S.C. 1992) [reviewed at PLRB, Prop. Ins. L. Rev. 3916 (1993)]. The new ISO language does nothing to clarify this type of situation. Loss of Use: Texas Case Law on Calculating Business Income Losses In Alley Theatre v. Hanover Ins. Co., No. CV H-19-1987, 2020 WL 1650659 (S.D. Tex. 3/26/20) [reviewed at PLRB, Prop. Ins. L. Rev. 10625 (2020)], business income losses for a nonprofit performing arts center were to be calculated by including charitable donations as part of its revenue. Revenue includes income from any and all sources, and a nonprofit may simultaneously obtain revenue from operations and charitable donations. The insurer requested that the policyholder produce records of donations made after the theatre complex was closed following Hurricane Harvey. The court ruled that while the donations could be counted as revenue, post-loss donations could not be included in calculating lost business income. Only historical revenue, including donations, could be considered. In Theatre v. Hanover Ins. Co., No. CV H-19-1987, 2020 WL 520631 (S.D. Tex. 01/31/2020) [reviewed at PLRB, Prop. Ins. L. Rev. 10571 (2020)], Flood endorsement limit did not apply to business income loss for commercial property policyholder following Hurricane Harvey flood damage which caused theater to close during repairs. This coverage dispute arose following Hurricane Harvey damaged the commercial property policyholder’s downtown Houston theater. The policyholder’s theater sustained severe flood damage. The flood water filled its basement and that water broke an interior concrete wall that fell and hit and ruptured a fire-suppression sprinkler pipe, which released nearly a million gallons of sprinkler-system water into the basement. As a result of the damage, the theater had to stop its operations for several months and spend over $12 million to repair it. Id. at 2-3. The court held the flood limit applied to sprinkler system leak damage where flood, not an interior wall collapse, was the proximate cause of the loss. The flood limit applied to the loss caused by flood, even if the loss resulted from a named storm where the policy’s Named Storm Deductible did not create a separate covered peril and the flood definition did not exclude losses caused by other perils. In H & H Hospitality LLC v. Discover Specialty Ins. Co., No. H-10-1886, 2011 WL 6372825 (S.D.Tex.12/20/2011) [reviewed at PLRB, Prop. Ins. L. Rev. 8431 (2011)], partial suspension of a motel’s operations did not result in business interruption coverage because the coverage required a “suspension of your ‘operations,'” meaning a total cessation of business. The word “suspension” was not defined. In Wyndham International, Inc. v. ACE American Ins. Co., 186 S.W.3d 682 (Tex. App. – Dallas 3/10/06) [reviewed at PLRB, Prop. Ins. L. Rev. 7097 (2006)], evidence of business income losses was rejected on the grounds that the testimony of the insured’s expert accountant was unreliable and irrelevant. The insured sought to recover for business interruption at its 163 hotel and resort properties following the terrorist attacks of September 11, 2001. Without reaching the coverage issues, the court upheld the trial court’s dismissal of the insured’s claim on the basis that there was no admissible evidence that the insured suffered damages. Among the reasons for rejecting the evidence were: the insured’s expert relied on forecasts made by local hotel managers without any consistent rules or methodology for their preparation; the expert projected revenues for 62 properties from the flawed forecasts for the other 101 properties; the expert failed to compensate for re-bookings or for any causes of loss of hotel business other than the events of September 11, 2001. One Texas case dealt with the question of whether post-interruption sales can be used to offset business interruption losses. In Finger Furniture Co. v. Commonwealth Ins. Co., No. 04-20359, 2005 WL 590831, 404 F.3d 312 (5th Cir. 2005) [reviewed at PLRB, Prop. Ins. L. Rev. 6854(2005)] the court decided that a business interruption loss was to be calculated on the basis of historical sales figures, not actual post-interruption sales. The strongest and most reliable evidence of what a business would have done had the catastrophe not occurred was what it had been doing in the period just before the interruption. Consequently, post-interruption sales could not be used to offset sales lost during the time the business was closed. Another court held, under a non-standard business interruption policy, that an insured could recover for losses that continued after he resumed business operations. In Lexington Ins. Co. v. Island Recreational Development Co., 706 S.W.2d 754 (Tex. App. – Beaumont 1986) [reviewed at PLRB, Prop. Ins. L. Rev. 2240 (1986)], a restaurant located on Pleasure Island in Port Arthur suffered substantial damage from a windstorm, causing it to be closed from September until December. The insured claimed it did not reach its pre-loss level of business until the following June. The court decided that because the policy language was not drafted in terms relevant to a restaurant business, it was ambiguous as applied to the insured’s losses. Consequently, it construed it in favor of the insured, allowing it to claim losses through June 30 of the year after the damage occurred. Since 2000, ISO forms have expressly stated that business interruption coverage is intended to cover losses arising from partial interruptions or slowdowns in business. Under older policy forms that did not have such a provision, Texas courts have ruled that business income losses from partial business interruptions or slowdowns in business are not covered. See Quality Oilfield Products, Inc. v. Michigan Mut. Ins. Co., 971 S.W.2d 635 (Tex. App. 4/16/98) [reviewed at PLRB, Prop. Ins. L. Rev. 5143 (1998)] (manufacturer of oilfield drilling and production equipment suffered theft of engineering drawings and computer information). See also, Apartment Movers of America, Inc. v. OneBeacon Lloyd’s of Texas, No. Civ. A. 3:04-CV-0278-B, 2005 WL 106477 (N.D. Tex. 1/19/05) (short haul moving business lost business after its Yellow Pages ad was moved back 23 pages and reduced to half its size as a result of employee’s destruction of Yellow Pages invoice and embezzlement of funds); and Royal Indem. Ins. Co. v. Mikob Properties, Inc., 940 F. Supp. 155 (S.D. Tex 1996) [reviewed at PLRB, Prop. Ins. L. Rev. 4686 (1997)] (apartment complex suffered reduced occupancy after amenities were seriously damaged by fire). ORDINANCE OR LAW EXCLUSION The ISO HO 03 05 11 form treats losses caused by enforcement of ordinance or law in three places: (1) in the exclusion proper (see PLRB, Homeowners Annot., HO79); (2) in the loss settlement clause (see PLRB, Homeowners Annot. Key Ho 96); and (3) in the Ordinance or Law Additional Coverage (see PLRB, Homeowners Annot. Key HO 149). Following is a brief discussion of the treatment in each of these three places in the 2011 form. (1) ISO did not comment on the revisions it made to the exclusion that were introduced in 2002. At that time the exclusion was amplified to apply specifically to any debris removal, any loss in value of property, and any testing or treatments for pollution. (2) With respect to the Loss Settlement condition, ISO highlighted the fact that repair or replacement cost does not include the increased costs resulting from the enforcement of any ordinance or law except to the extent provided under the Additional Coverage for Ordinance or Law. There are two revisions to serve this purpose. The first is the statement that costs to repair and replace do not include costs incurred to comply with ordinance or law. The second is the addition of the phrase “material of like kind and quality” to the phrase “like construction and use.” (See PLRB, Homeowners Annot. Key Ho 96 .) (3) With respect to the Ordinance or Law Additional Coverage, ISO indicated that it was making only one change. This additional coverage did not appear in the 1991 form. However, it was introduced on a nationwide basis with state specific endorsements. The one change is apparently from the text of those endorsements. (See PLRB, Homeowners Annot., Key HO149 .) The additional coverage provides up to 10% of the limit of Coverage A, after a covered loss, for increased costs incurred due to the enforcement of any ordinance or law which requires or regulates: repair of property damaged; demolition and reconstruction of undamaged property; or work on undamaged property which must be done in order to complete work on damaged property. The additional coverage may be applied towards debris removal, but does not provide coverage for loss in value to any covered property, nor for any testing or treatments for pollution. TEXAS CASE LAW In Hamburg-Bremen Fire Ins. Co. v. Garlington, 18 S.W. 337 (Tex. 1886), a policy was issued on a building that had sustained a partial fire loss. Subsequently, it sustained another fire loss and was damaged to the extent that it lost its character as a building, although some of the materials remained. The court held that the insured suffered a total loss by fire, notwithstanding the fact that the building was already damaged when the fire occurred. The court reasoned in the alternative that the building was a total loss because its repair was forbidden by municipal ordinance. The court referred to no policy language concerning the effect of ordinance or law. Texas is a valued policy state, but the court did not mention the valued policy statute. In Scanlan v. Home Ins. Co., 79 S.W.2d 186 (Tex. App. 1935), the insured building was damaged to 70 percent of its appraised value. Notwithstanding that fact, it would have been prudent to use the remains in rebuilding. However, repair was prohibited by an ordinance stating that if a non-fireproof building is damaged as much as 50 percent of its value, no permit shall issue for its repair. The court held that, based on the effect of the ordinance, the insured suffered a total loss, and the insurer owed the $65,000 face value of the policy instead of the $30,500 it would have cost for repairs. The policy provided that the company “shall not be liable for loss caused directly or indirectly . . . by order of any civil authority.” It further provided that the company shall not be liable “beyond the actual value destroyed by fire, for loss occasioned by ordinance or law regulating construction or repair of buildings, or by interruption of business, manufacturing process, or otherwise.” The court reasoned that the order of civil authority language does not relate to fire losses at all but to losses occasioned solely by order of civil authority. The court stated that the language regarding ordinance or law has reference to partial losses to which the valued policy law is not applicable. Conceding that the intent of the drafters was to contract against the effect of the valued policy law and the municipal ordinance, the court held that such policy provisions are void because they are in contravention of the valued policy statute. Thus, the specific policy language did not alter the general rule regarding constructive total losses. The court also rejected the insurer’s argument that the ordinance was void because it authorizes the taking of property without due process of law. In Glens Falls Ins. Co. v. Peters, 386 S.W.2d 529 (Tex. 1965), the insured building suffered partial fire damage. The insured received notices from the city requesting him to demolish the structure and then, telling him to either raze or repair. The latter notice cautioned that, in either event, he would need a permit. The insured ignored the need for a permit and simply tore down the building. The insured refused the insurer’s demand for an appraisal and made claim for a total loss. The jury found that a reasonably prudent owner would have used the remnant for repairs. Therefore, concluded the court, the building was not a total loss. The court then reasoned that the building would be a constructive total loss if it were damaged to an extent greater than 50 percent of its value, because, in that event, repair would be prohibited by ordinance. However, the insured failed to submit the issue of constructive total loss to the jury and therefore waived his right to a judgment on this issue. The court went on to reason that the independent ground of recovery of constructive total loss was not conclusively established by the evidence. There was conflicting testimony as to the extent of the damage. The court held that the percent of damage is not conclusively established by the report of the building inspector. In Wong v. Monticello Ins. Co., No. 04-02-00142-CV, 2003 WL 1522938 (Tex.App.- San Antonio 3/26/03) (not yet reported in S.W.3d) [reviewed at PLRB, Prop. L. Rev. 6652 (2003) ],the insured’s property was destroyed when the building in which her restaurant was located was demolished by order of the City of San Antonio pursuant to section 6-175 of the City Code. According to the insured, the city issued the order in response to damage caused by an explosion that occurred in an adjacent building and high winds. [The court’s opinion did not indicate whether the insured’s building or her property had suffered any damage from the explosion or winds at any time before the building was demolished.] The anti-concurrent causation preface made the governmental action and ordinance or law exclusions apply to the loss. The court held that the exclusions applied even if the demolition order was issued in response to the high winds and the explosion on adjacent property, both covered perils under the policy. The court also denied the insured’s civil authority claim because it was the demolition of the building that kept customers away, not an order or action prohibiting access. Toney v. State Farm Lloyds , No. 14-40914, 2016 WL 4784012 (5th Cir. (Tex.) 9/13/16) (unpublished) (U.S. Court of Appeals for the Fifth Circuit, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9549 (2016) ], notes that Texas adopted the IRC (International Residential Code) in full, and it was not “formally amended in any relevant respect by the City of Mission.” Id. at *3, citing TEX. LOC. GOV’T CODE ANN. § 214.212 and City of Mission Municipal Code § 18-32. The IRC “applies to all construction, alteration, remodeling, enlargement, and repair of residential structures in a municipality.” TEX. LOC. GOV’T CODE ANN. § 214.212(b). Repairs to existing dwellings are governed by IRC § AJ301.1, which requires that repair work conform to the IRC standards for new construction. 