Katrina coverage: Leonard -v- Nationwide

Over at Insurance Coverage Blog, David Rossmiller has some interesting entries (start here) on the recent decision in Leonard -v- Nationwide Mutual, a coverage battle ostensibly between the Leonards (advised by Dickie Scruggs[1]) and Nationwide over whether the former were covered for flood damage arising out of Katrina, but which also involved consideration of whether the Leonard’s insurance agent, Jay Fletcher, had misrepresented the scope of the coverage to them.

In the comments to the second referenced article of David’s, Professor Seth Chandler makes what seem to me some rather astute observations:

1) Page 7 of 13 (paragraph 29) [of the judgment]. The judge says there is no evidence in the record to establish the standard of care applicable to an insurance agent who is asked about the advisability of purchasing flood insurance and that, absent such evidence, he could not find that the plaintiff’s agent breached a standard of care. Might subsequent plaintiffs attempt to develop such evidence and seek to collect for storm surge losses not from the insurers, but from agents (and their E&O insurers)?

2) The judge concludes that the exclusion on which Nationwide relies is ambiguous (p. 9) but that Nationwide has a reasonable reading of the exclusion that ends up excluding coverage (p. 10). Perhaps this is correct as a matter of Mississippi insurance law — the case was decided in federal court but it presumably (Erie) applied Misssissippi law — but it would have trouble standing muster in some states, including my own Texas. In Texas, once ambiguity is found, the insured may advance ANY reasonable interpretation of the policy and prevail even if the insurer’s interpretation is “more reasonable.” This may be a little strange and depends on the commensurability of reasonableness, but last I looked it was the law.

So, clearly a win for the insurers (I don’t think Mr. Scruggs brought this case to get the plaintiffs an extra $1228.16), but not as clear cut as one might be led to believe.

And although I am not competent to comment on US law, I think that David’s response gives good commonsense pointers for insurers faced with similar situations:

From my reading of those two paragraphs and the rest of the opinion, I think the way to reconcile that is that Senter did not find the plaintiffs advanced a competing interpretation that was reasonable.

It also appears Nationwide wisely did not insist on the most extreme interpretation of the anti-concurrent cause exclusion, which is going to strike most people as absurd.

All good stuff, and an interesting read for any with an interest in US coverage issues.

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[1] Apparently, Mr Scruggs claims to have won the case for his clients (huh?), about which David comments: “If Scruggs was Custer’s lawyer, he’d claim the Seventh Cavalry won the Battle of the Little Big Horn because the Sioux failed to drive Custer off the battlefield.” Nice.