Leonard v. Nationwide Mutual Insurance

REVISED SEPTEMBER 7, 2007

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
F I L E D
No. 06-61130 August 30, 2007

Charles R. Fulbruge III
Clerk
PAUL LEONARD; JULIE LEONARD

Plaintiffs-Appellees-Cross-Appellants
v.

NATIONWIDE MUTUAL INSURANCE CO.

Defendant-Appellant-Cross-
Appellee

Appeals from the United States District Court
for the Southern District of Mississippi

Before JONES, Chief Judge, and REAVLEY and SMITH, Circuit Judges.
EDITH H. JONES, Chief Judge:
This homeowner’s policy coverage dispute arose from the destruction
wrought by Hurricane Katrina along the Mississippi Gulf Coast. We affirm the
judgment of the district court, but to do so we must work through some erroneous
reasoning that led to its conclusion.
I. Background
 No. 06-61130

The Leonards’ home lies twelve feet above sea level on the southmost edge
of Pascagoula, Mississippi, less than two hundred yards from the Mississippi
Sound. Hurricane Katrina battered Pascagoula with torrential rain and
sustained winds in excess of one hundred miles per hour. By midday, the storm
had driven ashore a formidable tidal wave – also called a storm or tidal surge –
that flooded the ground floor of the Leonards’ two-story home.
A. The Policy
The Leonards purchased their first Nationwide homeowner’s policy from
Nationwide’s Pascagoula-area agent, Jay Fletcher, in 1989. Although Nationwide
twice revised its standard homeowner’s policy language between 1989 and 2005,
the Leonards’ “Form HO-23-A” policy that was in force when the storm made
landfall was substantially indistinguishable from the “Elite II” policy they
originally purchased.
Like almost all homeowner’s policies, Nationwide’s Form HO-23-A is a
“comprehensive,” or “all-risk,” policy pursuant to which all damage to dwellings
and personal property not otherwise excluded is covered. Also, like almost all
homeowner’s policies, Nationwide’s policy covers only damage caused by certain
instrumentalities – or “perils” – and excludes damage caused by others. Relevant
to this appeal are the policy provisions that define the scope of coverage for
damage caused by (1) wind; (2) water; and (3) concurrent action of wind and
water.
1. Wind
Wind damage both to a dwelling and to personal property is a peril insured
against under Section I, clause 2 (the “wind-damages clause”), which along with
pertinent prefatory language states:
Coverage A – Dwelling and

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Coverage B – Other Structures
(...)
Coverage C – Personal Property
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:
(...)
2. windstorm or hail.
Direct loss caused by rain . . . driven through roof or wall
openings made by direct action of wind, hail, or other insured peril
is covered. . . .
The policy thus covers losses caused by rain blown through a hole in a roof, wall,
or window. Exclusively wind-related damage, like a blown-off roof, or a window
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”):
Property Exclusions
(Section I)
(...)
(b) Water or damage caused by water-borne material. Loss
resulting from water or water-borne material damage
described below is not covered even if other perils contributed,
directly or indirectly, to cause the loss. Water and water-borne
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,
but that additional flood coverage was available upon request:

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 No. 06-61130

IMPORTANT INFORMATION
A Message From Your Nationwide Agent:
Your policy does not cover flood loss. You can get protection through
the National Flood Insurance Program. If you wish to find out more
about this protection, please contact your Nationwide Agent.
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
situations in which damage arises from the synergistic action of a covered peril,
e.g., wind, and an excluded peril, e.g., water:
1. We do not cover loss to any property resulting directly or
indirectly from any of the following. Such a loss is excluded even if
another peril or event contributed concurrently or in any sequence
to cause the loss. . . .
Commonly referred to as an “anticoncurrent-causation clause,” or “ACC clause,”
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 storm surge-induced flooding are excluded under the ACC clause. The validity
of the ACC clause is the key interpretive battleground of this appeal.
B. Paul Leonard’s Conversations with Fletcher
Paul Leonard testified that when he first bought his policy in 1989, he
asked Nationwide’s agent Jay Fletcher whether the Nationwide policy covered
hurricane-related losses. According to Leonard, Fletcher responded that all

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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
its homeowner’s policies. Leonard called Fletcher after seeing advertisements for
additional NFIP coverage in the wake of Hurricane Georges, which struck the
Mississippi coast in 1998. Fletcher allegedly assured Leonard that he did not
need additional flood coverage because Leonard did not live in an area classified
Zone A for flood risk by the Federal Emergency Management Agency (“FEMA”).
Fletcher purportedly added that his own property was not insured under the
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, expressed his opinion . . . that customers [in Pascagoula]
should not purchase flood insurance unless they lived in a flood prone area (Flood
Zone A) where flood insurance was required in connection with mortgage loans.”
Leonard v. Nationwide Mut. Ins. Co., 438 F. Supp. 2d 684, 690 (S.D. Miss. 2006).
Trial evidence demonstrated that between 2001 and Katrina’s landfall in late
August 2005, Fletcher sold approximately one hundred eighty-seven NFIP
policies to Pascagoula-area customers, twelve of whom lived in the Leonards’
waterfront neighborhood.

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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 water-tight integrity was not compromised. The non-load-bearing walls
of the garage and the garage door were severely damaged; doors in the house and
garage had been blown open. Finally, a “golf-ball sized” hole in a ground-floor
window was likely caused by a wind-driven projectile.
Water damage, in contrast, was extensive. The Leonards’ neighborhood
had suffered a seventeen-foot storm surge, causing the entire ground floor of their
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
amount determined attributable solely to wind. Nationwide informed the
Leonards that damages caused by water and the storm surge’s concurrent wind-
water action were barred, respectively, by the water-damages exclusion and the
ACC clause.
At trial, the Leonards offered expert testimony that the total damages
actually exceeded $130,000, but this figure did not apportion damages caused by
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
coverage for any damage not solely attributable to wind, and (2) Fletcher’s

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purported oral statements to Paul Leonard could not modify the policy’s scope of
coverage under Mississippi agency law. Additionally, Nationwide moved in
limine to exclude evidence of any statements made by Fletcher to Nationwide
policyholders other than the Leonards under Federal Evidence Rule 406. The
district court carried Nationwide’s motions with the case.
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 ambiguous and unenforceable: “Under applicable Mississippi law, in
a situation such as this, where the insured property sustains damage from both
wind (a covered loss) and water (an excluded loss), the insured may recover that
portion of the loss which he can prove to have been caused by wind.” Id. at 695
(citation omitted). The district court maintained that wind damage was
recoverable “even if [it] occurred concurrently or in sequence with the excluded
water damage.” Id. 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.
Nationwide appeals. The Leonards cross-appealed, but they subsequently
withdrew their cross-appeal.