19 IRC § R907.1 adds two rules pertaining to repairs to roofing materials: First, “[r]oof repairs to existing roofs and roof coverings shall comply with the provisions of Chapter 34 of the International Building Code.” 20 Chapter 34 of the IBC, in turn, provides that “[a]dditions, alterations or repairs to any building or structure shall conform with the requirements of the code for new construction.” Second, IRC § R907.1 provides that “more than 25 percent of the roof covering of any building shall not be removed and replaced within a 12-month period unless the entire roof covering is made to conform to the requirements for new roofing.” Id. at *4. Chapter 34 of the IBC (International Building Code) provides that “[p]ortions of the structure not altered and not affected by the alteration are not required to comply with the code requirements for a new structure.” Id., citing IBC § 3402.1 and noting at n.22 that “Chapter 34 of the IBC is incorporated into the IRC by operation of IRC § 907.1.” COVERAGE ENDORSEMENTS In Commonwealth Ins. Co. v. Benihana of Tokyo, Inc., 1997 WL 361617 (U.S. Dist. Ct. N. D. Tex. 1997) reviewed at PLRB, Prop. Ins. L. Rev. 5122 (1998) , the insured purchased an endorsement that read as follows: [I]n the event of loss or damage by a peril insured under this Policy that causes the enforcement of any law or ordinance regulating the construction or repair of damaged facilities, this Company shall be liable for: . . . . c. the increased cost of repair or reconstruction of the damaged and undamaged portion of the facility. A fire at the restaurant caused damages, including damages to four ventilation hoods. The fire department required in its inspection report that all twenty ventilation hoods be replaced pursuant to the mechanical code. The fire department could have inspected before the fire and required the insured to replace all twenty hoods, but, in fact, the inspection was triggered by the fire. The court reasoned: [T]he fact that the code may have been applicable before the fire is irrelevant since the [endorsement] does not specify that the regulation being enforced be newly applicable or that the fire hazard not have previously existed. Instead, the language simply requires the enforcement of any law or ordinance, regardless of whether the hazard or violation was preexisting. In a footnote, the court rejected the insurer’s argument that this line of reasoning could lead to an absurd conclusion such as requiring the restaurant to pay to cover such deficiencies as the lack of wheelchair access ramps. The court responded that under the language of the endorsement this conclusion was not absurd. In Laird v. CMI Lloyds, No. 06-07-0091-CV, 2008 WL 2414853, — S.W.3d — (Tex. App. – Texarkana 2008) reviewed at PLRB, Prop. Ins. L. Rev 7581 (2008) , the court held that an insured could not add the $5,000 limit for Ordinance or Law Coverage to the limit for mold coverage because of limitations on Ordinance or Law Coverage for repairs made more than 365 days after the loss and for the costs to comply with ordinance or laws that require an insured “to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, assess the effects of, pollutants on any covered building or structure.” The “Ordinance or Law Coverage Limitations” precluded application of the Ordinance or Law Coverage to mold remediation costs. The court declined to address the insured’s argument that the regulation of mold remediation by the Texas Occupations Code meant that its mold remediation costs would fall within the general scope of the policy’s Ordinance or Law Coverage. Instead it focused on the language of the limitations and found that subsections (b)(4) and (c) would operate to preclude Ordinance or Law Coverage. [Editor’s Note: Subsection (b)(4) precluded coverage if repairs were made more than 365 days after the loss. Subsection (c) precluded coverage for the costs to comply with ordinances or laws that require an insured “to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, assess the effects of, pollutants on any covered building or structure.” See section on Policy Language above.] This case raises the question of whether there might be some circumstances under which an Ordinance or Law coverage limit might be used to cover some mold remediation costs. The court declined to address the issue of whether Texas regulation of mold remediation could trigger the coverage. However, given the Ordinance or Law limitations it relied on, a court might not ever have to reach that issue. The court reached the result it did by assuming that mold was a “pollutant” for the purposes of that Ordinance or Law limitation. SEWER BACKUP COVERAGE v. FLOOD Water damage caused by water from sewers, and sumps, is commonly excluded from coverage under standard property insurance forms. For an additional premium, some insurers offer endorsements or coverage extensions that cover such damage. Although policy language varies, most sewer back up and sump overflow coverage* is offered under policies or endorsements that retain the water damage exclusions for flood and surface water and water below the surface of the ground. The question therefore arises: when and how do these exclusions prevail over the specific coverage provided by the sewer backup and sump overflow endorsements? In situations where excluded and covered kinds of water combine to cause the damage on the insured premises, and where the water damage exclusions are preceded with enforceable anti-concurrent causation language, most courts would agree that coverage may be denied. However, when an excluded form of water occurs somewhere in the sequence of events that precedes the water reaching the insured property, there are no clear or definitive answers as to how coverage should be determined. In these situations, some courts have found that the water damage exclusions are not relevant because they read them as applying only at the point the water actually damages the insured property. These courts focus on the language of the coverage grant that might lead insureds to expect that direct damage from water flowing from a sewer, drain, or sump is covered by their endorsement. Other courts have suggested that when water damage exclusions are preceded by either the phrase “directly and indirectly” or an anti-concurrent causation preface (e.g. “excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss”), the water damage exclusions may operate to exclude coverage for damage that was directly caused by water from a sewer or sump but may have been indirectly caused by an excluded form of water, such as flood or surface water. These courts apparently would limit coverage to unusual circumstances in which a clog in a drain or pipe causes water to back up into insured property, without any negligence on the part of the insured and without any involvement of surface water or flood water due to heavy rains, failure of drainage systems to take in excess surface or ground water, or traditional flooding from an overflow of a body or channel of water. One way of interpreting this kind of endorsement is to take what might be called the literal approach by reading the exclusions and the anti-concurrent causation preface literally so that the coverage will only apply when no flood, surface water, or water below the surface ground is involved in any way in causing a sewer to back up or a sump to overflow. Under this approach, even when there is only one kind of water that enters the insured premises and causes the damage, and even if that kind of water falls within the coverage section of the endorsement for sewer backup or sump overflow, the other water damage exclusions may still apply if the other kinds can be considered indirect or contributing causes of the loss. An intermediate approach would focus on the character of the water as it reaches the insured premises but would allow for application of the other water damage exclusions under the anti-concurrent causation preface if excluded and covered water combine on the insured premises. This would mean that if the only kind of water that reaches the premises is from a sewer, drain, or sump, the damage will be covered. If another excluded kind, such as flood or surface water, flows directly into the insured premises and combines with a covered kind, then the entire loss would be excluded from coverage. Most courts that have interpreted sewer back up endorsements have looked at the character or nature of the water as it enters the insured premises to see if it falls within the scope of the coverage for sewer back up or sump overflow. If it does, and no excluded kind of water is directly involved, that is the end of the analysis. The primary rationale for this approach is that sewer back up and sump overflow coverage can be viewed as more specific than the water damage exclusions. This view was first advanced by the court in State Farm Lloyds v. Marchetti, 962 S.W.2d 58 (Tex. App. – Houston 1997) [reviewed at PLRB, Prop. Ins. L. Rev. 5024 (1998)], when it found coverage for sewer back up under the accidental discharge coverage in a Texas homeowners policy. In that case, water and raw sewage backed up through a drain in the utility room in the insured’s home. The insurer argued that the backup was the result of excluded flood or surface water. The court said that the ultimate cause of the backup was irrelevant to determining coverage when the policy specifically covered water that was discharged from the insured’s plumbing system. It concluded with the following reasoning: While broad, general provisions for coverage under a policy may be limited by specific exclusions, we cannot endorse broad, general exclusions which seek to render illusory narrow and specific provisions of coverage Id., 962 S.W.2d at 61. However, we note that the exclusion in Marchetti was prefaced only with the phrase “caused directly or indirectly by.” Flood Exclusion – The Exception? The one situation in which the literal approach seems particularly attractive is where flooding is an indirect cause of sewer backup or sump overflow. Most insurers probably do not intend to provide water back up and sump overflow coverage that would apply in situations where flood insurance might apply. See PLRB, Regulatory Bulletin, National Flood Insurance Program – Policies and Information. It appears flood insurance, where it is available, is intended to cover these kinds of losses. Therefore, the reasonable expectations argument against applying water damage exclusions to sewer backup and sump overflow coverage may not be as strong when flood, at least as defined by the Standard Flood Insurance Policy, is an indirect cause of the loss. The argument against making an exception for the flood exclusion is that under endorsements, such as the ISO HO 04 95 11 92, there is no clear basis in the policy language for selectively applying just the flood exclusion to situations where damage is caused solely by water that backs up from overflows from the insured’s plumbing or sump system. However, the most recent edition of that form now may support an exception for flood. See PLRB, Homeowners Annots., HO95E – Water Back Up and Sump Overflow Endorsement. Case law from other jurisdictions can be found in PLRB Q&A 183 – Sewer Backup Coverage v. Water Exclusions. So the conflict between sewer backup coverage and the water damage exclusions can be resolved in various ways. One can apply the exclusions literally and potentially wipe out all or nearly all the coverage, or one can limit their application in some way so as to meet the reasonable expectations of both the insured and the insurer. Case law now suggests two approaches for applying the exclusions in a limited way. The first is that coverage generally should be determined based on the character of the water as it reaches the insured premises or causes damage to insured property. The rationale is that since these kinds of endorsement purport to cover a specific kind of water damage, any instances of damage caused by the kinds of water specified in the endorsement is what should be covered. The second approach is the same as the first but carves out an exception to this general rule. The exception applies in situations where excluded and covered kinds of water combine on the insured premises to cause the damage. In these situations when the exclusion is subject to an anti-concurrent causation preface, then coverage may be denied. This is in accordance with long-established law under which most jurisdictions recognize and enforce anti-concurrent causation prefaces. Although applying the exclusions in this way may frustrate the expectations of some insureds, the law generally recognizes an insurer’s rights to enforce these kinds of contractual provisions. Each company will have to decide for itself which approaches it wants to take to interpreting and applying this kind of coverage. Insurers may also want to continue to monitor how their sewer back up and sump overflow coverage is marketed and how claims are adjusted in order to better evaluate whether the existing policy forms reflect the kinds of risks they wish to underwrite and whether the policy language clearly identifies those risks to both policyholders and claims adjusters. Of particular concern may be the role of the flood exclusion. On the one hand, minor flooding often may be implicated in sewer backups so that too stringent application of the exclusion may unduly restrict coverage, especially if the endorsement fails to define excluded flood. On the other hand, probably no insurer wants to provide coverage for sewer backups caused by catastrophic flood conditions and or those covered by the Standard Flood Insurance Policy. So far there is no coherent body of case law that addresses how different kinds of flood exclusions might be applied to provide reasonable limits to sewer backup or sump overflow coverage in situations where no floodwater reaches the premises by means of overland flooding. This is an issue which we will continue to monitor and report as new cases and policy forms emerge. Supplemental Texas Sewer Backup Cases In Transamerica v. Raffkind, 521 S.W.2d 935 (Tex. Civ. App. – Amarillo 1975), the court held that a surface water exclusion did not apply to damage to interior and contents of the insured’s home or to its cooling and heating system caused by moisture that originated as surface water. Surface water seeped into and below surface of ground and entered subsurface air conditioning-heat ducts, from which it circulated as vapor into the interior of the house. The court decided that the surface water exclusion did not apply because the water that actually caused the loss was not on the surface of the ground and therefore was not excluded surface water. The insured had purchased coverage for loss from sewer and drain backup and water below the surface of the ground (those two exclusions were deleted), but the policy retained the surface water exclusion. The surface water exclusion was preceded by the phrase “loss caused by or resulting from.” The Raffkind case did not involve sewer back up coverage, but other courts have applied its reasoning in interpreting the meaning of the surface water exclusion as applied to sewer backup coverage. Compare the analysis in Raffkind with that of Hirsch & Westheimer, P.C. v. Northern Ins. Co. of New York, No. H-02-2480 (USDC S.D. Tex. 3/16/04) [reviewed at PLRB, Prop. Ins. L. Rev. 6675 (2004)], another case involving interpretation of the surface water exclusion (but where there was no coverage for sewer back up). In Hirsch & Westheimer, the court decided that surface and floodwater did not change its character when it entered pedestrian tunnels and the lower level of the insured’s office building. These losses and expenses were not covered under a policy that excluded coverage for damage caused “directly and indirectly” by surface or flood water “regardless of any other cause or event that contribute[d] concurrently or in any sequence to the loss.” The court distinguished Marchetti and Raffkind as involving policies that provided coverage more specific than the general surface and floodwater exclusions. In For Kids Only Child Development, Inc. v. Philadelphia Indemnity Ins. Co., No. 05-07-00546-CV, 2008 WL2877756, 260 S.W.3d 652 (Tex. App. – Dallas 7/25/08) [reviewed at PLRB, Prop. Ins. L. Rev. 7601 (2008)], the court held that a sewer backup limit applied to all claims arising from an incident