In a significant decision involving property coverage for wind and flood damage, the Court of Appeal of Louisiana, Third Circuit, ruled that the Louisiana Valued Policy Law (VPL), governing certain conditions under which a property insurer must pay the full face value of an insurance policy, is triggered when a covered peril under the property policy is the “efficient or proximate” cause of the total damage or loss to a property, and not when such a covered peril is only a minor cause of, or contribution to, the total loss. Landry v. Louisiana Citizens Property Ins. Co., No. 07-247, 2007 WL 2416107, at * 13 (La. Ct. App. 3 Cir. Aug. 28, 2007).
Facts and Procedural History
Plaintiffs owned a home in a coastal parish of Louisiana, which was rendered a total loss by Hurricane Rita. Plaintiffs purchased a homeowner insurance policy from Louisiana Citizens Property Insurance Corporation (“insurer”), having a face value of $57,200. The parties did not dispute that the policy covered any loss to the plaintiffs’ home occasioned by wind and rain and that it specifically excluded damage caused by flood waters. Plaintiffs filed suit against the insurer, seeking to enforce claims under their homeowner policy covering damage allegedly caused to their home by wind and rain. Plaintiffs specifically alleged that because their home was a “total loss” and this “total loss” was caused, in part, by a covered peril, i.e., wind, the insurer was required under Louisiana’s Valued Policy Law, La. Rev. Stat. Ann. §22:695 (“VPL”), to pay the full face value of the policy. The Louisiana VPL provides, in relevant part: * * *
A. Under any fire insurance policy insuring inanimate, immovable property in this state, 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 the case of total loss 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 such valuation without deduction or offset, unless a different method is to be used in the computation of loss, in which latter case, the policy, and any application therefor, shall set forth in type of equal size, the actual method of such loss computation by the insurer. * * *
Louisiana courts have held that the term “fire insurance policy” under the VPL is broadly construed to include homeowner policies, like the one at issue in Landry. The insurer contended that the VPL did not apply because the damage was caused directly or indirectly by flood waters, which was specifically excluded under the homeowner policy. Plaintiffs moved for summary judgment seeking a declaratory ruling that Louisiana’s VPL required the insurer to pay the full value of the insurance policy for their total loss because their loss was caused partially by wind (a covered peril), even though the remaining damages were caused by a non-covered peril (flood). The trial court granted partial summary judgment to plaintiffs, holding that where plaintiffs suffered a total loss that was caused in part by a covered peril, the VPL required payment of the full policy value without offset or deduction despite the fact that the covered peril was not the sole cause of the total loss. The insurer appealed the trial court’s decision.
The issue presented for appellate review was whether and under what circumstances the Louisiana VPL 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.” The Landry court noted that the VPL expresses such a strong Louisiana public policy and that numerous Louisiana decisions have upheld application of the VPL. The Landry court then engaged in a detailed analysis of the VPL and of recent interpretations of the statute in hurricane-related property damage cases. The Landry court noted that recent cases in federal district court in Louisiana and in the U.S. Court of Appeals for the Fifth Circuit had narrowly framed issues similar to that presented in Landry as whether “as a matter of law, any amount of damage caused by a covered loss, however small, triggered Louisiana’s VPL, even though the total loss was the result of a non-covered peril.” Framing the issue in that way, the Fifth Circuit held that the VPL does not apply to a “total loss resulting from a non-covered peril.” The Landry court explained that Louisiana state courts agree with that narrow holding and “have uniformly held that 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 suggested, however, that in situations in which concurrent causes contribute to a total loss, its view of Louisiana law may differ from that of the federal cases. Under Landry, for the purposes of the VPL, a home may be deemed a ‘total loss’ from a covered peril even if there is also damage from excluded perils. Borrowing a demonstrative example from the amicus brief filed by the American Insurance Association, the Landry court agreed that “the key factor is whether the damage from the covered peril was enough, by itself, to render the dwelling a ‘total loss’ under Louisiana law. If so, then an insurance company cannot escape the statutory mandate to pay policy limits simply by pointing to the non-covered portion of the property damage.”
The Landry court also assessed the Fifth Circuit’s holding that the VPL language was ambiguous and susceptible to different meanings. The Landry court explained that the perceived ambiguity arises from inappropriately combining the causation analysis with the VPL analysis. The Landry court stated that “[t]he VPL does not address, nor did the legislature intend to place within its ambit, the causation issue which often arises, particularly in hurricane cases, in determining whether an insurance contract provides coverage for a total loss where multiple perils converge.” Thus, the Landry court stated that factual questions of causation must be determined independently and reconfirmed that VPL is not a formula for determining causation but rather “simply fixes a value which an insurer must pay in the event a structure is deemed a total loss and a factual determination has been made that the total loss was ‘caused’ by a specified peril defined in the insurance contract.” The Landry court found no ambiguity in the VPL and confirmed that application of the VPL depends on resolution of causation issues — that is, a factual determination of the forces or causes that brought about the total destruction or “constructive total loss” of a structure.
The Landry court rejected plaintiffs’ contention that “if the insured property owner proves that a covered peril caused any loss or damage,” then causation is satisfied and the VPL triggered, explaining that such a contention wrongly blurred the distinction between valuation and causation. The court then reversed the trial court’s grant of partial summary judgment and remanded for a factual inquiry as to whether the covered peril (i.e., the wind) was the “efficient or proximate cause” of the total loss of plaintiffs’ home. On remand, the insurer will have the burden to persuade the trier of fact that the flood water, not wind, was the “efficient and proximate cause” of the total loss to plaintiffs’ home. If the insurer fails to meet this burden, the VPL then mandates that the insurer will have to pay the full face value of the policy. One judge (out of five) dissented, agreeing with the trial court that a policyholder need only show that there were some damage caused by a covered peril in order to trigger the VPL and recover the full face value of the policy (absent some other valuation-payment method set forth in the policy).
The Landry decision provides that the application of Louisiana’s VPL will depend on the efficient or proximate cause of a total loss. It is not enough for a policyholder simply to show that some portion of the damage that contributed to the total loss was caused by a covered peril. The application of the VPL in Louisiana is not akin to strict liability. Under the holding of Landry, the insurer has the opportunity — and burden — to demonstrate to the trier of fact that an excluded peril, and not a covered peril, was the “efficient or proximate” cause of a total loss. Where the insurer carries that burden of proof, the payment of the full value of the policy will not be mandated by the VPL.