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II. Discussion
A. Appellate Jurisdiction
Shortly before this court was scheduled to hear oral argument, the
Leonards moved to dismiss their cross-appeal and contended that, 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 entirety of the ruling inflicted on Nationwide by the district court’s decision.
Because Nationwide does not challenge the amount awarded, Nationwide
"suffered no injury or prejudice at trial," and this appeal no longer presents a case
or controversy. Their minor premise is that the district court’s dual findings that
(1) the ACC clause is ambiguous and (2) an agent’s negligent misrepresentations
can be used to challenge the enforceability of the Nationwide policy are
unappealable “dicta” which do not vest Nationwide with a cognizable Article III
injury.
“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, 100 S. Ct. 1166, 1171 (1980). Although Roper’s
discussion of an aggrieved party’s right to appeal occurred in the class-action
context, its core holding in regard to standing obtains here: If redressable on
appeal, collateral injury inflicted by a lower court’s ruling renders the injured
party “aggrieved” for purposes of Article III. Even the Roper dissenters
recognized the fundamental principle that a party may appeal any aspect of a

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generally favorable judgment 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”).1
Based on Roper and Electrical Fittings, Nationwide retains its aggrieved
party status with respect to the rulings on the ACC clause and the negligent
misrepresentation issues. The district court left Nationwide with a ruling that:
(1) invalidates a key provision of its homeowner’s policy as a matter of Mississippi
law; (2) superimposes an entirely different causal matrix for the determination
of covered damages than the policy contemplated; and (3) allows the introduction
of extrinsic oral statements to “clarify” the meaning of Nationwide’s policy terms
and potentially to affect the coverage available. It stretches credulity to suggest
that 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 caused by wind, a covered peril, even if the wind damage occurred
concurrently or in sequence with the excluded water damage. The wind damage
is covered; the water damage is not.” See Leonard, 438 F. Supp. 2d at 693. The

1
The Court reached the same conclusion outside the class-action context in Electrical
Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 59 S. Ct. 860 (1939), when it held that
collateral issues litigated below are appealable if they have the potential to affect rights of a
party in future litigation. See id. at 242, 59 S. Ct. at 860-61 (prevailing party in patent dispute
entitled to appeal collateral ruling on the validity of a patent claim). The Supreme Court
reversed the Court of Appeals’ decision that the threat of collateral estoppel 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.

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court applied “established Mississippi law” dating from the Hurricane Camille
cases and explicitly held that a Mississippi policyholder could parse out and
recover for loss due to covered wind damage that combined with excluded water
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.
The district court’s resolution of factual concurrent causation, as of the
negligent misrepresentation issue, did not affect the damages Nationwide must
pay in this case, but that is immaterial for purposes of the Article III standing
inquiry we undertake here. “A party may be aggrieved by a district court
decision that adversely affects its legal rights or position vis-à-vis other parties
in the case or other potential litigants.” Custer v. Sweeney, 89 F.3d 1156, 1164
(4th Cir. 1996).2 The ACC clause and negligent misrepresentation issues are
currently being litigated by Nationwide in hundreds of cases in the trial courts,

2
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 that AT&T had an Article III stake sufficient to support appeal of a ruling
that it was liable for termination of certain access charges but not required to make payments);
WorldCom, Inc. v. FCC, 246 F.3d 690, 695-96 (D.C. Cir. 2001) (commenting that although
petitioner favored the ultimate result reached by FCC, it may have standing to challenge an
unfavorable ruling because of the effect on its future legal rights). The instant case is
distinguishable from those in which 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 (D.C. Cir. 1998); Bath
Iron Works Corp. v. Coulombe, 888 F.2d 179 (1st Cir. 1989).

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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
for Nationwide. In sum, the district court’s resolution of both the ACC clause and
negligent misrepresentation issues renders Nationwide sufficiently aggrieved by
the judgment below that it retains a stake in appealing the district court’s
damages methodology, as well as the collateral issue of the validity of
Nationwide’s homeowner’s policy in the presence of allegedly contradictory oral
representations by its agents.
B. Standard of Review
The interpretation of an insurance policy, like any contract, is a legal
question reviewed de novo, Welborn v. State Farm Mut. Auto. Ins. Co., 480 F.3d
685, 687 (5th Cir. 2007) (per curiam), as is its denial of Nationwide’s partial
summary 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, 534 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 Cir. 2006).
C. General Principles of Mississippi Insurance Law
“The initial question of whether the contract is ambiguous is a matter of
law.” Benchmark Health Care Ctr., Inc. v. Cain, 912 So. 2d 175, 182 (Miss. 2005)
(citation omitted). Mississippi courts give effect to the plain meaning 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

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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. of
Columbus v. Glover, 176 So. 2d 256, 258 (Miss. 1965). Nor will a court resort to
extrinsic evidence or rules of contract construction if policy provisions are
unambiguous. Jackson v. Daley, 739 So. 2d 1031, 1041 (Miss. 1999).
If a court determines that ambiguity inheres in 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 provisions that renders
uncertain the meaning of the policy as a whole. See Miss. Farm Bureau Mut. Ins.
Co. v. Walters, 908 So. 2d 765, 769 (Miss. 2005). The court must then select the
interpretation “which gives the greater indemnity to the insured.” State Farm
Mut. Auto. Ins. Co. v. Scitzs, 394 So. 2d 1371, 1372 (Miss. 1981). Nonetheless,
“[t]he mere fact that the parties disagree about the meaning of a provision of a
contract does not make the contract ambiguous as a 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)).3
The burden of proving that coverage exists for a peril under an insurance
policy rests with the policyholder. Lunday v. Lititz Mut. Ins. Co., 276 So. 2d 696,

3
Nor does disagreement among courts necessarily indicate ambiguity. See Wooten v.
Miss. Farm Bureau Ins. Co., 924 So. 2d 519, 520-521 (Miss. 2006) (rejecting contention that
differing judicial interpretation of the phrase “incurred within one year from the date of the
accident” rendered the policy language ambiguous).