in which the insured’s building was flooded with 4 to 6 inches of sewage due to a stoppage in the city sewer main. The special limit of $25,000 for sewer backup applied to claims for lost business income, extra expense, and debris removal, as well as property damage. In Durrett v. Nationwide Prop. and Cas. Ins. Co., No. A-14-CA-167-SS, 2015 WL 1564783 (W.D. Tex. 4/07/15) (U.S. District Court for the Western District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9169 (2015)], the court held that “water or water-borne material which… backs up through sewers or drains from outside the dwelling’s plumbing system” referred to the source of the water or water-borne material that caused the damage, not the place where the system or equipment failed. Consequently, in applying both the exclusion and the Optional Coverage for this peril in a homeowners policy, the damage was both subject to the exclusion and eligible for the limited Optional Coverage up to its limit of $10,000. For more information, see PLRB, Backup and Overflow – TX. SPOILAGE TEXAS FORMS Many common Texas policies do not specifically exclude loss caused by off-premises power failure. In fact, current Texas HO policies provide specific additional coverage for consequential loss applicable to temperature change from both on-premises damage and off-premises damage. Prior Texas cases have found food spoilage and resulting damage to appliances to be direct loss by insured perils occurring miles from the insured premises. Many standard Texas property policies including the Texas Homeowners forms, unlike the standard forms in use in most other states, contain no exclusion for loss caused by the off premises interruption of power or other utility service. In fact, the Texas standard Homeowners forms contain the following clause in the section entitled “Extensions of Coverage”: CONSEQUENTIAL LOSS. We insure: a. property contained in a building on the residence premises against loss due to change in temperature as a direct result of physical damage to the dwelling, or any equipment contained in the dwelling, caused by a Peril Insured Against. The deductible clause does not apply to this coverage. b. property contained in a building on the residence premises against a loss due to change in temperature as a direct result of physical damage to any power, heating or cooling equipment (including connections and supply pipes) not contained n or on the dwelling, caused by a Peril Insured Against. The total limit of liability for the coverage described . . . above is $500. This in not additional coverage and does not increase the Coverage B (Personal Property) limit of liability. It should also be noted that current Texas Homeowners forms insure against “loss,” rather than “direct loss.” Two Texas decisions have looked at food spoilage and other losses caused by power interruption. The first of these Texas cases, Travelers Indemnity Co. v. Jarrett, 369 S.W.2d 653 (Tex. Civ. App. 1963), involved a loss under a Homeowners policy where, during the insured’s absence from the insured premises, lightning struck at a location off the insured premises, resulting in a power surge which opened all of the circuit breakers at the insured’s home. When the insured returned home he found that the food in the refrigerator had putrefied, damaging the refrigerator. The insured sought recovery for the value of the refrigerator, not the food. The policy insured against “loss by lightning” and excluded, among other perils, “loss caused by inherent vice, wear and tear, deterioration … contamination.” In Jarrett the insurer argued that the loss was not covered since the policy excluded loss by deterioration and contamination and the loss resulted from the deterioration of the food. Thus the insurer argued that the lightning was the remote and not the proximate cause of the loss. The court rejected this argument on two grounds. First, the court limited the deterioration exclusion by stating: The policy did not exclude all loss by deterioration; it excluded only that by “inherent” deterioration of the property insured. The damage did not result from a fixed attribute of the refrigerator. The policy may be said to exclude damage to the FOOD from deterioration, contamination, rot, mould, etc., but food is not the insured property for which recovery was had. Second, while acknowledging that the policy in question would afford broader coverage than one insuring only against the direct or proximate effects of lightning, the court nonetheless considered lightning the direct or proximate cause of the loss to the refrigerator, rather than the remote cause: It was undisputed that if the refrigerator had been empty no loss would have occurred, and that liquids and other content of the spoiled and decomposing food was the damaging factor. It also appears that lightning did not actually strike any part of the house or refrigerator. Where insurance against property damage is only against “DIRECT” loss by lightning it has been said the quoted term means “immediate” or “proximate,” as distinguished from remote or incidental causes. But a provision insuring against “loss or damage caused by lightning” renders the insurer liable for all known effects of lightning, “and includes all loss or damage which results as a direct and natural consequence of the lightning, notwithstanding other incidental agencies may be instrumental in adding to the loss or damage.” 11 Couch, Insurance 2d, Secs. 42.355, 42.357; 15 A.L.R. 2d Sec. 3, P. 1024. Even if we apply insurer’s criterion, however, we determine there was evidence of probative force that lightning was the dominant, efficient and moving cause which set incidental, resulting, and consequential agencies in operation (though the latter may be nearer in point of time and space to the ultimate result) in a natural and continuous sequence. Foreseeability is not an element. Federal Life Ins. Co. v. Raley, 130 Tex. 408, 109 S.W.2d 972, 974. The resulting condition of the food is not an intervening cause; it is merely an intermediate link in the chain of causation. The lightning was not merely a remote cause; and we are unable to say the policy did not insure the loss. It should be noted that Jarrett’s statement regarding the policy’s possible exclusion of loss to the putrefied food was dictum; that is, that statement was not necessary to the holding of the case since the insured was not seeking to recover for the value of the food. The second Texas case, Federal Ins. Co. v. Bock, 382 S.W.2d 305 (Tex. Civ. App. 1964), in accord with Lipschultz v.General Ins. Co. of America, 96 N.W.2d 880 (Minn. 1959) and Meyer v. Central Mut. Ins. Co., 235 F.Supp. 540 (Ore. 1964), held that where the winds of Hurricane Carla damaged electrical transmission lines some five miles from the insured’s meat storage vaults, the food spoilage resulting from the three day power outage was “direct loss” by windstorm within the insuring agreement of the policy in question. The policy in Bock, as in Jarrett, contained no off premises power interruption exclusion, but the Bock policy apparently contained no exclusion for loss by deterioration or contamination such as was present in the Jarrett policy. The insurer in Bock attempted to distinguish the prior decision in Jarrett by pointing out that while the policy in Jarrett insured against “loss,” the policy in Bock was limited to insurance against “direct loss.” However, pointing to the above-quoted paragraphs from Jarrett, the Bock court held that the food spoilage in Bock was “direct loss” by windstorm. It might be argued that the presence of the “Consequential Loss” coverage limits coverage for food spoilage to the $500 stated limit. This argument is not very strong, however. Bock directly held that food spoilage caused by off-premises power interruption during a hurricane was “direct loss” by windstorm, rather than remote or consequential loss. Although Jarrett did not directly hold that food spoilage was a direct loss by lightning, it did hold that damage to the refrigerator which resulted from food spoilage was direct loss by lightning. Jarrett must therefore also have regarded the food spoilage as direct loss by lightning. Therefore, “the “Consequential Loss Coverage” is not necessary to afford coverage for food spoilage under the current Texas policies since those policies contain no power interruption exclusion and Coverage B (unscheduled personal property) insures against “loss” (which is at least as broad as “direct loss”) by windstorm. In addition, Fred Meyer, the above-cited Oregon decision holding food spoilage covered as direct loss rejected the insurer’s argument based on the presence of a consequential damage clause attached to the policy, stating: The same thinness of rationality exists in the argument that the substitute consequential damage clause attached to the policy indicates an intention to cover only that loss which might be caused by direct damage without the intervention of some other independent cause. With, or without the original or the substitute consequential damage clause, I remain principally concerned with the language “direct loss by windstorm.” The argument on the consequential damage clause merely begs the question. On the basis of the dictum in Jarrett it could also be argued that food spoilage losses are excluded if the policy contains exclusions similar to that found in the current Texas HO-B: We do not cover loss caused by: (1) wear and tear, deterioration or loss cause by any quality in property that causes it to damage or destroy itself. (2) rust, rot, mold or other fungi. (3) dampness of atmosphere, extremes of temperature. (4) contamination. One problem in applying this type of exclusion, at least under a Texas Homeowners policy, is that the less expensive HO-A contains no similar exclusion, yet both it and the HO-B insure food and other personal property on a named peril basis. Insurers are usually understandably reluctant to afford less coverage to an insured with a more expensive policy in the same program. (In other states an exclusion such as this is usually found only where property is insured on an all risk basis and since less expensive coverage on a named peril basis is usually available, the same objection to the application of this sort of exclusion to food spoilage applies.) Another problem in attempting to apply this type of exclusion is that the proximate cause of the food spoilage, according to both Bock and Jarrett, would be windstorm or hurricane, rather than deterioration or any of the other perils excluded by this type of exclusion. As Bock and Jarrett demonstrate, Texas courts generally seek to determine the proximate cause of a loss in determining insurance coverage. The concurrence of a specifically covered peril such as windstorm and a specifically excluded peril such as waves is a special situation requiring a deviation from the usual proximate cause rule, since in such circumstances there are two proximate causes, one covered and one excluded, looking to the proximate cause yields ambiguous insurance coverage results. However, where an excluded peril such as deterioration follows naturally from a covered peril such as windstorm there is only one proximate cause of the loss and an insured could well contend that the proximate cause is the only cause relevant for coverage purposes. Of course, as in the case of other wind and/or water losses, the burden is on the insured to establish either that the entire loss was caused solely by a covered peril or to establish the percentage of the loss caused solely by a covered peril. That portion of the loss caused solely by waves or another excluded peril, either solely or in combination with a covered peril, is not covered. For example, if power lines are downed by waves or a combination of waves and wind, no coverage for resulting food spoilage exists. What if electrical power was voluntarily interrupted by the utility as a safety measure prior to, during or after the hurricane? Where physical damage to the electrical distribution system follows the voluntary power shutdown, can the voluntary shutdown of power still be regarded as the proximate cause of resulting food spoilage to deny coverage for such losses? Probably not. The physical damage by another peril must be regarded as an intervening cause which breaks the sequence of causation between the voluntary shutdown and the loss. As long as the distribution system remains damaged the power cannot be voluntarily restored in the same manner it was interrupted. Usually, damage to power lines occurs only a few hours after the voluntary shutdown so that no food spoilage occurs as a direct result of the voluntary shutdown. Thus the initial voluntary power shutdown may usually be disregarded in analyzing coverage. ISO Forms Where off-premises interruption of power plays a role in the spoilage of perishables, there is a question of coverage. For example, suppose the insured building sustains little or no damage but the power to the premises is interrupted long enough for spoilage to occur. Or, suppose the refrigerator, freezer, or dwelling sustain direct damage by hurricane winds without immediate loss to perishables, but the power to the premises is interrupted off premises at about the same time. Or, what if spoilage occurs where windstorm downs power lines on the premises and also interrupts the power supply to the premises at some point away from the premises, but without causing further immediate damage to perishables? Does the Power Failure exclusion apply to such losses where the exclusion, as in most current ISO commercial and personal lines forms, applies to “loss caused directly or indirectly” by the power failure “regardless of any other cause or event contributing concurrently or in any sequence to the loss”? Anti-Concurrent Causation Preface The Power Failure (aka Utility Services) exclusion is subject to an anti-concurrent causation preface (Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”). Its purpose is to eliminate a proximate cause or concurrent cause analysis when one of the specifically listed exclusions that follow it contribute in any way or in any sequence to a loss. Texas follows the majority of states and has given effect to the anti-concurrent causation preface. For further discussion of Texas case law on the anti-concurrent causation preface, see PLRB, State-by-State, Texas – Anti -Concurrent Causation Preface . If the anti-concurrent causation preface were enforced, the Power Failure exclusion likely would determine whether the spoilage would be covered. Power Failure Exclusion There are two requirements that must be met in order for the Power Failure exclusion to apply to spoilage: 1) The spoilage must be caused by an off-premises interruption, and 2) The spoilage cannot result from an on-premises covered peril. On-Premises Interruption or Peril If the power is generally restored in the area before the spoilage but there is lightning or windstorm damage on the residence or business premises which prevents the insured’s electricity from coming back on, the power interruption exclusion does not apply and the issue is whether the spoilage is insured direct loss by lightning or windstorm. The cases of Lipschultz v. General Ins. Co. of Am., 96 N.W.2d 880 (Minn. 1959);Meyer v. Central Mut. Ins. Co., 235 F. Supp. 540 (Or. 1964); and Federal Ins. Co. v. Bock, 382 S.W.2d 305 (Tex. App. 1964), have all held that off-premises windstorm damage to electrical lines resulting in