978-1285770178 Case Printout Case CPC-30-09 Part 1

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Leonard v. Nationwide Mut. Ins. Co.

499 F.3d 419

C.A.5 (Miss.),2007

United States Court of Appeals,

Fifth Circuit.

We cover accidental direct physical loss to property described in Coverage C

caused by the following perils except for losses excluded under Section I–

Property Exclusions:

damaged by a wind-propelled projectile, is also covered.

2. Water

Like most homeowner’s policies, the Leonards’ policy unambiguously excludes

damage caused by water-including flooding-in a broadly worded exemption

clause (the “water–damages exclusion”):

material damage means:

1. flood, surface water, waves, tidal waves, overflow of a body of water, spray

from these, whether or not driven by wind ….

When the Leonards annually renewed their policy, they received the following

notice from Nationwide informing them that flood losses would not be covered,

The Leonards never purchased additional flood coverage under the federally

subsidized National Flood Insurance Program (“NFIP”). See 42 U.S.C. §§ 4001-

4027.

3. Concurrent Action by Wind and Water

The prefatory language introducing the water-damages exclusion addresses

this prefatory language denies coverage whenever an excluded peril and a

covered peril combine to damage a dwelling or personal property. The inundation

of the Leonards’ home was caused by a concurrently caused peril, i.e., a tidal

wave, or storm surge-essentially a massive wall of water-pushed ashore by

Hurricane Katrina’s winds. Accordingly, argues Nationwide, losses attributable to

hurricane damage was covered. Fletcher stated in his deposition testimony that

he did not recall this conversation; the district court deemed it irrelevant to the

case.

Leonard claims he spoke again with Fletcher ten years later to discuss a

proposed increase in the wind/hail deductible that Nationwide was instituting on

NFIP. Leonard does not allege that Fletcher told him the Nationwide policy

covered flooding caused by a hurricane; Leonard merely inferred from Fletcher’s

comments that such coverage existed.

At the bench trial, the district court admitted under Federal Rule of Evidence 406

what it characterized as evidence that Fletcher “as a matter of habit and routine,

Pascagoula-area customers, twelve of whom lived in the Leonards’ waterfront

neighborhood.

C. Hurricane Damage

Inspection of the Leonards’ residence following the storm revealed modest wind

damage. The roof suffered broken shingles and loss of ceramic granules, but its

residence to become inundated under five feet of water blown ashore from the

Mississippi Sound. Walls, floors, fixtures, and personal property sustained

extensive damage. The second floor of the house remained unscathed.

Nationwide’s adjuster evaluated the storm damage and, after applying the

Leonards’ five hundred dollar deductible, tendered a check for $1,661.17-the

different perils. The Leonards’ wind-specific assessment claimed $47,365.41,

including costs for roof replacement and structural repairs to the garage.

D. Procedural History

Before trial, Nationwide moved for partial summary judgment, arguing that: (1)

the ACC clause and water-damages exclusion unambiguously precluded

Following a bench trial, the district court entered judgment for the Leonards in the

amount of $1,228.16-damage determined to have been caused solely by wind.

The court held that the water-damages exclusion was enforceable and precluded

coverage for any damages occasioned by water. See Leonard, 438 F.Supp.2d at

693, 696. Significantly, however, the court struck down the ACC clause as

at 693 (emphasis added).

The court denied Nationwide’s partial summary judgment motion regarding

Fletcher’s oral statements, but nonetheless held that Fletcher did not materially

misrepresent the policy terms, nor did he “make any statements which could be

reasonably understood to alter” the policy terms. Id. at 691-92.

as a result, Nationwide’s appeal must be dismissed for mootness and lack of

standing. They are incorrect. Nationwide’s appeal alone continues to present a

live Article III controversy over which we are obliged to exercise appellate

jurisdiction. See 28 U.S.C. § 1291.

The Leonards’ major premise is that the money judgment below represents the

unappealable “dicta” which do not vest Nationwide with a cognizable Article III

injury.