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698 (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.
D. The Anti-Concurrent Causation Clause
Although the district court granted the Leonards only a meager monetary
recovery for losses proven to have been caused by wind, it also summarily
invalidated the ACC clause, stating that “[t]he provisions of the Nationwide
policy that purport to exclude coverage entirely for damages caused by a
combination of the effects of water (an excluded loss) and damage caused by the
effects of wind (a covered loss) are ambiguous.” Leonard, 438 F. Supp. 2d at 693.4
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.
Eschewing a text-based analysis, the district court opines that the clause
does not affect the coverage for other losses (covered losses), i.e.,
damage caused by wind, that occur at or near the same time. Thus,
[the ACC clause] does not exclude coverage for different damage, the
damage caused by wind, a covered peril, even if the wind damage
occurred concurrently or in sequence with 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:

4
The second provision to which the court alludes – the weather-conditions clause – is
discussed in Section III.E.

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 No. 06-61130

1. We do not cover loss to any property resulting directly or
indirectly from any of the following. Such a loss is excluded
even if another peril or event contributed concurrently or in
any sequence to cause the loss.
(...)
2. Water or damage caused by water-borne material. . . .
(1) flood, surface water, waves, tidal waves, overflow
of a body of water, spray from these, whether or
not driven by wind.
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
F. Supp. 2d at 693. Moreover, in the past we have not deemed similar policy
language ambiguous. See, e.g., Arjen Motor Hotel Corp. v. Gen. Accident Fire &
Life Assurance Corp., 379 F.2d 265, 268 (5th Cir. 1967) (affirming denial of
recovery when evidence “conclusively establish[ed] that wave action, an excluded
peril, at the very least contributed to the collapse of the restaurant building”).
Nationwide’s assertion that the district court “simply read the clause 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
example of such a concurrent wind-water peril is the storm-surge flooding that
follows on the heels of a hurricane’s landfall. The only species of damage covered
under the policy is damage caused exclusively by wind. But if wind and water

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synergistically caused the same damage, such damage is excluded. Thus, the
Leonards' money judgment was based on their roof damages solely caused by
wind. Contrary to the court's damage matrix, however, had they also proved 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.
Observing that the policy denies coverage whenever a “windstorm[] combined
with an excluded cause of loss, e.g., flooding,” the court hypothesized that “an
insured whose dwelling lost its roof in high winds and at the same time suffered
an incursion of even an inch of water could recover nothing. . . .” Leonard, 438
F. Supp. 2d at 694 (discussing the weather-conditions exclusion). That fear is
unfounded, with regard to the policy’s wind-coverage clause, which clearly
preempts the court’s scenario:
We cover accidental direct physical loss to property . . . caused by the
following perils . . .
(...)
2. windstorm or hail.
Direct loss caused by rain . . . driven through roof or wall
openings made by direct action of wind. . . .
If, for example, a policyholder’s roof is blown off in a storm, and rain enters
through the opening, the damage is covered. Only if storm-surge flooding – an
excluded peril – then inundates the same area that the rain damaged is the
ensuing loss excluded because the loss was caused concurrently or in sequence
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

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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 ACC clause is ambiguous. Instead, they adopt the district court’s
reliance on venerable Mississippi authorities regarding proximate causation of
damage caused by hurricanes. See Leonard, 438 F. Supp. 2d at 695 (citing cases
reflecting “well-established Mississippi law”). Because the ACC clause is
unambiguous, the Leonards can prevail only if they can demonstrate that the
clause is prohibited by Mississippi caselaw, statutory law, or public policy. None
of these sources of state law restricts Nationwide’s use of the ACC clause to
preclude recovery for concurrently caused hurricane losses.
1. Caselaw
Contrary to the Leonards’ contention, Mississippi courts have not
conclusively resolved whether an insurance policy may preclude recovery for
damages caused by the concurrent action of the wind and water of a hurricane.
Accordingly, this court, applying state substantive law, must make an educated
“Erie guess” as to how the Mississippi Supreme Court would resolve the issue.
See Jackson v. Johns-Manville Sales Corp., 781 F.2d 394, 397 (5th Cir. 1986)
(citing Erie R.R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817 (1938)).
a. Mississippi’s Default Rule: Efficient Proximate
Causation
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 Plantation, Inc. v. Yorkshire Ins. Co., 58 So. 2d 797, 798
(Miss. 1952). This rule is typically referred to as the doctrine of efficient

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proximate cause.5 To recover under the doctrine in the context of a homeowner’s
policy that covers wind damage but excludes damage by water, “it is sufficient to
show that wind [i.e., the covered peril] was the proximate or efficient cause of the
loss . . . notwithstanding other factors [i.e., excluded perils like water]
contributed. . . .” Lititz 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)).
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

5
See In re Katrina Canal Breaches Litig., __F.3d__, 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 loss.”) (citation omitted); JEFFREY JACKSON,
MISSISSIPPI INSURANCE LAW AND PRACTICE § 15:14 (2007) [hereinafter MISS. INS. LAW & PRAC.];
7 STEVEN PLITT ET AL., COUCH ON INSURANCE § 101:45 (3d ed. 2006) (defining the efficient
proximate cause of loss as “the fundamental, efficient moving cause, i.e., the cause that is
responsible for setting any and all other causes in motion”) [hereinafter COUCH ON INS.]; id.
§ 101:55 (“The efficient proximate cause rule permits recovery under 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
concurrent causation. See, e.g., id. § 101:49 (“When a loss is due to two or more independent
concurrent causes, one covered under the policy and the other expressly excluded, an insurer
is only liable for that part of the loss that is a covered loss under the terms of the policy.”); id.
§ 101:55 (The “[c]oncurrent cause rule takes the approach that coverage should be permitted
whenever two or more causes do appreciably contribute to the loss and at least one of the
causes is a risk which is covered under the terms of the policy.”).

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by concurrent wind-water action.6 Such cases thus do not support the Leonards’
argument that the Mississippi default rule in hurricane cases is always to allow
recovery for covered damages even if they are concurrent with excluded damages
and irrespective of contrary policy language. In fact, the Mississippi Supreme
Court intimated in one case that even if a covered peril is the efficient proximate
cause of damage, a concurrently contributing cause that is excluded under a
homeowner’s policy may preclude recovery. See Grain Dealers Mut. Ins. Co. v.
Belk, 269 So. 2d 637, 640 (Miss. 1972).
Whatever the effect of the efficient proximate cause doctrine in the
Hurricane Camille cases, those decisions do not control the current case because
none of the policies they involve contain ACC clauses similar to the one at issue
here,7 nor do those cases purport to enshrine efficient proximate causation as an

6
See, e.g., Liberty Universal Ins. Co. v. Hall, 289 So. 2d 683, 684 (Miss. 1972) (“This is
simply another one of the many cases which reached this Court involving the question of
whether the damage was caused by wind or water. The evidence on behalf of the appellees
tended to show that the damage was caused by the wind before the water even reached the
appellees’ property. . . . There was no tidal wave.”); Lititz Mut. Ins. Co. v. Buckley, 261 So. 2d
492, 495 (Miss. 1972) (“[D]amages to the house and personal property were caused by wind
and rain before the rising water.”); Grace v. Lititz Mut. Ins. Co., 257 So. 2d 217, 224 (Miss.
1972) (“[T]he jury had ample testimony to sustain the appellants’ contention that their office
building was destroyed by wind before the tidal waters reached the property.”); Lititz Mut. Ins.
Co. v. Boatner, 254 So. 2d 765, 766 (Miss. 1971) (“[T]he great weight of the evidence shows that
the house and its contents had already been destroyed and distributed over a large area long
before the tidal wave came ashore. . . .”); Commercial Union Ins. Co. v. Byrne, 248 So. 2d 777,
781 (Miss. 1971) (damages from rising water, an excluded cause, not covered). See also
Firemen’s Ins. Co. of Newark, New Jersey v. Schulte, 200 So. 2d 440, 442-43 (Miss. 1967)
(refusing to set aside jury verdict that the dominant cause of damage was wind from Hurricane
Betsy, not her tidal waters).
7
Insurers developed ACC clauses specifically in response to court decisions that applied
the efficient proximate cause doctrine to resolve thorny issues of policy coverage for
concurrently caused perils. See 7 COUCH ON INS. § 101:57 (“Insurers often change the terms
of their policies in periodic attempts to negate the effect of the case law regarding multiple
causation set forth by various jurisdictions which may have resulted from the prior terms

