When disaster strikes it seems to happen all at once. Electric lines spark, windows shatter, roofs tear off, sump pumps stop and the lights go out. Homeowners see it this way. Insurance companies -- and often the courts -- see it differently.
Major disasters such as hurricanes create huge losses for property-casualty insurers, which don't want to pay out any more than necessary. Private insurers have already abandoned the flood insurance market, passing that responsibility on to the government's Federal Emergency Management Agency (FEMA). And, very quietly, insurers have been inserting a tongue twister called an anti-concurrent causation (ACC) clause into their homeowners' policies.
The ACC "allows insurance companies to skirt around disaster coverage," says Jacqueline Young in the
Hastings Law Journal.
The chicken or the egg?
There are nearly as many interpretations of the anti-concurrent causation clause as there are federal and state courts, but ACC usually means that if two losses occur at the same time and one of them
covered by insurance, the other won't be either.
For example: You probably have a homeowner's policy that covers you for wind damage. But if your house is destroyed by a wind and flood event (such as a hurricane), the ACC clause can put the kibosh on your entire claim. And the flood damage is only covered if you have a separate flood insurance policy. Here are
home insurance basics
The ACC is the classic "which came first, the chicken or the egg?" quandary that has been stumping courts. Now it is causing anguish to disaster victims of Superstorm Sandy.
The ACC clause has been a small part of voluminous home insurance policies each year since at least the 1980s, says
a New York Times article
. But insurers and homeowners alike didn't pay much attention until 2005, when Hurricane Katrina walloped the Gulf Coast, costing insurers an estimated $38 billion in claims.
Homeowners who fled
Katrina struck and whose homes were leveled to the slab couldn't tell whether wind or water, or both concurrently, caused the damage.
'Ambiguous . . . and unenforceable'
Numerous court disputes erupted between homeowners and insurance companies, and court decisions changed as often as the weather. But U.S. District Court Judge L.T. Senter, who presided over nearly 1,500 Mississippi cases, issued
a key ruling
that -- ironically -- was applauded by both sides.
Judge Senter ruled that victims of Katrina
claim damages from private insurers if they could prove the damage was caused by wind, but
claim damages caused by water unless they had flood insurance. As for the ACC clause, Judge Senter dismissed it as
"ambiguous … and unenforceable."
Despite this, many, if not most, property insurers still squeeze an ACC clause into their home and business insurance policies, say lawyers for disaster victims.