[2] Link to KeyCite Notes[3] Link to KeyCite Notes “Ordinarily, only a party

aggrieved by a judgment or order of a district court may exercise the statutory

right to appeal therefrom.” Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 333,

that affects him adversely, so long as the party can satisfy the personal-interest

requirement of Article III. See Roper, 445 U.S. at 345-46, 100 S.Ct. at 1178

(Powell, J., dissenting) (Article III jurisdiction on appeal requires a “personal

stake in the outcome of an action”).FN1

FN1. The Court reached the same conclusion outside the class-action context in

subsequent suits did not render the appellant a sufficiently “aggrieved party”

within the meaning of Article III. See id.; Roper, 445 U.S. at 334, 100 S.Ct. at

1172.

Based on Roper and Electrical Fittings, Nationwide retains its aggrieved party

status with respect to the rulings on the ACC clause and the negligent

these rulings, which were integral to the district court’s decisionmaking process,

do not adversely affect Nationwide’s rights or render it an aggrieved party in this

appeal.

The district court found the ACC clause ambiguous, leading it to conclude: “Thus,

[the ACC] language does not exclude coverage for different damage, the

damage in a concurrently caused peril. Consequently, as a matter of Mississippi

law, Nationwide’s ACC clause is invalid. That such rulings vitally affect

Nationwide’s rights in subsequent litigation involving its homeowner’s policy

would seem to be emphasized by the Leonards’ determination to render the

rulings unassailable on appeal.

1156, 1164 (4th Cir.1996).FN2 The ACC clause and negligent misrepresentation

issues are currently being litigated by Nationwide in hundreds of cases in the trial

courts, causing Nationwide to incur considerable litigation expense and potential

enormous liability to other policyholders. The threat of additional claims for bad–

faith denial of coverage based on the court’s rulings in this case also looms large

FN2. And although not discussed by the Fourth Circuit in Custer, “other potential

litigants” of course pose a Damoclean threat to the party aggrieved by collateral

rulings because of the potential for the offensive use of nonmutual collateral

estoppel in future litigation. See AT&T Corp. v. FCC, 317 F.3d 227, 237-38

(D.C.Cir.2003) (finding standing on the basis of collateral estoppel and holding

parties appealed issues that had no effect on liability and that would not have

preclusive effect in subsequent litigation. See, e.g., ASARCO, Inc. v. Secretary of

Labor, 206 F.3d 720, 723-24 (6th Cir.2000) (finding that prevailing party was not

aggrieved by administrative body’s ruling because it posed no threat of preclusive

effect in future litigation); Sea-Land Serv., Inc. v. Dep’t of Transp., 137 F.3d 640

judgment motion on the negligent misrepresentation claim. Hamburger v. State

Farm Mut. Auto. Ins. Co., 361 F.3d 875, 879 (5th Cir.2004). Factual findings are

upheld on appeal unless clearly erroneous. Provident Life & Accident Ins. Co. v.

Sharpless, 364 F.3d 634, 641 (5th Cir.2004). Evidentiary rulings are reviewed for

abuse of discretion. Hodges v. Mack Trucks Inc., 474 F.3d 188, 194 (5th

of an insurance policy’s clear and unambiguous language. Robley v. Blue

Cross/Blue Shield of Miss., 935 So.2d 990, 996 (Miss.2006). “No rule of

construction requires or permits [Mississippi courts] to make a contract differing

from that made by the parties themselves, or to enlarge an insurance company’s

obligations where the provisions of its policy are clear.” State Auto. Mut. Ins. Co.

the policy language, the familiar maxim omnia praesumuntur contra proferentem

requires the court to construe ambiguous terms in favor of the policyholder. J&W

Foods Corp. v. State Farm Mut. Auto. Ins. Co., 723 So.2d 550, 552 (Miss.1998).

Ambiguity arises when a term or provision is susceptible to more than one

reasonable meaning, but can also result from “internal conflict” between policy

matter of law.” Delta Pride Catfish, Inc. v. Home Ins. Co., 697 So.2d 400, 404

(Miss.1997) (citing Cherry v. Anthony, Gibbs, Sage, 501 So.2d 416, 419

(Miss.1987)).FN3

FN3. Nor does disagreement among courts necessarily indicate ambiguity. See

Wooten v. Miss. Farm Bureau Ins. Co., 924 So.2d 519, 520-21 (Miss.2006)

(Miss.1973). The insurer bears the burden of proving that a particular peril falls

within a policy exclusion; the insurer must plead and prove the applicability of an

exclusion as an affirmative defense. Commercial Union Ins. Co. v. Byrne, 248

So.2d 777, 782 (Miss.1971). Mississippi courts strictly construe policy exclusions

against the insurer. Scitzs, 394 So.2d at 1372-73.

by the effects of wind (a covered loss) are ambiguous.” Leonard, 438 F.Supp.2d

at 693.FN4 Contrary to the district court’s ruling, Nationwide’s ACC clause is not

ambiguous, nor does Mississippi law preempt the causation regime the clause

applies to hurricane claims.