on-premises food spoilage was direct loss by windstorm in the absence of any off-premises power failure exclusion. Further, the court in Travelers Indem. Co. v. Jarrett, 369 S.W.2d 653 (Tex. App. 1963), held that where lightning struck off premises, causing a circuit breaker on premises to open, and the resulting food spoilage damaged a refrigerator, the damage to the refrigerator was direct loss by lightning. If food spoilage resulting from off-premises electric line damage has been held direct loss by wind, surely spoilage resulting from on-premises line damage should be considered direct loss. Next, consider the situation where lightning strikes an off-premises power line serving the insured premises. The lightning interrupts power generally in the area and is itself transmitted through the building wiring, which damages the refrigerator/freezer causing the perishables therein to spoil. In this situation, the loss to both the appliance and the perishables are not ensuing loss but are covered as direct loss due to the covered peril of lightning. However, if the appliance damage were repaired prior to the restoration of power generally to the area and the spoilage had not occurred prior to repair, any subsequent spoilage due to the continuing lack of power would then be within the power failure exclusion. See Power Failure Exclusion, below. Also, for a discussion of how to recognize lightning damage, see PLRB, Lightning and Electrical Losses Adjuster Guide: How to Recognize Lightning Damage . Ensuing Peril On Premises Assume the insured’s power lines are re-energized before any spoilage but the refrigerator or freezer does not start operating again due to electrical damage sustained when the power was interrupted or restored. Any spoilage thereafter would fall within the exception to the power interruption exclusion where the policy insures against direct loss by sudden and accidental damage from artificially generated electrical current. Thus, the ISO HO-3 would cover such loss. The ISO CP forms, however, specifically exclude loss to covered property caused by injury or disturbance due to artificially generated electrical currents. Thus, if the freezer sustained electrical damage due to high, low, or fluctuating voltage associated with the interruption or restoration of electrical service, there would be no coverage under the CP forms for the spoilage. However, if the natural electricity of a lightning bolt was actually carried through the insured building’s wiring and thus caused direct lightning damage to the freezer at the time the power was interrupted, the CP exclusion for electrical injury or disturbance by artificially generated electrical currents would not apply since lightning is naturally generated electricity. Please refer to PLRB, Lightning and Electrical Losses Adjuster Guide: How to Recognize Lightning Damage to determine whether there was direct lightning damage to the freezer. Thus, in this latter situation, the CP forms would also provide coverage for spoilage since the loss should be regarded as direct loss by on- premises lightning. Off-Premises Interruption If power remains interrupted at an off-premises location long enough for spoilage to occur, the power interruption exclusion applies and there is no coverage for the food spoilage. This is true even if a peril insured against, such as damage by artificially generated electrical currents, ensues from the interruption. Where the spoilage occurs before the insured’s power lines are re-energized, the loss is not caused by any on- premises damage since the food would have spoiled even if the on-premises damage had not occurred. Caveat: Judicial Interpretation of Off-Premises Power Failure Exclusion In Brooklyn Bridge, Inc. v. South Carolina Ins. Co., 420 S.E.2d 511 (S.C. App. 1992), reviewed at PLRB, Prop. Ins.. L. Rev. 3810 (1992) , the insured owned a deli restaurant. In 1989, Hurricane Hugo caused a general power failure in the area of the deli, and food spoilage resulted from the lack of power. The policy contained the following exclusion: . . . e. Power Failure The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises. But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage. The court held that the power failure exclusion in a commercial policy was ambiguous because the exception to the exclusion for resulting loss by a covered cause of loss did not specify that the resulting loss had to result from the excluded power failure. Thus, the court found coverage for food spoilage on the basis that it resulted from Hurricane Hugo. For a general discussion of this exclusion, see PLRB, Homeowners Annot., Key HO86 – Power Failure. . To the extent that a decision hinges on the meaning of away from, a phrase used in commercial forms, the decision is not directly relevant for interpretation of the homeowners form but may indicate a bias of a court against application of the power failure exclusion in any debatable circumstances. To the extent that a decision hinges on the meaning of ensuing or resulting loss, the decision is directly relevant to interpretation of the homeowners form, because that concept is used in the homeowners as well as in the commercial forms. See, generally, PLRB, Homeowners Annot., Key HO135 Ensuing Loss Exception . Note, Texas courts are split as to whether there must be a “separate” ensuing loss in order for ensuing loss exception to apply. See PLRB, State-by-State Survey: Ensuing Loss (TX) . The following are very recent Texas cases discussion ensuing loss: Ensuing Loss Not Covered – Balfour Beatty Constr., LLC v. Liberty Mut. Ins. Co., No. 4:17-CV-02477, 2018 WL 6831113 (S.D. Tex. 12/28/18) (U.S. District Court of the Southern District of Texas, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 10226 (2019)]. An exclusion for defects, errors, and omissions precluded coverage, under a builder’s risk policy, for damage to glass windows caused by welding slag that fell from the side of the building to the windows below. The court decided that the exclusion was not limited to damage to the insureds’ work, and that the resulting loss exception did not apply because the excluded peril, defective welding, did not cause a covered peril, which in turn caused the damage. No Ensuing Loss – EMS USA, Inc. v. Travelers Lloyds Ins. Co., No. CV H-16-1443, 2018 WL 1545700 (S.D. Tex. 2/28/18), magistrate’s report and recommendation adopted, No. CV H-16-1443, 2018 WL 1535353 (S.D. Tex. 3/29/18) [reviewed at PLRB, Prop. Ins. L. Rev. 10002 (2018)]. A Builder’s risk policy covered a pilot hole drilled horizontally underground as part the project to construct a gas pipeline. When a guide wire broke, the reamer and drill bit became lodged in the pilot hole. The faulty workmanship exclusion precluded coverage. The policyholder contended that the physical damage to the hole was a covered loss ensuing from the damage to the guide wire, caused by the subcontractor’s negligence. The policyholder’s effort to distinguish between the faulty workmanship on the broken guide wire and the damage to the pilot hole, was without merit. The court found the policyholder was seeking to recover the costs of losing the original hole and drilling a new pilot hole, which is a claim for the costs to repair faulty workmanship, not an ensuing or resulting loss under the Policy. Much of the judicial tendency to interpret power failure exclusions narrowly has come from a tendency to interpret ensuing loss exceptions extremely broadly. For example, Florida courts do not give such breadth to ensuing loss exceptions. In Swire Pacific Holdings, Inc. v. Zurich Ins. Co., 845 S.E.2d 161 (Fla. 2003) [reviewed at PLRB, Prop. Ins. L. Rev. 6405 (2003) ], the court decided that the policy’s exclusion for design defects unambiguously excluded coverage for the cost of repairing the defects. The ensuing loss exception did not apply because there was no separate loss that occurred as a result of the design defects. Off Premises Power Failure Exclusion Did Not Preclude Coverage In Pressman v. Aetna Cas. & Sur. Co., 574 A.2d 757 (R.I. 1990) [reviewed at PLRB, Prop. Ins. L. Rev. 3471 (1990) ], an exclusion for interruption of power which takes place “away from the described premises” was found to be ambiguous, and coverage was granted for lost business income which occurred when a tree adjacent to the insured’s property fell onto a power line which went into the insured’s building. Further, relying on its decision in Pressman, the Rhode Island Supreme Court, in Jerry’s Supermarkets, Inc. v. Rumford Prop. & Liab. Ins. Co., 586 A.2d 539 (R.I. 1991) [reviewed at PLRB, Prop. Ins. L. Rev. 3595 (1991) ], held that a power interruption exclusion did not apply to food spoilage which resulted from Hurricane Gloria knocking out all power in the area. The court reasoned that a typical insured would expect to have coverage for such a loss. The court also said that even if the exclusion did apply, the prolonged inability to restore power would have constituted an unexcluded ensuing peril, resulting in coverage for the food spoilage under the exception to the exclusion. In Brooklyn Bridge, Inc. v. South Carolina Ins. Co., 420 S.E.2d 511 (S.C. App. 1992), cert. denied (January 20, 1993) [reviewed at PLRB, Prop. Ins. L. Rev. 3810 (1992) ], when Hurricane Hugo caused a general power outage and food spoilage at the insured’s deli, the court held that the food spoilage was covered since it resulted from a Covered Cause of Loss — Hurricane Hugo. The ensuing loss exception in that case read: But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage. This language is identical to the standard ISO language before 1995. While the insurer argued that there is only coverage if a Covered Cause of Loss results from the power failure, the court stated if that was the insurer’s intent, then it could have clearly stated the same in the policy (i.e, “but if loss or damage by a Covered Cause of Loss results from a power failure . . . .”). The insurer’s failure to clearly state the intent of the exclusion resulted in an ambiguity. Contrast the exclusion in current forms, starting with the 1995 edition: But if the failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss. In Spece v. Erie Insurance Group, 850 A.2d 679 (Pa. Super. 2004) [reviewed at PLRB, Prop. Ins. L. Rev. 6695 (2004) ], sump overflow and power interruption exclusions did not apply to interior water damage that occurred as a result of a sump overflow due to a lightning strike at a power station. The court found the power interruption exclusion ambiguous because it could apply to either the interruption of power that occurred at the insured residence or to the interruption that occurred at the power station when it was struck by lightning. The court found the water damage exclusion ambiguous because it viewed the on-premises ensuing loss exception to the power interruption exclusion as granting coverage for sump overflow. While acknowledging the effect of the anti-concurrent causation preface, the court decided it did not apply here because neither the power interruption nor the sump overflow exclusion unambiguously applied to the loss in the first place. Off Premises Power Failure Exclusion Precluded Coverage Some courts have applied a power failure or interruption exclusion to the circumstances at hand. In Mapletown Foods, Inc. v. Motorists Mut. Ins. Co., 662 N.E.2d 48 (Ohio App. 1995) [reviewed at PLRB, Prop. Ins. L. Rev. 4503 (1996) ], the court held, in a non-hurricane case, that the exclusion for loss caused by “[t]he failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises” applied to preclude coverage for food spoilage at the insured grocery store which resulted when downed wires away from the insured premises caused a general power outage in the area. The Ohio appellate court found the exclusionary language clear and unambiguous. The court distinguished the Rhode Island Pressman decision on the basis that in Mapletown Foods, unlike Pressman, it was clear that the power interruption occurred “away from” the insured premises. The Mapletown Foods court did not mention the Rhode Island Jerry’s Supermarket decision. The Mapletown Foods court did say, however, that it believed that the Brooklyn Bridge v. South Carolina decision was wrongly decided since the interpretation of the exclusion in Brooklyn Bridge gave no effect to the phrase “away from the premises.” The Mapletown Foods court refused to interpret the exclusion in a manner that would leave it bereft of meaning. The court in Lakes’ Byron Store, Inc. v. Auto-Owners Ins. Co., 589 N.W.2d 608 (S.D. 1999) [reviewed at PLRB, Prop. Ins. L. Rev. 5304 (1999) ], held that a power failure exclusion unambiguously excluded business interruption loss where a severe ice and snowstorm downed power poles and lines near the insured property. It found the reasoning of the Mapletown Foods court to be persuasive. In CAC 3 LLC d/b/a Yushi-Maiden Lane v. Tower National Ins. Co., No. 650459/2014 (Sup. Ct., New York County 3/03/16) Supreme Court, New York County, applying New York law) [reviewed at PLRB, Prop. Ins. L Rev 9393 (2016) ], a Utility Services exclusion precluded coverage for business losses suffered by the insured restaurant when it temporarily lost power as a result of Con Edison’s decision to preemptively shut down its electrical substation in anticipation of the arrival of Superstorm Sandy. Whether power was lost as a result of the storm or Con Edison’s decision, the exclusion for loss caused directly or indirectly by power or other utility service precluded coverage for the policyholder’s loss of food due to spoilage and its loss of business income. Lastly, in another food spoilage case, in Northern SPY Food Co., LLC v. Tower Nat. Ins. Co., Index No. 650461/2014, 2016 WL 1161522, 2016 N.Y. Slip Op. 30514(U) (Sup. Ct, New York County 3/24/16) (Supreme Court, New York County (trial court), applying New York law) [reviewed at PLRB, Prop. Ins. L. Rev. 9425 (2016) ], a flood exclusion, with an anti-concurrent causation preface, precluded coverage for loss of business income and food spoilage caused by an off-premises power failure. The power failure, which occurred during Superstorm Sandy, caused by flooding of the Con Edison substation that supplied power to the insured restaurant. Under both the main policy and the Commercial Property Deluxe Restaurant Enhancement Endorsement, there was no coverage for losses caused directly or indirectly by flooding. The court rejected the policyholder’s argument that the flood exclusion only applied to loss or damage caused by flooding of the insured premises. Food Spoilage Coverage may thus turn on whether food has spoiled before power is restored to the insured’s area. When should food be regarded as “spoiled” or as having sustained a physical loss? Preliminary research on food spoilage suggests that extreme caution be exercised by adjusters in dealing with this matter. Most refrigerated foods with temperatures that do not exceed 45 degrees can be prepared or consumed instantly if they look and smell okay. Dispose of food that was refrigerated and now has a temperature in excess of 45 degrees. The majority of experts contacted suggested that commercially frozen foods, which have started to thaw and have temperatures between zero and 40 degrees, should be prepared or consumed right away. These foods could possibly be refrozen and then used within 15 to 30 days; however, there would be a considerable loss of quality and a great number of variables involved that could shorten