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Leonard v. Nationwide Mut. Ins. Co.
499 F.3d 419
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
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