18
 No. 06-61130

immutable rule of Mississippi insurance policy interpretation. The Fifth Circuit
long ago explicitly recognized that efficient proximate causation does not
necessarily control Mississippi contracts for hurricane damage. See Kemp, 391
F.2d at 534-35 (“[I]n order to recover on a windstorm insurance policy, not
otherwise limited or defined, it is sufficient to show that wind was the proximate
or efficient cause of loss or damage. . . .” (emphasis added)). As discussed below,
we reach the same conclusion here as well.
b. The Earth-Movement Cases: Eaker, Rhoden & Boteler
Recent decisions involving the effect of ACC clauses and earth-movement
exclusions under Mississippi law all upheld ACC clauses that abrogated the
default efficient proximate causation rule and excluded damage occasioned by the
synergistic action of a covered and an excluded peril.8 The cases reflect the
general Mississippi contract principle that “where a clause in a contract does not
violate any statute, or public policy, and is unambiguous and certain in its
provisions, it is enforced as written.” Am. Bankers’ Ins. Co. v. White, 158 So. 346,
349 (Miss. 1935); see also Blue Cross & Blue Shield of Miss., Inc. v. Larson, 485
So. 2d 1071, 1073 (Miss. 1986) (explaining parties’ “privileged right . . . to

employed by insurers in their policies.”); Preferred Mut. Ins. Co. v. Meggison, 53 F. Supp. 2d
139, 142 (D. Mass. 1999) (ACC provisions have appeared in recent years in response to
concurrent-causation doctrine, under which courts have found insurers “obligated to pay for
damages resulting from a combination of covered and excluded perils if the efficient proximate
cause is a covered peril.” (citation omitted)); Garvey v. State Farm Fire & Cas. Co., 770 P.2d
704, 710 n.6 (Cal. 1989) (Homeowners’ policy language changed because court decisions found
coverage for losses not intended to be covered, threatening insurer insolvency in the event of
a major catastrophe.).
8
See, e.g., Eaker v. State Farm Fire & Cas. Ins. Co., 216 F. Supp. 2d 606 (S.D. Miss.
2001); Rhoden v. State Farm Fire & Cas. Co., 32 F. Supp. 2d 907 (S.D. Miss. 1998); Boteler v.
State Farm Cas. Ins. Co., 876 So. 2d 1067 (Miss. Ct. App. 2004).

19
 No. 06-61130

contract, assuming such is not against public policy, by expressing their
intentions through the language of their choice”); 7 COUCH ON INS. § 101:39; MISS.
INS. LAW & PRAC. § 1:11.
Rhoden and Boteler are particularly instructive on this score. In Rhoden,
State Farm excluded losses from earth movement (the excluded peril) under an
ACC provision that barred coverage “whether other causes acted concurrently or
in any sequence with the excluded event to produce the loss.” 32 F. Supp. 2d at
911. The federal district court held that the earth-movement exclusion, when
read with the ACC provision, was unambiguously designed to preclude recovery
for any loss involving earth movement, irrespective of the causal matrix that
occasioned the loss. Id. at 912-13. The court upheld the ACC clause, noting that
Mississippi courts have not adopted the efficient proximate causation doctrine.
Id. at 912; Boteler, 876 So. 2d at 1070. Boteler and Eaker echo Rhoden’s holding
that ACC clauses are enforceable, absolute bars to recovery “[w]hen a loss is
caused by a combination of a covered and specifically excluded risks.” See Eaker,
216 F. Supp. 2d at 623 (quoting Rhoden, 32 F. Supp. 2d at 911); see also Boteler,
876 So. 2d at 1069-70.9 The leading Mississippi insurance law treatise states
that the earth-movement cases are indicative of “the clear trend in Mississippi
state and federal courts . . . to treat the issue of causation in this context as one

9
In Guice v. State Farm Fire & Casualty Co., 2006 WL 2359474 (S.D. Miss. Aug. 14,
2006), a Katrina coverage case involving a concurrent-causation provision that was before the
district court on a Rule 12(b)(6) motion, the court distinguished Eaker, Rhoden, and Boteler on
the basis that “the records in [the earth-movement] cases showed that the losses would not
have occurred in the absence of the excluded event.” Id. at *4. It is undisputed that the lion’s
share of the losses to the Leonards’ property would not have occurred but for the storm-surge
damage, a fact that reinforces the application of the earth-movement cases as persuasive
authority here.

20
 No. 06-61130

controlled by the insurance policy, and not by public policy or common law.”
MISS. INS. LAW & PRAC. § 15:15.
c. Other Jurisdictions
Two federal appellate courts and many state and district courts have
endorsed using ACC clauses to circumvent default causation rules like efficient
proximate cause. For instance, in TNT Speed & Sport Center, Inc. v. American
States Insurance Co., 114 F.3d 731 (8th Cir. 1997), a vandal removed sandbags
from a levee protecting a go-cart track from the waters of the Mississippi River.
As a result, the levee collapsed and river water damaged TNT’s buildings. The
insurance policy covered losses caused by vandalism, but excluded flood losses,
and contained an ACC clause that excluded coverage for damage arising
concurrently from a covered and an excluded peril. After a review of Missouri
cases, the Eighth Circuit held that state law did not bar application of the ACC
clause, and that the “plain meaning of the [ACC clause’s] exclusionary language
was to directly address, and contract out of, the efficient proximate cause
doctrine.” 114 F.3d at 733; see id. (collecting state supreme court decisions
upholding ACC clauses). See also Front Row Theatre, Inc. v. Am. Mfrs. Mut. Ins.
Co., 18 F.3d 1343, 1347 (6th Cir. 1994) (upholding an ACC clause barring
coverage for concurrently caused water losses (citing Schroeder v. State Farm
Fire & Cas. Co., 770 F. Supp. 558, 561 (D. Nev. 1991))). A majority of states that
have considered the matter enforce ACC exclusion clauses. See 4 DAVID L.
LEITNER ET AL., LAW AND PRACTICE OF INSURANCE COVERAGE LITIGATION § 52:37
(2007); 7 COUCH ON INS. § 101:45; Joseph A. Ziemianski et al., Emerging Property
and CGL Insurance Claims Trends, 742 Practising Law Institute Litigation and
Administrative Practice Course Handbook Series 251, 281 & n.111 (2006). Only