FN4. The second provision to which the court alludes-the weather-conditions

the excluded water damage. The wind damage is covered; the water damage is

not.

Id. at 693 (emphasis added). This conclusion is unjustifiable when read against

the clause’s plain language:

1. We do not cover loss to any property resulting directly or indirectly from any of

The clause unambiguously excludes coverage for water damage “even if another

peril”-e.g., wind-“contributed concurrently or in any sequence to cause the loss.”

The plain language of the policy leaves the district court no interpretive leeway to

conclude that recovery can be obtained for wind damage that “occurred

concurrently or in sequence with the excluded water damage.” Leonard, 438

out of the contract,” is not at all wide of the mark. The clause is not ambiguous.

The fatal flaw in the district court’s rationale is its failure to recognize the three

discrete categories of damage at issue in this litigation: (1) damage caused

exclusively by wind; (2) damage caused exclusively by water; and (3) damage

caused by wind “concurrently or in any sequence” with water. The classic

that a portion of their property damage was caused by the concurrent or

sequential action of water-or any number of other enumerated water-borne

perils-the policy clearly disallows recovery.

The district court seemed to fear that enforcement of the policy‘s concurrent

causation exclusion would render any recovery for hurricane damage illusory.

preempts the court’s scenario:

We cover accidental direct physical loss to property … caused by the following

perils …

(…)

2. windstorm or hail.

by the action of a covered and an excluded peril. The district court’s unsupported

conclusions that the ACC clause is ambiguous and that the policyholder can

parse out the portion of the concurrently caused damage that is attributable to

wind contradict the policy language.

Like the district court, the Leonards provide no support for their argument that the

of these sources of state law restricts Nationwide’s use of the ACC clause to

preclude recovery for concurrently caused hurricane losses.

1. Caselaw

[20] Link to KeyCite Notes Contrary to the Leonards’ contention, Mississippi

courts have not conclusively resolved whether an insurance policy may preclude

a. Mississippi’s Default Rule: Efficient Proximate Causation

[21] Link to KeyCite Notes[22] Link to KeyCite Notes The default causation rule

in Mississippi regarding damages caused concurrently by a covered and an

excluded peril under an insurance policy is that the insured may recover if the

covered peril was the “dominant and efficient cause” of the loss. Evana

Mut. Ins. Co. v. Boatner, 254 So.2d 765, 767 (Miss.1971) (quoting Kemp v. Am.

Universal Ins. Co., 391 F.2d 533, 535 (5th Cir.1968)).

FN5. See In re Katrina Canal Breaches Litig., 495 F.3d 191, 2007 WL 2200004,

at *26 (5th Cir. Aug.2, 2007) (“The efficient-proximate-cause doctrine applies only

where two or more distinct actions, events, or forces combined to create the

the insurance policy for a loss caused by a combination of a covered risk and an

excluded risk only if the covered risk. …. is one that sets the other causes in

motion that, in an unbroken sequence, produced the result for which recovery is

sought.”). Efficient proximate causation is distinct from two other etiological

doctrines occasionally employed in the insurance context: independent and

causes is a risk which is covered under the terms of the policy.”).

The Mississippi Supreme Court frequently employed this default rule in the welter

of insurance coverage cases that surfaced in the aftermath of Hurricane Camille.

It is also the rule the district court and the Leonards contend must apply here.

See Leonard, 438 F.Supp.2d at 694 (collecting cases). However, although the

Mississippi Supreme Court often premised recovery for policyholders on the

application of the efficient proximate cause rule, in actuality, in many of the

Camille cases the court did little more than uphold jury findings that the damages

suffered by policyholders were caused exclusively by wind, not by concurrent