the safe period. This would effectively eliminate refreezing as a practical alternative. It is recommended that home frozen foods not be refrozen, although in most cases, they can be prepared or consumed if they have temperatures which are below 45 degrees. The presence of ice crystals in the food is an indicator that food is still in a semi-frozen state and within the temperature guidelines. The research indicates salvage, in most cases, should be considered only as to those foods that can safely be prepared or consumed immediately. For more information, see PLRB Property FAQs – Power Failure Results In Food Spoilage, Or Other Refrigerated Items . For an overview for adjusting food spoilage claims see PLRB, Adjuster Resource Sheet: Adjusting Food Spoilage Claims Under Homeowners Policies, and PLRB, Adjuster Resource Sheet: Adjusting Food Spoilage Claims Under Commercial Policies. STANDARD FIRE POLICY Tex. Ins. Code art. 5.35 (Insurance Code of 1951, Title I, Chapter 5, Subchapter C, section 5.35) provides that the Insurance Commissioner shall adopt “standard” forms; it is not a “standard fire policy” statute per se. A Texas standard fire policy is not a statutory policy in sense that its terms are provided and prescribed by direct legislative enactment, but is a policy to be prescribed by Insurance Commission in its capacity as an administrative body. St. Paul Fire & Marine Ins. Co. v. Kitchen (Civ.App. 1923) 256 S.W. 940, error granted, affirmed 271 S.W. 893. For a discussion about the way a Standard Fire Policy can impact claims, see PLRB, State-By-State, Standard Fire Policy, Introduction. TREES: HOMEOWNERS COVERAGE FOR DAMAGE AND DEBRIS REMOVAL The following analysis assumes that the policy in question is an ISO HO 00 03 10 00 or equivalent. Click here to see the text of the Additional Coverage for Trees, Shrubs and Other Plants upon which this discussion is based. Note that there were no changes to this provision in the 2011 edition of the ISO HO 00 03 form. Coverage A Dwelling Limit Not Applicable To Trees Despite the fact that trees and shrubs are located on the “residence premises,” they do not constitute Covered Property under Coverage A of most Homeowners policies. As noted below, the ISO Homeowners 3 Special Form, HO 00 03 10 00, does provide limited coverage for trees under the Additional Coverage portion of the policy. “Grounds” Within the Definition for “Residence Premises” Does Not Create Coverage For Trees A number of courts in other jurisdictions have rejected the argument that use of the word “grounds” when defining “residence premises” was meant to create coverage or an ambiguity with respect to coverage provided for the insured location. While these decisions are not binding in Texas, the rationale upon which these courts resolved the issues are likely valid as persuasive authority. For instance, in Creel v. Hartford Ins. Co. of Midwest, No. CIV.A.06-5146, 2007 WL 1537620 (E.D. La. May 22, 2007), Louisiana property owners brought suit against their insurers seeking “coverage under their respective policies for damages sustained to their ‘grounds’ (i.e., trees, shrubs, plants, and lawns) as a result of Hurricane Katrina.” Id. at *1. The policies defined “insured location” as “residence premises” and in turn defined “residence premises” as “the one family dwelling, other structures, and grounds [emphasis added].” The U.S. District Court for the Eastern District of Louisiana explained that this language did not create coverage or an ambiguity with respect to the coverage provided for the insured’s grounds: As a court in this District recently stated in a virtually identical case, “When reading the policy as a whole, it is clear that the terms ‘resident premises’ and ‘insured location’ are important because they provide a geographic limit in which coverage exists…. The definitions in and of themselves do not operate to create coverage….” Proctor v. The State Farm Cos., No. 06-5145 (E.D.La. Feb. 5, 2007) (dismissing similar claims against State Farm) (Feldman, J.). Thus, these definitions simply define the site where the covered property is located; they do not create uniform coverages for the insured location as a whole. For example, the policy covers “the dwelling on the residence premises,” “other structures on the residence premises,” and “trees, shrubs, plants, or lawns on the residence premises.” (R. Doc. 11-3, at 2, 3, 4) (emphasis added). Thus, the definition of “insured location” does not create coverage here. Id. at *3. See also Lane v. USAA Cas. Ins. Co., No. CIVA 06-5147, 2007 WL 854310 (E.D. La. Mar. 15, 2007) (“the clear words and plain meaning of the contract do not contemplate trees, shrubs, plants or lawns as part of the ‘grounds’ and/or ‘residence premises'”). In a 2003 federal court decision rendered by the United States District Court in Southern Indiana, the insured argued that the use of the word “grounds” in the policy’s definition of residence premises meant that trees were covered under the policy’s dwelling coverage provision as well as the additional coverage for trees, shrubs, plants and lawns and the additional coverage for debris removal. Bolding v. Erie Ins. Exchange, 2003 WL 23219894 (USDC S.D. Ind. 2003) [reviewed at PLRB, Prop. Ins. L. Rev. 6660 (2004)]. This case involved damage to 630 trees in a homeowner’s fire loss. The insurer determined that the policy only covered a total of $24,780, which included $23,600 under the additional coverage for trees, shrubs, plants and lawns (10% [per endorsement; ISO HO 00 03 Additional Coverage is 5%] of the Dwelling Coverage, which was $236,000), and $1,180 under the additional coverage for debris removal (5% of $23,600, the amount owing for the damaged property). The insureds claimed that the policy covered the loss of the trees up to a maximum of $272,580, which they calculated on the basis of $236,000 from the dwelling coverage, $23,600 from additional coverage for trees, shrubs, plants and lawns ($236,000 x 10%), and $12,980 from the additional coverage for debris removal (($236,000 + $23,600) x 5%). The court ruled that there was no coverage for loss of trees on the residence premises under the dwelling coverage part of the policy. Thus, coverage for trees was limited to the Additional Coverage for Trees, Shrubs and Plants and debris removal coverage. The following is an excerpt from the Bolding decision: Erie’s reading of the Policy is logical, and consistent with how a reasonably intelligent policyholder would read it. First, a policyholder would note that the “Dwelling Coverage” ‘ section covers loss to the dwelling and attached structures. No mention of trees or shrubs is made. In addition, the “Dwelling Coverage” section specifically provides, “This coverage does not apply to land.” Continuing through the Policy, a policyholder would see that two sections under “Additional Losses We Will Pay” apply to tree damage. One of those sections, entitled “Trees, Shrubs, Plants and Lawns” provides for an additional 10% of the amount of insurance under “Dwelling Coverage” for loss to trees. 10% of the $236,000 “Dwelling Coverage” amount is $23,600. In addition, the debris removal provision provides Plaintiffs with 5% of the amount of insurance applying to the damaged property. The trees were the damaged property, and the amount of insurance applying to the trees is $23,600. 5% of $23,600 is $1,180. $23,600 plus $1,180 equals $24,780. Plaintiffs focus on the word “additional” from the “Trees, Shrubs, Plants, and Lawns” section to argue that the 10% must be in addition to the full amount of the “Dwelling Coverage.” However, Plaintiffs do not allege that the fire damaged their dwelling, nothing under the “Dwelling Coverage” section indicates that it covers tree loss, and a separate section specifically addresses loss to trees (“Trees, Shrubs, Plants, and Lawns”). If, for example, a fire burned a policyholder’s home and trees, the “Dwelling Coverage” amount ($236,000) would be available to cover losses at the dwelling, and an additional 10% of the “Dwelling Coverage” amount ($23,600) would be available to cover the tree loss. Under Plaintiffs’ interpretation of the Policy, over $270,000 would be available for tree loss alone, which would certainly be a surprising result where there is no indication that Plaintiffs’ trees are worth more than their home. In the instant case, the fire only damaged Plaintiffs’ trees. For this tree loss, Plaintiffs are entitled to 10% of the amount of insurance under “Dwelling Coverage,” and an extra 5% of that amount for debris removal. As stated earlier, the sum of those numbers is $24,780. The Court DENIES Plaintiffs’ Motion for Partial Summary Judgment, GRANTS Defendant’s Motion for Partial Summary Judgment, and finds that $24,780 is the maximum amount that the Plaintiffs are due under the Policy. Id. at *5. Additional Coverage: Trees, Shrubs, And Other Plants This provision in the ISO HO 00 03 10 00 provides coverage for trees, shrubs, and other plants if damaged by one of the specifically named perils. The form indicates that this coverage is an additional amount of insurance. Covered Perils Coverage for trees, shrubs and plants is provided as an Additional Coverage. In order for there to be coverage under this Additional Coverage, the loss must be due to one of the enumerated perils set forth in this provision: Fire, lightning, explosion, riot, civil commotion, aircraft, vehicles not owned or operated by a resident of the “residence premises”, vandalism, malicious mischief or theft. Windstorm Damage Not Covered Trees, shrubs, plants, and lawns are covered against loss by a short list of named perils which includes lightning, but does NOT include windstorm or any sort of water damage. In State Farm Fire & Cas. Co. v. Goldstein, 674 So. 2d 880 (Fla. App. 1996) [reviewed at PLRB, Prop. Ins. L. Rev. 4585 (1996)], the court held that trees and shrubbery damaged by Hurricane Andrew were not covered under a Homeowners policy “as a matter of pure logic.” 674 So. 2d at 881. The windstorm coverage protected only the dwelling, materials and supplies, wall-to-wall carpeting, outdoor antennas, and other structures. Moreover, windstorm was not a named peril in the “Trees, Shrubs and Other Plants” coverage, and that was the only place in the policy affording protection for trees and shrubbery. Goldstein is consistent with a New York case decided in 1979. In McMahon v. Traveler’s Indem. Co., 73 A.D.2d 746, 423 N.Y.S.2d 267 (App. Div. 1979) [reviewed at PLRB, Prop. Ins. L. Rev. 696 (1980)], the insured suffered damage to fences on his property after trees blew down due to a strong wind. He requested reimbursement under his Homeowners policy for (1) the value of the maple tree, (2) the cost of estimating the value of the maple tree, (3) the cost of the removal of the debris from the fallen tree and limbs, and (4) the cost of replacement of the two fences. The insurer agreed to indemnify the insured for the cost to repair the fences, but denied coverage for the other claims. A lawsuit ensued and both parties moved for summary judgment. After the insurer’s motion was granted, the insured appealed. Focusing on two areas of the policy, the New York Supreme Court, Appellate Division, concluded no coverage applied to the maple tree. First, the court explained that although there was all-risk insurance for the dwelling and appurtenant structures, a tree would not be included in either of those two coverage categories. Second, the policy’s coverage for trees in another provision was “expressly limited to losses resulting from causes other than wind or storm.” Although the opinion does not specify the policy form at issue, all references indicate that it was the Homeowners 3 (1970 edition). Such policies contain a Special Limit of Liability on trees, shrubs, plants and lawns when the loss is caused by “fire, lightning, explosion, riot, civil commotion, vandalism, malicious mischief, theft, aircraft, or vehicles not owned or operated by an occupant of the premises.” Windstorm Leaves Branch Hanging Or Tree Leaning Suppose windstorm broke a tree limb and left it hanging precariously over the insured dwelling. Windstorm did no other damage. Does the policy cover the cost of removing the limb? No. The loss to the tree limb itself is not covered. The Additional Coverage for Trees, Shrubs, Plants and Lawns does not apply to loss by windstorm. The part of the Debris Removal provision applicable to “tree(s) felled by the peril of Windstorm or Hail” only applies “provided the tree(s) damages a covered structure.” Further, while this provision can reasonably be applied to sizable parts of trees like limbs which could damage covered structures if they fall (see below), it is doubtful that the branch in question has been “felled.” Webster’s New World Dictionary 513 (2d College ed. 1984) defines “fell” in relevant part as “to cause to fall; knock down [to fell an opponent with a blow] . . . to cut down (a tree or trees).” Since the limb did not actually fall onto the ground or onto some other property, it probably was not “felled.” The Reasonable Repairs Additional Coverage does not apply. There was no “covered property . . . damaged by an applicable Peril Insured Against” since trees are not insured against the peril of windstorm. For similar reasons, assuming a tree is merely left leaning over from the vertical by a windstorm and is not leaning on or otherwise damaging or threatening a covered structure, such a tree should not be regarded as “felled” and thus there is no debris removal coverage for such a tree. For further discussion of coverage for trees, shrubs and other plants, see PLRB, Homeowners Annot. Key HO43 (Trees, Shrubs and Other Plants). When Loss Of Trees Affects Character Of Property Under a policy on a golf course, a court upheld the insurer’s application of the $500 sublimit on trees, despite the insured’s allegations that the demise of the tree had a detrimental effect on the thirteenth hole on the course. Thus, no coverage was afforded to redesign the hole in order to restore its “character, challenge, rating, slope and psychology.” Crestview Country Club, Inc. v. St. Paul Guardian Ins. Co., 321 F. Supp. 2d 260 (D. Mass. 2004) [reviewed at PLRB, Prop. Ins. L. Rev. 6715 (2004)]. Additional Coverage: Debris Removal Note that the limit of liability for lawns is 5% of the dwelling limit of liability, while the limit of liability for loss to trees, shrubs, and plants is 5% of the dwelling limit, subject to an additional limit of $500 for any one tree, shrub, or plant. Confusion often arises when these limits of liability are combined with the “additional 5%” provision of the Debris Removal Additional Coverage. The Debris Removal provision states: If the amount to be paid for the actual damage to the property plus the debris removal expense is more than the limit of liability for the damaged property, an additional 5% of that limit of liability is available for debris removal expense. With respect to lawns, the reference to “an additional 5% of that limit of liability” means an additional 5% of 5% of the dwelling limit of liability. Thus, an additional 1/4% of the dwelling limit of liability is available for removal of debris of lawns. With respect to trees, shrubs, and plants, the additional amount available for debris removal of all trees, shrubs, and plants damaged in a single loss is 1/4% of the dwelling limit of liability, but at most an additional 5% of the $500 per-tree limit, i.e., $25, is available for debris removal of