21
 No. 06-61130

Washington and West Virginia do not allow abrogation of the default rule via an
ACC clause.10 California and North Dakota require efficient proximate causation
by statute.11
2. Public Policy
A general background principle of Mississippi contract law holds that
parties may decline to adopt common-law causation rules so long as the contract’s
provisions do not offend public policy. See Miss. Farm Bureau Cas. Ins. Co. v.
Britt, 826 So. 2d 1261, 1266 (Miss. 2002) (“We must give effect here to [a] valid,
clear and unambiguous contract term where there is no statutory or public policy
prohibition nullifying it.”); see also 7 COUCH ON INS. § 101:39. As Mississippi has
not adopted the efficient proximate cause doctrine as a matter of public policy,
there is no bar to Nationwide’s use of the ACC clause here. Most jurisdictions
concur that ACC clauses comport with state public policy. The Alabama Supreme
Court’s recent decision in State Farm Fire & Casualty Co. v. Slade, 747 So. 2d
293 (Ala. 1999), is representative of this trend.
Slade involved an improbable set of events in which a lightning bolt caused
the collapse of a retaining wall near the policyholders’ swimming pool. Months

10
See Murray v. State Farm Fire & Cas. Co., 509 S.E.2d 1, 12 (W. Va. 1998) (“We hold
that, when examining whether coverage exists for a loss under a first-party insurance policy
when the loss is caused by a combination of covered and specifically excluded risks, the loss is
covered if the covered risk was the efficient proximate cause of the loss.”); Safeco Ins. Co. of
Am. v. Hirschmann, 773 P.2d 413, 416-17 (Wash. 1989) (“When an insured risk sets into
operation a chain of causation in which the last step may be an excluded risk, the exclusion
will not defeat recovery.”).
11
See Julian v. Hartford Underwriters Ins. Co., 110 P.3d 903, 904 (Cal. 2005) (“We have
construed [CAL. INS. CODE] section 530 as incorporating into California law the efficient
proximate cause doctrine, an interpretive rule for first party insurance.”); Western Nat’l Mut.
Ins. Co. v. Univ. of N.D., 643 N.W.2d 4, 13 (N.D. 2002) (efficient proximate cause doctrine
codified at N.D. CENT. CODE §§ 26.1-32-01, 26.1-32-03).

22
 No. 06-61130

later, cracks were observed in the interior and exterior walls of the adjacent
dwelling. State Farm refused to cover the structural damage, asserting that
lightning (a covered peril), caused subsequent earth movement (an excluded
peril), resulting in the observed damage. The homeowner’s policy contained an
ACC clause substantively indistinguishable from the one contested here. Slade
held that the occasional citation of the efficient proximate cause rule in Alabama
caselaw did not require the court to invalidate the disputed ACC clause because
the rule is not a “principle of public policy.” 747 So. 2d at 314. Instead, the court
adhered to Alabama’s “long-standing rule against rewriting unambiguous
insurance policies so long as they do not . . . contravene public policy.” Id.
(citation and internal quotation marks omitted). As Eaker, Rhoden, and Boteler
suggest, we believe that the Mississippi Supreme Court, if squarely confronted
with the issue, would follow Slade.
3. Statutory Law
Nor does any Mississippi statute mandate that insurance policies reflect
the efficient proximate causation doctrine. Mississippi insurance law, in fact,
lends some support to Nationwide. Under state law, all insurance providers are
required to file “all rates, supplementary rate information, policy forms and
endorsements” with the Mississippi Department of Insurance. See MISS. CODE
ANN. § 83-2-7(1). The state Insurance Commissioner must reject any rate or
policy form that contains “inconsistent, ambiguous, or misleading clauses or
exceptions.” Id. § 83-2-11(1)(b). Nationwide’s ACC clause was approved by the
Department.
The Mississippi Supreme Court has recently noted the public-policy import
of this approval process. See United States Fid. & Guar. Co. v. Knight, 882 So.

23
 No. 06-61130

2d 85, 92 (Miss. 2004) (“[I]nsurance companies must be able to rely on their
statements of coverage, exclusions, disclaimers, definitions, and other provisions,
in order to receive the benefit of their bargain and to ensure that rates have been
properly calculated.”); see also 7 COUCH ON INS. § 101:54 (“Causes that fall within
the policy coverage may be considered to be those that the insurer has assessed
in setting its premium or that the insured would have derived from the language
of the contract.”). Moreover, the judicial elevation of the efficient proximate cause
doctrine to a rule of contract construction after contrary policies had been
approved by the state insurance commissioner would essentially usurp the
legislature's authority to delegate authority to an agency. See Slade, 747 So. 2d
at 314. By analogy, it seems most likely that the Mississippi Supreme Court
would regard insurance policy regulation as a matter “better suited for the
Legislature to address” rather than the state judiciary. Wooten v. Miss. Farm
Bureau Ins. Co., 924 So. 2d 519, 523 (Miss. 2006).
The Leonards object to Nationwide’s citation of the filed-rate doctrine,
contending that it “has never been held to be an absolute bar to litigation” and
would constitute “an encroachment by regulatory agencies into the court system
and would deprive plaintiffs of their right to a trial by jury.” This argument
assumes that the insurance policy is ambiguous, since Mississippi courts will
refrain from tinkering with policy language if the meaning of a policy is clear on
its face. See State Auto. Mut. Ins. Co. of Columbus v. Glover, 176 So. 2d 256, 258
(Miss. 1965). Since the ACC clause is unambiguous and consistent with state
public policy, the Leonards’ argument misses the mark.
For all these reasons, we conclude that use of an ACC clause to supplant
the default causation regime is not forbidden by Mississippi caselaw (including

24
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the Camille cases which antedate such clauses), statutory law, or public policy.
Because the ACC clause is unambiguous and not otherwise voidable under state
law, it must stand.
E. Water-Damages Exclusion
The Leonards’ only textual argument that their policy is ambiguous focuses
on the water-damage exclusion, not the ACC clause. They assert that the water
damage their house sustained was caused not by flooding – an explicitly excluded
peril – but by “storm surge,” which they characterize as a “separate, discrete peril
unique to hurricanes” and as a term commonly understood “among residents of
Pascagoula” as distinct from a flood.12 Thus, the argument goes, because “[t]he
literal wording of the ‘water damage’ exclusion does not contemplate the
exclusion of [damage from] ‘storm surge,’” recovery is available. See 11 COUCH ON
INS. § 153:48 (“Because exclusions are read narrowly, a policy excluding damage
from some natural water-related perils may cover damage from other natural
water phenomena.”). This argument is unpersuasive.

