Anti-Concurrent-Causes Clause Bars Coverage When One Cause is Excluded

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In JAW The Pointe, L.L.C., v. Lexington Ins. Co., 2015 WL 1870054 (Tex. April 24, 2015), the Texas Supreme Court found an insurer did not violate the Texas Insurance Code and the Texas Deceptive Trade Practices Act by denying coverage where the damages in question were caused in part by flooding, a cause excluded by the policy.

JAW The Pointe purchased an apartment complex in Galveston, Texas in 2007, only 14 months before Hurricane Ike struck. The complex sustained significant damage – estimated at near $5 million. City ordinances required that any such complexes sustaining damage equivalent to or exceeding 50 percent of its market value must be brought up to code and elevated three additional feet. To meet that requirement, JAW’s only option was to demolish and rebuild.

JAW sought coverage for the demolition and construction through its insurer. The insurer paid for the damages its building consultant attributed to wind, but disclaimed any portion of the damages that were attributed to flooding, as flood damage was not covered by the policy. JAW then brought this lawsuit for breach of contract, violation of the Texas Deceptive Trade Practices Act and violation of the Texas Insurance Code.

The insurer brought motions for summary judgment to dismiss the breach claim because the policy expressly excluded coverage for damage to property caused by flooding. The motion was unopposed and the claim was dismissed. At trial for the two statutory violations, the jury rendered a verdict in favor of JAW finding the insurer did not attempt in good faith to fairly settle the claims. The Jury awarded $2.5 million in damages. The insurer appealed the verdict, arguing that since the policy excluded flood damage, it could not be in violation of the statutes. The Texas Court of Appeals agreed and reversed the jury verdict. JAW The Pointe appealed the reversal.

Justice Boyd of the Texas Supreme Court first noted that there can be no claim for bad faith when an insurer has promptly denied a claim that is not covered. JAW argued on appeal that the policy covered the compliance costs of demolition and reconstruction because compliance with the ordinances could have been required on wind damage alone, making it a “separate and independent” cause. The insurer argued that the anti-concurrent-cause clause of their contract excluded liability when one of multiple causes for such liability is excluded. Since the demolition was required, at least in part, by an excluded cause of loss, there was no coverage for the whole.

The court determined that the relevant inquiry was what actually triggered enforcement of the ordinances. Based on the record before the court, Justice Boyd found that it was clear that both flooding and wind from Hurricane Ike caused the city to enforce the ordinance, though the city did not differentiate between the amount of loss attributable to each. The policy’s anti-concurrent-causation clause deemed that coverage would be excluded for any “loss or damage caused directly or indirectly by any of the” excluded causes “regardless of any other cause” contributing concurrently to the loss. Flooding is listed as an excluded cause. When reading this clause in conjunction with the ordinance coverage, and increased cost of construction coverage clauses, the court found that the policy did not cover the ordinance compliance costs. Thus, Lexington could not be held liable for the alleged statutory violations and bad faith claims.