any one tree, shrub, or plant. Consider the following example: The insured received a bill for $610 for debris removal of the insured’s tree which was left standing but killed when it was struck by lightning. How much is covered? Only $525 is covered. The Trees, Shrubs, and Other Plants Additional Coverage provides up to $500 coverage per tree for damage by lightning. In addition, the Debris Removal Additional Coverage provides an additional 5% of that limit, or $25, for debris removal if the sum of direct loss and debris removal exceed the limit of liability for the tree. Many argue with this result, perhaps because they are not reading the limit of liability provisions of the Trees, Shrubs or Other Plants Additional Coverage properly. If the limit of liability for the trees coverage is “up to 5% of the limit that applies to the dwelling,” but “[n]o more than $500 . . . for any one tree,” the limit must be the lesser of the 5% amount or $500, not the 5% amount. The limit cannot be greater than X or Y. Therefore, the limit cannot exceed the lesser of X and Y. Then this limit of liability becomes the “limit of liability for the damaged property” referred to in the Debris Removal Additional Coverage where the Debris Removal states that “an additional 5% of that limit of liability is available for debris removal expense” where the “amount to be paid for the actual damage to the property plus the debris removal expense is more than the limit of liability for the damaged property.” If this interpretation (5% of the $500 per-tree limit) is correct, why doesn’t the Debris Removal Additional Coverage just say $25 per tree for debris removal? First, not all trees are worth at least $500.Second, the Debris Removal Additional Coverage is making a general statement as to additional coverage available for any covered damaged property, not just trees. Note: See below for coverage afforded for the removal of a neighbor’s tree that either damages a covered structure or blocks a driveway or handicap access ramp. Debris Removal Coverage for Felled Trees The Debris Removal provision provides some coverage for the removal of uninsured felled trees. Coverage is provided for removal from the “residence premises” of the insured’s trees felled by the perils of windstorm, hail, or weight of ice, snow or sleet, or for the removal of a neighbor’s trees felled by any Peril Insured Against under Coverage C. The debris removal coverage is limited to $1,000 per loss regardless of the number of fallen trees, but no more than $500 of this limit will be paid for the removal of any one tree. Under the 2000 edition of the ISO HO 00 03 form, the felled tree must damage a “covered structure.” This was emphasized by the U.S. District Court for the Eastern District of Louisiana in Carriere v. Hanover Am. Ins. Co., No. CIV. A. 06-4847, 2007 WL 1063573 (E.D. La. Apr. 3, 2007). The court stated: The fact that [the insurer] paid a significant amount for removal of trees that damaged the house and covered the driveway under this section, in conjunction with the coverages provided by Coverage A and B, does not expand the coverage beyond the express terms of the policy. Debris removal covered under this section specifically includes “[d]ebris of covered property if a Peril Insured Against that applies to the damaged property causes the loss”. The debris removed to facilitate repairs to the “residence premises” and “other structures” happened to be felled trees. Id. at *2. The Debris Removal provision only applies when coverage is not afforded under the Trees, Shrubs and Other Plants Additional Coverage for the peril causing the loss. If a peril insured against in the Trees, Shrubs and Other Plants Additional Coverage is the cause of the tree falling, the loss to the tree is covered and the traditional debris removal language would apply to removal of debris of the tree. In Womick v. West Bend Mutual Ins Co., No. 5-12-0327, 2013 IL App (5th) 120327-U, 2013 WL 5407209 (Ill.App. 5 Dist. 9/23/13) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. 8786 (2013)], tree removal expenses were only covered up to the $1,000 limit for trees felled by windstorm, provided under the debris removal coverage in a homeowners policy. The claim was for the cost of cutting down broken tree limbs left hanging after a severe windstorm, removing the tree limbs and other debris, and cleaning up the area. The tree limbs did not damage any buildings or structures but were left hanging in precarious positions, which allegedly created a safety hazard for children who played nearby. No coverage was available under the higher general debris removal limit for “debris of covered property” because the trees were excluded “land” rather than covered property. For the same reason, there was no coverage under the general provision for the cost of “necessary measures to protect covered property … from further damage.” The policy’s Additional Coverage for trees also did not apply because the loss was the result of windstorm rather than one of the perils named for that coverage. Consequently, the insurer owed nothing more after it paid the $1,000 limit under the debris removal coverage for removal of trees felled by windstorm. For related PLRB coverage discussions, see PCQ.2012.06.05a (part of neighbor’s tree fell on insured’s roof and caused damage); Tree Fell on Boat: Falling Objects and Debris Removal – PCQ.2019.06.04.jak.a; and PLRB, Test Your Coverage Knowledge: Debris Removal for Trees Felled by Wind. Stump Removal Is the cost of removing the stump of a fallen tree from the ground covered under the Debris removal provision? That is, is the stump considered debris? Yes. Webster’s Encyclopedic Unabridged Dictionary 514 (Random House Value Publishing 2001) defines “debris” in part as “the remains of anything broken down or destroyed; ruins; rubble.” The stump is a piece of the broken tree after its destruction by falling. Further, the provision promises to pay for the removal of “tree(s)” which are felled, and the stump is clearly part of the felled tree. Removal of Tree From Covered Structures Suppose a tree is felled by windstorm and as it falls, it damages other trees. Is debris removal coverage provided? No. While the trees are “covered property” since they are the subject of the Additional Coverage for Trees, Shrubs and Other Plants, there is no coverage for debris removal of the felled tree since none of the other trees damaged by the falling tree was a “covered structure.” Black’s Law Dictionary 1464 (8th ed. 2004) defines “structure” in part as: Any construction, production or piece of work artificially built up or composed of parts purposefully joined together. All buildings are structures. Structures also include other fixtures to real estate (fences; driveways; sheds; permanently installed pools & decks; etc.). Personal property items which are easily movable and not real estate fixtures are generally not structures. Trees, shrubs, and other plants, since they are not built or constructed by humans, are not structures. For further information on the nature of structures, see PLRB, Homeowners Annot. Key HO11 (Dwelling). Removal of Tree to Enable Repair vs. Debris Removal Assume windstorm blows a tree or limb onto a building or structure, damaging the structure and necessitating removal of the tree or limb to effect repair of the structure. The cost to remove the tree or limb from the structure so that repairs to the structure can be performed should be considered part of the repair cost of the structure. This cost should not be counted toward any available limit of liability for debris removal of the tree or limb. However, the additional cost of removing the tree or limb from the residence premises is only covered by the $1,000 aggregate limit of liability for removing fallen trees from the residence premises, subject to a sublimit of $500 per tree. Thus, assume it costs $500 to remove a fallen tree from the insured dwelling so that dwelling repairs can be made, and that it will cost an additional $500 to cut up the tree and haul the tree debris away from the residence premises. The first $500 amount is covered as part of the cost to repair the dwelling. The second $500 amount would be covered under the $1,000 aggregate limit of liability for removing fallen trees from the residence premises. Suppose windstorm damages the insured’s home and trees. One tree is undamaged but must be removed to allow access to the home by cranes needed to repair the damage to the home. The cost of removing this tree (so far away from the dwelling as is necessary to allow repair) should be covered as part of the necessary cost of repair of windstorm damage to the home. The scope of the Additional Coverages for Debris Removal and Trees should not be read to detract from the scope of coverage for the home under Coverage A. Thus, while there is no coverage for removal of an undamaged tree under the Additional Coverages, Coverage A would cover the cost of removing a tree necessary to fix the house. Felled Limbs Suppose a tree limb falls due to windstorm and damages a covered structure when it falls. Does the debris removal coverage for “felled tree(s)” apply? Probably yes. While a “felled tree(s)” may not literally apply to a fallen limb, a fallen limb is a partially “felled” tree. As long as the limb is big enough to damage covered property, coverage should probably apply. Removal of Felled Trees From Neighbor’s Premises Suppose windstorm fells the insured’s property-boundary tree onto the neighbor’s premises. Does the insured’s policy provide coverage to remove the fallen tree from the neighbor’s premises? No. The coverage is only for the removal of felled trees from the “residence premises,” which the policy defines to mean the dwelling, other structures, and grounds where the named insured resides. If the neighbor has an equivalent Homeowners policy, however, the neighbor’s policy will pay up to $1,000 for removal of the tree since the neighbor’s policy covers “[a] neighbor’s tree(s) felled by a Peril Insured Against under Coverage C.” Tree Blocks Driveway or Handicapped Access Ramp The Additional Coverage for Debris Removal states: b. We will also pay your reasonable expense, up to $1,000, for the removal from the “residence premises” of: (1) Your tree(s) felled by the peril of Windstorm or Hail or Weight of Ice, Snow or Sleet; or (2) A neighbor’s tree(s) felled by a Peril Insured Against under Coverage C; provided the tree(s): (3) Damage(s) a covered structure; or (4) Does not damage a covered structure, but: (a) Block(s) a driveway on the “residence premises” which prevent(s) a “motor vehicle”, that is registered for use on public roads or property, from entering or leaving the “residence premises”; or (b) Block(s) a ramp or other fixture designed to assist a handicapped person to enter or leave the dwelling building. The $1,000 limit is the most we will pay in any one loss regardless of the number of fallen trees. No more than $500 of this limit will be paid for the removal of any one tree. Assume, for example, that during a hurricane, gusts of wind uproot three of the neighbor’s trees. The trees land on the insured’s driveway, preventing access to the garage. The Additional Coverage for Debris Removal would afford up to $1,000 in additional insurance for the removal from the “residence premises” of the felled trees. Now, assume the hurricane force winds knocked the neighbor’s tree onto the insured’s car which was parked on the street. Is there any debris removal coverage for that loss? No. This Additional Coverage is afforded only when a neighbor’s felled tree blocks a driveway on the “residence premises” which prevents a “motor vehicle” from entering or leaving the “residence premises”. Since the scenario involved the public street, not the insured’s driveway, the Additional Coverage for Debris Removal would not afford any coverage for the cost of removing the neighbor’s tree. For a related PLRB coverage discussion, see Debris Removal for Tree Blocking Driveway. For additional discussion on Debris Removal Coverage, see PLRB, Homeowners Annot. Key HO41 (Debris Removal). Additional Coverage: Reasonable Repairs Assume windstorm damages a tree, causing a limb to fall on the roof of the insured house, damaging the house. The bulk of tree, including the remainder of the limbs and trunk, remain standing, but are in danger of falling onto the house and causing additional damage. Is there coverage for removing tree? Probably yes, under the Reasonable Repairs Additional Coverage. The removal of the tree, at least so far away from the house as to prevent the danger of further damage if the tree or other branches of the tree were to fall, is a “reasonable cost incurred by you for necessary measures taken solely to protect against further damage.” Access to Damaged Tree Suppose a large tree on the residence premises was struck by lightning. A branch fell onto the porch and another tree must be removed to gain access to the large tree that was struck by lightning. Does the policy afford coverage for the cost of removing the second tree to gain access to the damaged tree? Yes. But for the lightning striking the larger tree, the smaller tree would not have to be removed. Under the Additional Coverage for Reasonable Repairs, the policy states that the insurer will pay the reasonable cost incurred for necessary measures taken solely to protect against further damage. If it is necessary to remove the smaller tree to gain access to the tree damaged by lightning, there is coverage for the reasonable cost incurred to remove the smaller tree, at least so far away as is necessary to allow access to the lightning-damaged- tree. For a general discussion of the Additional Coverage for Reasonable Repairs, see PLRB, Homeowners Annot. Key HO42 (Reasonable Repairs). Deductible To our knowledge no reported cases address the issue of whether debris removal expense is a loss for purposes of the deductible. The best view, or at least the one which resolves the ambiguity in favor of greater coverage, is that the deductible does not apply to any debris removal expense coverage since debris removal expense is not technically “loss.” The deductible provision applies to loss under the policy, with no mention of expense. Thus, while the deductible applies to any loss payable under the policy except where the policy specifically states that the deductible does not apply (e.g., the Fire Department Service Charge Additional Coverage), it should not apply to covered expenses. The debris removal coverage was originally inserted in the policy to settle a longstanding disagreement among insurance professionals as to whether debris removal was covered as part of the direct physical loss. For a related PLRB coverage discussion, see Deductible Absorbed by Debris Removal Excess Over Limit? – PCQ.2015.10.23.twh.b . For a general discussion of Debris Removal Coverage, see PLRB, Homeowners Annot. Key HO41 (Debris Removal) and PLRB, Prop. FAQs – Debris Removal & Trees, Shrubs, Plants . ORDINANCE OR LAW EXCLUSION The ISO HO 03 05 11 form treats losses caused by enforcement of ordinance or law in three places in the form: (1) in the exclusion proper (see PLRB, Homeowners Annot., HO79); (2) in the loss settlement clause (see PLRB, Homeowners Annot. Key HO96 ); and (3) in the Ordinance or Law Additional Coverage (see PLRB, Homeowners Annot. Key HO149 ). Following is a brief discussion of the treatment in each of these three places in the 2011 form. (1) ISO did not comment