12
The Leonards argue based on extrinsic evidence that “storm surge” has a special
meaning apart from “flood” in hurricane-prone areas like Pascagoula. We need not opine on
the merits of this claim because a policyholder cannot cite extrinsic evidence except to explain
an ambiguity within the four corners of the policy. See Am. States Ins. Co. v. Natchez Steam
Laundry, 131 F.3d 551, 555 (5th Cir. 1998); Heartsouth, PLLC v. Boyd, 865 So. 2d 1095, 1105
(Miss. 2003). Even so, the authority cited in support of the Leonards’ proposition, Red Panther
Chem. Co. v. Ins. Co. of Penn., 43 F.3d 514 (10th Cir. 1994), is less than convincing on this
score. Red Panther applied Mississippi law to a set of Palsgrafian facts and a pollution
exclusion clause. After a general invocation that insurance policies should be “construed in
light of the circumstances in which they were issued and according to common usages,” id. at
517, the Tenth Circuit held the exclusion ambiguous. The court specified, however, that its
holding involved “unique factual circumstances” and a policy provision “not yet...the subject
of extensive litigation.” Id. at 519. In contrast, the instant water-damages clause is practically
indistinguishable from provisions used in insurance policies for two centuries, and hurricane
damage is anything but novel.

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 No. 06-61130

Courts have interpreted water-damage exclusions like the one found in the
Leonards’ policy to encompass the peril of wind-driven inundation by water, or
storm surge, for ages.13 Mississippi courts have upheld such exclusions before
and after Hurricane Katrina. See Leonard, 438 F. Supp. 2d at 693 (collecting
cases); Bilbe v. Belsom, 2007 WL 2042437, at *4 (E.D. La. July 12, 2007) (holding
on the basis of a nearly-identical exclusion that “Plaintiff’s argument that
‘hurricane waters’ or ‘storm surge’ do not fit within the terms set forth in the
water damage exclusion is without merit. The damage to Plaintiff’s home was
caused by the inundation of her home by what was clearly tidal water from Lake
Pontchartrain. . . .”).14 Further, this court’s most recent consideration of the term
“flood” also supports Nationwide’s contention that the term is unambiguous and
has a concrete meaning, whether or not used in the context of an insurance
policy. See In re Katrina Canal Breaches Litigation, __F.3d__, 2007 WL 2200004,

13
The Third Circuit rejected a strikingly similar storm-surge argument in 1916. See
Newark Trust Co. v. Agric. Ins. Co., 237 F. 788, 788 (3d Cir. 1916) (holding that wind-driven
storm surge was an excluded peril under a flood exclusion and rejecting policyholder’s
contention that because “the water was made high, not by normal tidal influences, but by
wind, the element insured against, and that in driving the water against the foundations of
the house, the water was the passive and the wind the efficient force which proximately caused
its destruction”); see also Nat’l Fire Ins. Co. v. Crutchfield, 170 S.W. 187, 187-88 (Ky. 1914)
(policy excluding “damage occasioned directly or indirectly by...tidal wave” interpreted to
exclude “loss by water being driven by the wind during a flood,” i.e., storm surge); Wotton Hotel
Corp. v. N. Assurance Co., 57 F. Supp. 112, 113 (E.D. Pa. 1944) (water-damages exclusion
precludes coverage for damage “caused by high water driven by wind”).
14
See also Buente v. Property & Cas. Ins. Co., 2006 WL 980784, at *1 (S.D. Miss. April
12, 2006) (finding that “[water-damage] exclusions are drawn quite broadly” and clearly
include storm-surge damage); Tuepker v. State Farm Fire & Cas. Co., 2006 WL 1442489, at
*3 (S.D. Miss. May 24, 2006) (unpublished) (“‘storm surge’ [losses] are excluded from coverage
because this damage was caused by the inundation of plaintiffs’ home by tidal water”);
Russell G. Donaldson, What Is “Flood” Within Exclusionary Clause of Property Damage Policy,
78 A.L.R. 4th 817 § 2[a] (1990) (noting “little disagreement among the courts” that “storm tide”
constitutes a flood).

26
 No. 06-61130

at *16-*18 (5th Cir. Aug. 2, 2007) (considering the term in the context of water
damage resulting from the “failure of a structure such as a dam or dike”). No
decision of this court or any other of which we are aware endorses the Leonards’
view that storm surge is a unique meteorological phenomenon not contemplated
by water-damages exclusions like Nationwide’s.
The provision explicitly exempts from coverage damage caused by “flood . . .
waves, tidal waves, [and] overflow of a body of water . . . whether or not driven
by wind.” (Emphasis added). The phrase “storm surge” is little more than a
synonym for a “tidal wave” or wind-driven flood, both of which are excluded
perils.15 The omission of the specific term “storm surge” does not create
ambiguity in the policy regarding coverage available in a hurricane and does not
entitle the Leonards to recovery for their flood-induced damages. See In re
Katrina Canal Breaches Litig., __F.3d__, 2007 WL 2200004, at *27 (5th Cir.
Aug. 2, 2007) (stating in the context of an ACC clause that “an insured may not
avoid a contractual exclusion merely by affixing an additional label or separate
characterization to the act or event causing the loss.” (citation omitted)); 7 COUCH
ON INS. § 101:39.

15
See, e.g., Webster’s Third New International Dictionary 2390 (1976) (defining “tidal
wave” as “an unusual rise of water alongshore due to exceptionally strong winds.”); Federal
Emergency Management Agency, Hurricane Hazards: Storm Surge, available at
http://www.fema.gov/hazard/hurricane/hu_surge.shtm (“Storm surge is simply water that is
pushed toward the shore by the force of the winds swirling around the storm. This advancing
surge combines with the normal tides to create the hurricane storm tide. . . . This rise in water
level can cause severe flooding in coastal areas.”). Additionally, this Circuit has previously
defined “flood” as “water which inundates an area of the surface of the earth where it
ordinarily would not be expected to be.” Fla. E. Coast Ry. Co. v. United States, 519 F.2d 1184,
1192 (5th Cir. 1975); see also 11 Couch on Ins. § 153:54 (defining flood).

