Louisiana Appellate Court Holds Valued Policy Law Requires Payment for Face Value of Insurance Policy When Efficient Proximate Cause Is A Covered Peril
October, 2007
In Landry v. Louisiana Citizens Property Ins. Co., a Louisiana appellate court considered whether the Louisiana Valued Policy Law, La.R.S. 22:695, requires an insurer to pay the full face value of the policy when concurrent perils (covered and non-covered) combine, during the course of a single climatic event, to render the home a total loss." 2007 WL 2416107 (La. App. 3 Cir.). Reversing the trial court's entry of summary judgment in favor of the insureds and remanding for further proceedings, the appellate court stated that for the insurer ("Citizens") to prevail, it bears the "clear burden" to show that flood, an excluded peril, was the efficient or proximate cause of the total loss to the insureds' home.
Facts
Hurricane Rita rendered the insureds' ("Landrys") home a total loss. The Landrys' insurance policy with Citizens had a face value of $57,200. "It is undisputed the [Citizens] policy covered any loss to the Landrys' home occasioned by wind and rain but specifically excluded damage caused by flood waters. It is also undisputed that the Landrys did not secure or have in effect at the time of the storm a separate policy covering damage to their home as a result of flood." Citizens denied coverage for the Landrys' insurance claim, and litigation ensued.
Citizens asserted that the policy exclusion for "loss caused directly or indirectly by ... [f]lood, surface water, waves, tidal water ..." etc. applied to preclude coverage. The Landrys moved for summary judgment "seeking a declaratory ruling interpreting Louisiana's Valued Policy Law, La.R.S. 22:695, and assigning that the 'sole issue before the court ... is whether Louisiana's Valued Policy Law requires the fire and wind insurance carrier to pay the full value of the insurance policy in the event of a total loss of a structure if the total loss is only caused partially by wind and the remaining damage is caused by a non-covered peril (flood).'" The trial court granted the Landrys' motion.
Analysis
Despite the Landrys' contention on appeal that a decision contrary to the trial court's would have "far-reaching consequences for the citizens of Louisiana's coastal parishes," and Citizens' arguments that a decision affirming would "impact Louisiana business owners, whose very existence is dependent on affordable insurance coverage," the Landry court based its decision on "well-established Louisiana jurisprudence and law." The court first evaluated the Landrys' policy exclusions pursuant to Louisiana cases addressing similar coverage issues, and stated that "[t]hese cases unequivocally declare that flood water exclusions in windstorm policies do not contractually operate to negate an insurer's obligation to fully indemnify an insured when a determination is made that the 'efficient or proximate cause' of the total loss was wind and rain."
The Landry court then analyzed the Valued Policy law. The court held that the "Louisiana Valued Policy Law clearly provides in the event of a total loss caused by a covered peril, the insurer 'shall compute and indemnify or compensate any covered loss of, or damage to, such property which occurs during the term of the policy' at the valuation it placed upon the covered property and used for the purpose of determining the premium charged." The court noted that the "Louisiana legislature in enacting the [Valued Policy Law] never intended to expand coverage beyond that contemplated by the parties to an insurance contract. Further, Louisiana's courts have uniformly held an insurer is not required to pay the full face value of the policy when a total loss of a structure is caused by a non-covered peril."
The Landry court reversed the entry of summary judgment in favor of the insureds, and ordered that on remand the trial court require Citizens to demonstrate that the efficient or proximate cause of the loss was flood, an excluded peril. Otherwise, the Valued Policy Law "provides [Citizens] must pay the Landrys the full face value of the policy issued by it and in effect on the day of the storm."
Landry also contains a dissent based primarily on the Valued Policy Law's use of the word "any": "... if the insurer places a valuation upon the covered property and uses such valuation for purposes of determining the premium charge to be made under the policy, in case of total loss the insurer shall compute and indemnify ... any covered loss ...".
Learning Point
Landry holds that where the efficient or proximate cause of a total loss is a covered peril -- Louisiana's Valued Policy Law applies to ensure recovery of the policy's face value, regardless of the fact that a non-covered peril (such as flood) also contributed to the loss.
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