on the revisions it made to the exclusion that were introduced in 2002. At that time the exclusion was amplified to apply specifically to any debris removal, any loss in value of property, and any testing or treatments for pollution. (2) With respect to the Loss Settlement condition, ISO highlighted the fact that repair or replacement cost does not include the increased costs resulting from the enforcement of any ordinance or law except to the extent provided under the Additional Coverage for Ordinance or Law. There are two revisions to serve this purpose. The first is the statement that costs to repair and replace do not include costs incurred to comply with ordinance or law. The second is the addition of the phrase “material of like kind and quality” to the phrase “like construction and use.” (See PLRB, Homeowners Annot. Key Ho 96 .) (3) With respect to the Ordinance or Law Additional Coverage, ISO indicated that it was making only one change. This additional coverage did not appear in the 1991 form. However, it was introduced on a nationwide basis with state specific endorsements. The one change is apparently from the text of those endorsements. (See PLRB, Homeowners Annot., Key HO149 .) The additional coverage provides up to 10% of the limit of Coverage A, after a covered loss, for increased costs incurred due to the enforcement of any ordinance or law which requires or regulates: repair of property damaged; demolition and reconstruction of undamaged property; or work on undamaged property which must be done in order to complete work on damaged property. The additional coverage may be applied towards debris removal, but does not provide coverage for loss in value to any covered property, nor for any testing or treatments for pollution. Texas Case Law In Hamburg-Bremen Fire Ins. Co. v. Garlington, 18 S.W. 337 (Tex. 1886), a policy was issued on a building that had sustained a partial fire loss. Subsequently, it sustained another fire loss and was damaged to the extent that it lost its character as a building, although some of the materials remained. The court held that the insured suffered a total loss by fire, notwithstanding the fact that the building was already damaged when the fire occurred. The court reasoned in the alternative that the building was a total loss because its repair was forbidden by municipal ordinance. The court referred to no policy language concerning the effect of ordinance or law. Texas is a valued policy state, but the court did not mention the valued policy statute. In Scanlan v. Home Ins. Co., 79 S.W.2d 186 (Tex. App. 1935), the insured building was damaged to 70 percent of its appraised value. Notwithstanding that fact, it would have been prudent to use the remains in rebuilding. However, repair was prohibited by an ordinance stating that if a non-fireproof building is damaged as much as 50 percent of its value, no permit shall issue for its repair. The court held that, based on the effect of the ordinance, the insured suffered a total loss, and the insurer owed the $65,000 face value of the policy instead of the $30,500 it would have cost for repairs. The policy provided that the company “shall not be liable for loss caused directly or indirectly . . . by order of any civil authority.” It further provided that the company shall not be liable “beyond the actual value destroyed by fire, for loss occasioned by ordinance or law regulating construction or repair of buildings, or by interruption of business, manufacturing process, or otherwise.” The court reasoned that the order of civil authority language does not relate to fire losses at all but to losses occasioned solely by order of civil authority. The court stated that the language regarding ordinance or law has reference to partial losses to which the valued policy law is not applicable. Conceding that the intent of the drafters was to contract against the effect of the valued policy law and the municipal ordinance, the court held that such policy provisions are void because they are in contravention of the valued policy statute. Thus, the specific policy language did not alter the general rule regarding constructive total losses. The court also rejected the insurer’s argument that the ordinance was void because it authorizes the taking of property without due process of law. In Glens Falls Ins. Co. v. Peters, 386 S.W.2d 529 (Tex. 1965), the insured building suffered partial fire damage. The insured received notices from the city requesting him to demolish the structure and then, telling him to either raze or repair. The latter notice cautioned that, in either event, he would need a permit. The insured ignored the need for a permit and simply tore down the building. The insured refused the insurer’s demand for an appraisal and made claim for a total loss. The jury found that a reasonably prudent owner would have used the remnant for repairs. Therefore, concluded the court, the building was not a total loss. The court then reasoned that the building would be a constructive total loss if it were damaged to an extent greater than 50 percent of its value, because, in that event, repair would be prohibited by ordinance. However, the insured failed to submit the issue of constructive total loss to the jury and therefore waived his right to a judgment on this issue. The court went on to reason that the independent ground of recovery of constructive total loss was not conclusively established by the evidence. There was conflicting testimony as to the extent of the damage. The court held that the percent of damage is not conclusively established by the report of the building inspector. In Wong v. Monticello Ins. Co., No. 04-02-00142-CV, 2003 WL 1522938 (Tex.App.- San Antonio 3/26/03) (not yet reported in S.W.3d) [reviewed at PLRB, Prop. L. Rev. 6652 (2003)],the insured’s property was destroyed when the building in which her restaurant was located was demolished by order of the City of San Antonio pursuant to section 6-175 of the City Code. According to the insured, the city issued the order in response to damage caused by an explosion that occurred in an adjacent building and high winds. [The court’s opinion did not indicate whether the insured’s building or her property had suffered any damage from the explosion or winds at any time before the building was demolished.] The anti-concurrent causation preface made the governmental action and ordinance or law exclusions apply to the loss. The court held that the exclusions applied even if the demolition order was issued in response to the high winds and the explosion on adjacent property, both covered perils under the policy. The court also denied the insured’s civil authority claim because it was the demolition of the building that kept customers away, not an order or action prohibiting access. Toney v. State Farm Lloyds , No. 14-40914, 2016 WL 4784012 (5th Cir. (Tex.) 9/13/16) (unpublished) (U.S. Court of Appeals for the Fifth Circuit, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9549 (2016) ], notes that Texas adopted the IRC (International Residential Code) in full, and it was not “formally amended in any relevant respect by the City of Mission.” Id. at *3, citing TEX. LOC. GOV’T CODE ANN. § 214.212 and City of Mission Municipal Code § 18-32. The IRC “applies to all construction, alteration, remodeling, enlargement, and repair of residential structures in a municipality.” TEX. LOC. GOV’T CODE ANN. § 214.212(b). Repairs to existing dwellings are governed by IRC § AJ301.1, which requires that repair work conform to the IRC standards for new construction. 19 IRC § R907.1 adds two rules pertaining to repairs to roofing materials: First, “[r]oof repairs to existing roofs and roof coverings shall comply with the provisions of Chapter 34 of the International Building Code.” 20 Chapter 34 of the IBC, in turn, provides that “[a]dditions, alterations or repairs to any building or structure shall conform with the requirements of the code for new construction.” Second, IRC § R907.1 provides that “more than 25 percent of the roof covering of any building shall not be removed and replaced within a 12-month period unless the entire roof covering is made to conform to the requirements for new roofing.” Id. at *4. Chapter 34 of the IBC (International Building Code) provides that “[p]ortions of the structure not altered and not affected by the alteration are not required to comply with the code requirements for a new structure.” Id., citing IBC § 3402.1 and noting at n.22 that “Chapter 34 of the IBC is incorporated into the IRC by operation of IRC § 907.1.” Coverage Endorsements In Commonwealth Ins. Co. v. Benihana of Tokyo, Inc., 1997 WL 361617 (U.S. Dist. Ct. N. D. Tex. 1997) reviewed at PLRB, Prop. Ins. L. Rev. 5122 (1998), the insured purchased an endorsement that read as follows: [I]n the event of loss or damage by a peril insured under this Policy that causes the enforcement of any law or ordinance regulating the construction or repair of damaged facilities, this Company shall be liable for: . . . . c. the increased cost of repair or reconstruction of the damaged and undamaged portion of the facility. A fire at the restaurant caused damages, including damages to four ventilation hoods. The fire department required in its inspection report that all twenty ventilation hoods be replaced pursuant to the mechanical code. The fire department could have inspected before the fire and required the insured to replace all twenty hoods, but, in fact, the inspection was triggered by the fire. The court reasoned: [T]he fact that the code may have been applicable before the fire is irrelevant since the [endorsement] does not specify that the regulation being enforced be newly applicable or that the fire hazard not have previously existed. Instead, the language simply requires the enforcement of any law or ordinance, regardless of whether the hazard or violation was preexisting. In a footnote, the court rejected the insurer’s argument that this line of reasoning could lead to an absurd conclusion such as requiring the restaurant to pay to cover such deficiencies as the lack of wheelchair access ramps. The court responded that under the language of the endorsement this conclusion was not absurd. In Laird v. CMI Lloyds, No. 06-07-0091-CV, 2008 WL 2414853, — S.W.3d — (Tex. App. – Texarkana 2008) reviewed at PLRB, Prop. Ins. L. Rev 7581 (2008), the court held that an insured could not add the $5,000 limit for Ordinance or Law Coverage to the limit for mold coverage because of limitations on Ordinance or Law Coverage for repairs made more than 365 days after the loss and for the costs to comply with ordinance or laws that require an insured “to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, assess the effects of, pollutants on any covered building or structure.” The “Ordinance or Law Coverage Limitations” precluded application of the Ordinance or Law Coverage to mold remediation costs. The court declined to address the insured’s argument that the regulation of mold remediation by the Texas Occupations Code meant that its mold remediation costs would fall within the general scope of the policy’s Ordinance or Law Coverage. Instead it focused on the language of the limitations and found that subsections (b)(4) and (c) would operate to preclude Ordinance or Law Coverage. [Editor’s Note: Subsection (b)(4) precluded coverage if repairs were made more than 365 days after the loss. Subsection (c) precluded coverage for the costs to comply with ordinances or laws that require an insured “to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, assess the effects of, pollutants on any covered building or structure.” See section on Policy Language above.] This case raises the question of whether there might be some circumstances under which an Ordinance or Law coverage limit might be used to cover some mold remediation costs. The court declined to address the issue of whether Texas regulation of mold remediation could trigger the coverage. However, given the Ordinance or Law limitations it relied on, a court might not ever have to reach that issue. The court reached the result it did by assuming that mold was a “pollutant” for the purposes of that Ordinance or Law limitation. TEXAS WINDSTORM INSURANCE ASSOCIATION In order to be eligible for a TWIA policy, applicants and properties must meet the following criteria set forth by the Texas Legislature: Properties must be located in the area designated by the Commissioner of Insurance, which currently includes all 14 first-tier coastal counties (Aransas, Brazoria, Calhoun, Cameron, Chambers, Galveston, Jefferson, Kenedy, Kleberg, Matagorda, Nueces, Refugio, San Patricio and Willacy) and parts of Harris County east of Highway 146 Applicants must have been denied coverage by at least one authorized insurer actively writing or renewing windstorm and hail coverage in the designated area Properties must be certified by the Texas Department of Insurance (WPI-8/WPI-8-E) or Texas Windstorm Insurance Association (WPI-8-C) as having been built to applicable building codes, with limited exceptions. Properties located in flood zones V, VE, or V1-30 that were constructed, altered, remodeled, or enlarged on or after September 1, 2009 and that can obtain flood insurance through the NFIP must provide proof of flood insurance coverage and Properties must meet all other Association underwriting requirements, including maintaining the structure in an insurable condition – in good repair, with no unrepaired damage or hazardous conditions. See twia.org for further information regarding Texas Windstorm policies, noting that TWIA policies are governed by Texas Statute. Cases involving TWIA policies include: Texas Windstorm Ass’n. v. Poole, No. 07-07-0061-CV, 2008 WL 2065107 (Tex. App. – Amarillo 5/15/08) [reviewed at PLRB, Prop. Ins. L. Rev. 7570 (2008)] ( the court held that the Texas Windstorm Insurance Association has the implied authority under Texas statutes to petition a court to resolve a dispute with a policyholder. TWIA therefore was allowed to proceed with its action for declaratory judgment in a case in which it sought a ruling that it was not required to participate in an appraisal demanded by the insureds) Housing & Community Services, Inc. v. Texas Windstorm Insurance Assoc., 515 S.W.3d 906 (Tex. App. – Corpus Christi, 3/02/2017) [reviewed at PLRB, Prop. Ins. L. Rev. 9699 (2017)] (untimely notice of loss precluded recovery of windstorm damage under Texas Windstorm Insurance Association (TWIA) policy, regardless of whether the insurer was prejudiced by the late notice) Texas Windstorm Insurance Assoc. v. Jones, 512 S.W.3d 545 (Tex. App. 2016) (Court of Appeals of Texas, 1st Dist., applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9626 (2017)] (Appraisal was the homeowner’s sole remedy to dispute the amount of loss determined by the Texas Windstorm Insurance Association (TWIA). If coverage for a claim is accepted by TWIA, the policyholder may dispute the amount offered through appraisal. If coverage is denied for a claim, the policyholder may file suit) League City v. Texas Windstorm Ins. Assoc., No. 01-15-00117-CV, 2017 WL 405816 (App. Ct. Tex. 01/21/17) (Court of Appeals of Texas, Houston – 1st District – applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9659 (2017)] (The failure to provide prompt notice of loss to the insurer resulted in no coverage for losses alleged in a lawsuit filed under Texas Windstorm Insurance Association (TWIA) policy where the policyholder’s initial