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 No. 06-61130

F. Weather-Conditions Exclusion
Neither party briefed or argued the applicability of the weather-conditions
exclusion16 in the district court, nor has Nationwide alleged that the exclusion
bars recovery. The district court raised the issue sua sponte in its Memorandum
Opinion, finding the provision ambiguous and unenforceable. See Leonard, 438
F. Supp. 2d at 694. Both parties agree that the district court exceeded the scope
of the inquiry necessary to resolve this case by ruling on the weather-conditions
exclusion. We accordingly do not consider that provision and vacate that portion
of the district court’s opinion.
G. Negligent Misrepresentation Claim
Finally, the Leonards claim that misrepresentations Fletcher made during
two conversations in 1989 and 1999 effected an oral modification of their policy,
enabling recovery for all Katrina-related losses. The district court allowed
litigation of the question whether Fletcher negligently misrepresented the
policy’s terms, but found that none of Fletcher’s statements “could be reasonably
understood to alter the terms of the Nationwide policy,” and that any inferences
that Paul Leonard drew from the conversations were inconsistent with the policy
exclusion for water damage. Leonard, 438 F. Supp. 2d at 692.
1. Background Principles
Under Mississippi law, a party’s reliance on representations by an
insurance agent that contradict the policy language is unreasonable. Ross v.

16
The exclusion states in pertinent part:
(2) We do not cover loss to any property resulting directly or indirectly from
the following if another excluded peril contributes to the loss:
(...)
c. Weather conditions, if contributing in any way with an exclusion
listed in paragraph 1. of this Section.

28
 No. 06-61130

Citifinancial, Inc., 344 F.3d 458, 464 (5th Cir. 2003). The insured has an
affirmative duty to read the policy. Smith v. Union Nat’l Life Ins. Co., 286 F.
Supp. 2d 782, 788 (S.D. Miss. 2003); Gulf Guar. Life Ins. Co. v. Kelley, 389 So. 2d
920, 922 (Miss. 1980). Whether the policy was read or not, however, constructive
knowledge of its contents is imputed to the policyholder. Ross, 344 F.3d at 464
(quoting Godfrey, Bassett & Kuykendall Architects, Ltd. v. Huntington Lumber
& Supply Co., Inc., 584 So. 2d 1254, 1257 (Miss. 1991)). An agent’s oral
representations can modify the policy only if it is ambiguous; when the
contractual language is plain, there can be no modification. Am. States Ins. Co.
v. Natchez Steam Laundry, 131 F.3d 551, 555 (5th Cir. 1998).
General agency law controls the relationship between insurance companies
and their agents. Barhonovich v. Am. Nat’l Ins. Co., 947 F.2d 775, 777 (5th Cir.
1991). Under Mississippi law, an agent’s representations that purport to modify
the insurance contract can bind an insurer only if the statements were made
pursuant to actual or apparent authority. Id. Because Nationwide does not
authorize its agents to orally modify contracts, only apparent authority is
pertinent here.
Somewhat tautologically, the Mississippi Supreme Court has explained
that “[a]pparent authority exists when a reasonably prudent person, having
knowledge of the nature and usages of the business involved, would be justified
in supposing, based on the character of the duties entrusted to the agent, that the
agent has the power he is assumed to have.” Ford v. Lamar Life Ins. Co., 513 So.
2d 880, 888 (Miss. 1987). A policyholder seeking to recover based on an agent’s
apparent authority must show three things: (1) acts or conduct on the part of the
principal indicating the agent’s authority; (2) reasonable reliance on those acts;

29
 No. 06-61130

and (3) a detrimental change in position as a result of such reliance. See
Barhonovich, 947 F.2d at 778 (citing Andrew Jackson Life Ins. Co. v. Williams,
566 So. 2d 1172, 1181 (Miss. 1990)). The insured is bound by policy language
that would put a reasonable person on notice of limitations to the agent’s
authority. See Union Nat’l, 286 F. Supp. 2d at 788.
2. Fletcher’s Conversations with Paul Leonard
Upon purchase of the policy in 1989, Paul Leonard alleges that Fletcher
assured him that all hurricane damage was covered; in 1999, Fletcher allegedly
assured Leonard that he did not need to purchase additional flood insurance.
The Leonards argue that these oral misrepresentations modified their insurance
coverage.
As a threshold matter, it is not at all clear whether the Leonards are
proceeding under a tort or a contract theory. They contend in their opening brief
that the district court failed to adjudicate their contractual “oral modification”
claim. The Leonards pled, however, only “equitable fraud”17 (Count Eight) and
fraud claims sounding in tort (Counts Nine and Ten). The complaint contains no
contract claims at all.
The Leonards attempt to obscure this discrepancy by explaining that the
allegations of their detrimental reliance on Fletcher’s statements, when coupled
with their equitable estoppel claim (Count Two), amount to “what may more
broadly be termed a claim based on ‘oral modification’ of an insurance contract.”
They argue this without ever intoning the word “oral” or “modification” in their
pleadings. Even were we to credit this explanation, the Leonards’ further

17
The tort of “equitable fraud” differs from species of “legal fraud” like fraudulent or
negligent misrepresentation only insofar as the equitable fraud lacks a scienter requirement.
See Brown v. Ohman, 43 So. 2d 727, 744-45 (Miss. 1949).

30
 No. 06-61130

allegation that the district court failed to adjudicate their modification claim is
wrong: the court explicitly stated that “Fletcher did not materially misrepresent
the terms of the Nationwide homeowners policy to the Leonards, and Fletcher did
not make any statements which could be reasonably understood to alter the
terms of the Nationwide policy.” Leonard, 483 F. Supp. 2d at 691-92 (emphasis
added). The oral modification claim was addressed and rejected, assuming it was
ever presented in the first place. Nonetheless, whether they proceed under a
misrepresentation theory or a contract-modification theory, the Leonards lose on
both scores. The district court should never have considered the argument
because Fletcher’s statements are irrelevant to interpreting this policy as a
matter of Mississippi insurance law.
3. Negligent Misrepresentation Theory
The Leonards fail to present an actionable claim of negligent
misrepresentation because they cannot prove two of the elements required to
show apparent authority. First, Nationwide’s conduct in no way indicated that
Fletcher was authorized to orally modify policies he sold. The Form HO-23-A has
an integration clause specifically disclaiming the agent’s ability to do so:
HOW YOUR POLICY MAY BE CHANGED
(...)
(c) A waiver or change of a part of this policy must be in writing
by use to be valid. Our request for an appraisal or
examination does not waive our rights.
Paul Leonard admits to having read the policy. Even had he not, knowledge of
the integration clause is imputed to him under state law.18 Only “[t]hose dealing

18
The cases the Leonards cite in support of their claim are readily distinguishable from
the instant facts. In Nichols v. Shelter Life Insurance Co., 923 F. 2d 1158, 1163 (5th Cir.
1991), the policy contained no express statement that the insurer disclaimed any
representations made by an agent that were contrary to the written policy. Moreover, both