notice failed to provide adequate details) On August 26, 2017, the Texas Insurance Commissioner issued Commissioner’s Bulletin # B-0018-17, which states in part: Insurers who deny coverage for wind losses are encouraged to inform policyholders of potential coverage under the Texas Windstorm Insurance Association (TWIA) if the loss occurred in the TWIA coverage area. VALUATION (ACV) Determining Actual Cash Value Texas is a Valued Policy Law state. Therefore, in situations where the Valued Policy Law applies, its provisions will control determination of valuation. (See PLRB’s Valued Policy Law discussion in the section below.) With respect to other kinds of losses, different standards apply to different kinds of property. ACV of commercial real property generally is measured by fair market value. Court decisions on ACV of residential real property (not governed by the Valued Policy Law) are mixed and the results may depend on the kind of policy language involved. As a general rule, under standard Texas homeowners forms, courts have held that ACV for partial residential building losses is to be measured at the cost of repairs with no deduction for depreciation. Depreciation of labor costs, for the purpose of calculating actual cash value, was not allowed under the homeowners policies. With respect to both residential and commercial personal property, Texas courts have generally applied a flexible standard similar to the broad evidence rule, with fair market value as the starting point with other factors to be considered depending on the circumstances. Exceptions, however, may be found with respect to commercial personal property in special contexts such as manufacturing and wholesaling. For a more complete discussion of Texas ACV cases, see PLRB, ACV Annotations – TX. Contractor’s Overhead and Profit Texas courts have offered some guidance, with mixed outcomes, regarding whether an insurer may deduct contractor’s overhead and profit. In one case, the court held overhead and profit (and sales tax) were improperly deducted from an ACV award; in another, the insurer was allowed to depreciate overhead and profit (and sales tax) from the ACV award based on the contract language. Contractor’s Overhead and Profit May Be Deducted Tolar v. Allstate Texas Lloyd’s Co. , 2011 WL 1045331, — F.Supp.2d — (N.D.Tex. 3/22/11) [reviewed at PLRB, Prop. Ins. L. Rev. 8214 (2011) ]. A general contractor’s overhead and profit and sales tax were subject to depreciation as part of the insurer’s calculation of actual cash value under a replacement cost policy. Both items were properly included as part of the total replacement cost value, from which depreciation was deducted. The court stated that “replacement costs” is defined as a composite of all reasonably foreseeable repair or replacement costs, including labor, materials, and sales tax. From this statement, it might be reasoned that labor, which is part of total replacement cost value like a general contractor’s overhead and profit and sales tax, would also likely be subject to depreciation. Contractor’s Overhead and Profit May Not Be Deducted Ghoman v. New Hampshire Ins. Co. , 159 F.Supp.2d 928 (W.D. Tex. 2001) [reviewed at PLRB, Prop. Ins. L. Rev. 6024 (2001) ] (hotel damaged by wind and hail). Contractor’s overhead and profit and sales taxes were improperly deducted from an actual cash value appraisal award. The fact that the insured, who filed this class action lawsuit, first asked for funds to repair or replace the property did not preclude him from seeking and obtaining payment for actual cash value or limit his recovery to the amount he actually spent on repairs. The fact that he made some of the repairs himself did not warrant deducting any amount for contractor’s overhead and profit. VALUED POLICY LAW A valued policy statute is designed to fix the insurable value of property in order to prevent debate as to the actual value of property in the event of loss. Policy Types The Texas valued policy law, Tex. Ins. Code § 862.053, applies to residential and commercial real property. No Texas case law has been located that prohibits the application of the valued policy law to blanket policies. Type of Property The Texas valued policy law applies to real property: Buildings Structures (but not other or appurtenant structures) Manufactured Buildings The Texas valued policy law does not apply to: Personal Property Mobile Homes Valued Policy Law Only Applies to Total (and Constructive Total) Fire Losses The Texas valued policy law only applies to total loss by fire to real property. Consequently, the valued policy law should not apply to loss caused by any of the covered perils typically associated with a hurricane event (such as windstorm, hail, or lightning), unless one of those perils triggers a total fire loss (for example, when a lightning strike ignites a fire that leads to total loss of a dwelling). For further information about the Texas valued policy law, including the full statutory text and synopses of relevant cases, see PLRB, Valued Policy Laws Annotation – Texas . WINDSTORM DEDUCTIBLE As noted in the Forms – Texas Property Forms section discussed above, many property policies in Texas include an endorsement that contains a windstorm and hail deductible. For example, some homeowners forms may have the Windstorm or Hail Percentage Deductible endorsement, ISO HO 03 12 05 11. Similar endorsements are also available for commercial property policies (ISO CP 03 21 10 12). There are a few Texas cases that have addressed coverage issues relating to windstorm deductibles. For example, in Saratoga Resources, Inc. v. Lexington Ins. Co., No. 15-20343, 2016 WL 1127399 (5th Cir. (Tex.) 3/22/16) (unpublished) (U.S. Court of Appeals for the Fifth Circuit, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 9397 (2016) ], the court held that the Named Windstorm deductible was to be calculated based on 5% of the aggregate sum of the insured values of each damaged property under policy that insured multiple properties. The phrase “Total Insurable Values” could only be reasonably interpreted as requiring that the insured value for each damaged property be added together and that the total, when multiplied by 5%, produce a single deductible amount. In Turner Construction Co. v. ACE Prop. & Cas. Ins. Co., 429 F.3d 52 (2d Cir. 10/28/05) (applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 6978 (2005) ], the court held that a “wind deductible,” which was calculated as a percentage of property value and amounted to over $ 1 million, did not apply to interior water damage that occurred when rain entered the insured building through openings caused by wind. Consequently, the policy’s general deductible of $10,000 for “all other covered causes of loss” applied instead. The “wind deductible” appeared in an endorsement to a builder’s risk policy issued for a hotel construction project in Houston, Texas. The U.S. Court of Appeals for the Second Circuit, applying Texas law, decided that the language of the “wind deductible” endorsement was ambiguous as applied to damage caused indirectly by wind. In V.L. Properties, Inc. v. Alleghany Underwriting Risk Services, Ltd., No. 03-41432, 130 Fed. Appx. 675 (5th Cir. Tex. 5/06/05) (unpublished) [reviewed at PLRB, Prop. Ins. L. Rev. 6940 (2005) ], the court held that the deductible “in respect of Catastrophe which will include wind, wave action, earthquake and flood” only applied to wind damage from a catastrophic event, not all wind damage. The plain, ordinary meaning of “catastrophe” is a momentous tragic event or an utter failure, and, in the absence of another, specialized definition in the policy, it must be construed according to its ordinary meaning. In a case where an insured yacht facility was damaged when high winds damaged a portion of the property and no damage occurred to neighboring properties, a genuine issue of material fact existed as to whether a catastrophic wind event had occurred. Pan Am Equities, Inc. v. Lexington Ins. Co., 959 F.3d 671(5th Cir. (Tex) 5/26/20) Affirming No. H-18-2937, 2019 WL 2115173 [(S.D.Tex. 5/02/19) [reviewed at PLRB, Prop. Ins. L. Rev. 10684 (2020)]. A Named Storm Deductible applied to damage caused by flooding as a result of Hurricane Harvey. Consequently, none of the $6.1 million in flood damage was covered. The fact that the insured properties suffered no wind damage did not preclude application of the Named Storm Deductible, which was listed as an exception to the deductible for “loss due to Windstorm or Hail.” Although the policy did not define “windstorm,” the term clearly was not limited to damage caused by wind alone. The Named Storm Deductible specifically applied “regardless of the number of coverages, locations or perils involved (including but not limited to all Flood, wind, wind gusts, storm surges, tornados, cyclones, hail or rain). Therefore, the deductible applied to damage caused by flooding, due to heavy rains, as a result of Hurricane Harvey. Landmark Am. Ins. Co. v. SCD Memorial Place II, L.L.C., No. 20-20389, 2022 WL 320316, 25 F.4th 283 (5th Cir. (Tex.) 2/03/2022) (U.S. Court of Appeals for the Fifth Circuit, applying Texas law) [reviewed at PLRB, Prop. Ins. L. Rev. 11215 (2022)]. Deductible buy-back policy, which covered Windstorm or Hail associated with a Named Storm, did not cover deductible amounts, uncompensated under the primary policy, when they arose from flood, rather than wind, damage caused by Hurricane Harvey. The policy language was not ambiguous because it referenced a “Named Storm” and did not explicitly exclude coverage for flood. Because the insuring clause in the deductible buy-back policy only covered Windstorm or Hail associated with a Named Storm, it was clear that the coverage only extended to hurricane wind damage. A Buyback Deductible is “a deductible contained in the basic policy that may be removed by paying additional premium when full coverage is required.” [Definition at Irmi.com]. Because it is designed to allow a policyholder to purchase coverage, by paying an extra premium, for coverage in an amount greater than the deductible (ordinarily a large amount or percentage when a windstorm deductible is involved), it was unreasonable to interpret the policy as greatly expanding the scope of coverage, rather than simply reducing the dollar amount of the deductible, was unreasonable. Under the court’s interpretation, the policy did not allow the policyholder to “buy back” the deductible at all. Instead, it gave the policyholder an entirely different policy, which covered both wind and flood damage caused by a hurricane. For a related discussion of windstorm deductibles, see PLRB’s coverage reply – Windstorm/Hail Percentage Deductible: One Occurrence, Multiple Buildings – PCQ.2017.06.14.twh.c . For a discussion of the application of an endorsement for a wind/hail other than hurricane or hurricane deductible, see Application of Wind/Hail Other Than Hurricane or Hurricane Deductible to Hurricane Harvey Claim- PCQ.2017.10.25.eks.a. For a discussion about the applicability of a named storm deductible to a loss caused by rain that seeped through a flat roof during a hurricane, see PLRB’s coverage reply, Named Storm Deductible Didn’t Apply to Loss Caused by Rain During Hurricane – PCQ.2017.10.23.jak.a. For a discussion concerning whether a windstorm deductible applies when there is no direct wind damage see, Windstorm/Hail Deductible: Proximate Cause – PCQ.2018.09.30.twh.b RELATED DOI BULLETINS The Texas Hurricane Center website may be accessed for up-to-date Evacuation Orders and other information related to current hurricanes. RELATED PLRB COVERAGE REPLIES For a PLRB coverage reply about the Acts or Decisions exclusion, see Insured’s Luggage Had to Be Left on Island Destroyed by Hurricane – PCQ.2017.09.25.jak.a. For a PLRB coverage reply about proximate cause and the flood exclusion, see Flood and Backup Combined to Cause Damage in Texas – PCQ.2017.09.26.eks.a. For a PLRB coverage reply about applicability of the flood exclusion to the Additional Coverage for Refrigerated Contents added under an Endorsement, see Refrigerated Contents Additional Coverage Subject to Section I Flood Exclusion? – PCQ.2017.10.30.rcw.b. For a PLRB coverage reply on the exception to the Water Damage exclusion under the AAIS Form 5 applying to property covered under Coverage C, see AAIS Coverage C Water Damage Exception – PCQ.2017.10.02.rcw.a.
Windstorm Deposits Farm Soil On Insured's Property: Is There Coverage?
The insured’s dwelling is next to a farm. A windstorm blew soil from the farm fields onto the insured’s property, resulting in soil accumulating in layers on the insured’s property. Is there coverage for the loss?
In Alaska, Would an Employer’s Liability Exclusion Bar Liability Coverage for Bodily Injury from a Workplace Fight?
This coverage question response was based on the specific policy language provided and the case law available at the time it was written. For a general understanding of the exclusion issue, see PLRB, Commercial General Liability Policy Annotation Key GL47 – Employer’s Liability Exclusion. POLICY FORM ISO Commercial General Liability Coverage Form CG 00 01 12 07 FACTS A fight broke out between two employees at the named insured Alaska bar. One of the employees, a bouncer with known anger management issues, beat the other employee badly. The injured employee sued the other employee, the bar and the bar owner alleging that the bar and bar owner deliberately failed to make him aware of the threat the other employee posed. Also, the bar owner failed to purchase worker’s compensation insurance. Such coverage could otherwise have paid for the worker’s medical treatment. STATE OF LOSS Alaska QUESTION In Alaska, would an employer’s liability exclusion bar liability coverage for bodily injury from a workplace fight? POLICY LANGUAGE 2. Exclusions This insurance does not apply to: … e. Employer's Liability "Bodily injury" to: (1) An "employee" of the insured arising out of and in the course of: (a) Employment by the insured; or (b) Performing duties related to the conduct of the insured's business; or (2) The spouse, child, parent, brother or sister of that "employee" as a consequence of Paragraph (1) above. This exclusion applies whether the insured may be liable as an employer or in any other capacity and to any obligation to share damages with or repay someone else who must pay damages because of the injury. … ANSWER In Alaska, coverage for such a suit as against the bar and bar owner should be barred from commercial liability coverage by an employer’s liability exclusion. DISCUSSION In Devine v. Great Divide Ins. Co., 350 P.3d 782, 784 (Alaska 2015), there was a fight at a jobsite between co-employees under circumstances similar to those in the instant loss. The named insured company’s owner failed to purchase worker’s compensation insurance. 350 P.3d at 788. The Alaska Supreme Court held that the employer's liability exclusion barred CGL coverage for the employee’s injuries. Id. at 792. The court noted that the injuries were work-related. Id. at 790-91. Similarly, in the instant loss, the named insured bar, through it’s owner, failed to warn the injured employee of the bouncer’s violent tendencies. The bar owner failed to purchase worker’s compensation coverage which could have covered much of the instant loss. Per Devine, the loss should be viewed as a work-related injury- one not covered because of the employer’s liability exclusion.
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