31
 No. 06-61130

with agents without notice of restrictions upon the agent’s authority have a right
to presume that their authority is there.” Hollins, 830 So. 2d at 1237 (citation
omitted).
Second, the Leonards’ reliance on Fletcher’s statements was objectively
unreasonable in light of the policy language clearly excluding water damage,
including damage caused by a flood. See supra Section III.D.
And even if the Leonards can satisfy the third element of apparent
authority – detrimental change in position – their misrepresentation claim is
stale. The most recent statements the Leonards cite were uttered six years ago
in 1999. The statute of limitations for negligent misrepresentation in Mississippi
is three years. See MISS. CODE ANN. § 15-1-49. Because the policy terms are
unambiguous, the Leonards’ claim accrued at the time the misrepresentation was
made. See Oaks v. Sellers, 953 So. 2d 1077, 1082 (Miss. 2007) (action for
misrepresentation of policy terms accrues at execution); Carter v. Citigroup, Inc.,
938 So. 2d 809, 818 (Miss. 2002); Watts v. Horace Mann Life Ins. Co., 949 So. 2d
833, 835-36 (Miss. Ct. App. 2006) (claim that ambiguous policy tolled statute of

Nichols and Scott v. Transport Indemnity Co., 513 So. 2d 889 (Miss. 1987), involve fraudulent
inducement to sign new policies, not oral modifications of existing policies. Nichols, 923 So.
2d at 1160; Scott, 513 So. 2d at 894 (holding restricted to agent’s statements “before or
contemporaneous with entering into the insurance contract”). In Andrew Jackson Life
Insurance Co. v. Williams, 566 So. 2d 1172, 1182 (Miss. 1990), “absolutely no oral or written
notice of existent policy condition or breadth of agents’ authority was provided [plaintiffs, who]
. . . were not afforded an opportunity to become properly informed through inspection of sample
policies, brochures, or anything, and discover that the agents’ offers wrongfully contravened
unrevealed policy conditions.” (emphasis in original) (internal quotation marks omitted). And
in American Income Life Insurance Co. v. Hollins, 830 So. 2d 1230, 1238 (Miss. 2002), the
insured “was not given notice of the exclusion at the time of relying on the agent’s
misrepresentation.” None of these cases supports the Leonards’ argument that their
misrepresentation claim survives notwithstanding the integration clause.

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limitations rejected because policy language was plain). The claim is time-barred.
4. Oral Modification Theory
There are at least two reasons why the Leonards’ contract-based claim fails
as well. First, the policy’s integration clause pretermits the claim as a matter of
law.19 See Stephens v. Equitable Life Assurance Soc’y, 850 So. 2d 78, 83 (Miss.
2003) (“Any alleged oral agreement . . . does not have any effect on the written
insurance contract. . . . [that] had a general provision that unambiguously
prohibited any oral modification.”). The Leonards do not allege that the provision
permitting only written modification of the policy has itself been modified. See,
e.g., Eastline Corp. v. Marion Apartments, Ltd., 524 So. 2d 582, 584 (Miss. 1988)
(dispositive issue “whether or not the parties waived the stipulation that all
modifications be in writing”).20 Instead, they argue that their pleading of
equitable estoppel obviates entirely the need to resort to the integration clause.
That claim ignores the rule that doctrines like equitable estoppel that allow
insureds to procure rights at variance with a written insurance policy cannot be
used to extend coverage not otherwise provided by the policy. See Kubow v.
Hartford Cas. Ins. Co., 475 F.3d 672 (5th Cir. 2007); St. Paul Fire & Marine Ins.

19
Although the parol evidence rule is not a bar to evidence of a subsequent contract
modification, see Dixie S. Indus. Coating, Inc. v. Miss. Power Co., 872 So. 2d 769, 772 (Miss.
Ct. App. 2004), the rule is activated only upon the discovery of ambiguity in a contract and is
thus inapplicable here. Smith v. Smith, 872 So. 2d 74, 78 (Miss. Ct. App. 2004) (“Parol
evidence of the intention of the parties may be received to clear up an ambiguity by reason of
which, such intention is not definitely expressed.” (quoting Byrd v. Rees, 251 Miss. 876, 882,
171 So. 2d 864, 867 (1965))).
20
Although Eastline also states that “[a]n oral modification may be made even where
the contract provides that modification must be in writing,” 524 So. 2d at 584, that statement
was supported by authority holding that “a course of dealing [between the parties] which
repeatedly disregards such stipulation” may amount to waiver. Id. (citation omitted). That
situation is not present here.

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Co. v. Vest Transp. Co., 666 F.2d 932, 948 (5th Cir. 1982) (“[C]onditions going to
coverage or scope of policy of insurance, as distinguished from those furnishing
a ground for forfeiture, may not be waived by implication from conduct or
action.”); Morris v. Am. Fidelity Fire Ins. Co., 173 So. 2d 618 (Miss. 1965).
Second, Mississippi law requires that oral modification correspond to
general rules of contract formation, like the meeting-of-the-minds requirement.
See, e.g., Rottenberry v. Hooker, 864 So. 2d 266, 270 (Miss. 2003). The Leonards
do not contend that Fletcher said that the HO-23-A policy covered all hurricane
damage; instead, they contend that Fletcher stated they did not need additional
hurricane coverage because they did not live in an area classified Flood Zone A
by FEMA. From this, Paul Leonard inferred that the policy covered hurricane
damage. See Leonard, 438 F. Supp. 2d at 691. That inference does not provide
the mutual assent necessary to modify the contract. The Leonards’ additional
claim that equitable estoppel does not require mutual assent is irrelevant
because estoppel cannot operate to create hurricane coverage that does not exist
under the policy.
Whether the Leonards proceed under a contract or tort claim, their
allegation that Fletcher’s comments entitle them to additional coverage is
incorrect as a matter of Mississippi law, and requires us to reverse the district
court’s contrary holding.
5. Fletcher’s Conversations with Other Policyholders
In addition to the district court’s error regarding claims based on
statements made to the Leonards, the district court additionally abused its
discretion in considering evidence of statements made by Fletcher to
policyholders other than the Leonards. Over Nationwide’s objection, the district

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court admitted statements Fletcher made to five Nationwide policyholders as
“habit” evidence under Federal Rule of Evidence 406 because “there was enough
evidence . . . as a matter of habit and routine, [that Fletcher] expressed his
opinion, when he was asked, that customers should not purchase flood insurance
unless they lived in a flood prone area. . . .” Leonard, 438 F. Supp. 2d at 690.
Admission of the oral statements under Rule 406 was a clear abuse of discretion.
The Leonards failed to respond to Nationwide's briefing on this issue.
Rule 406’s use of the term “habit” suggests a “regular response to a
repeated specific situation” that has become “semi-automatic.” Reyes v. Mo. Pac.
R.R. Co., 589 F.2d 791, 794 (5th Cir. 1979); see also Pursley v. Dretke, 114 F.App’x
630, 634 (5th Cir. 2004) (unpublished) (“habit” means “a specific reaction to a
specific set of stimuli that is reflexive, repeated, and invariable in nature.”).
Fletcher has about fifteen hundred customers. Comments he purportedly made
to five of them over the course of a decade about the need for additional flood
coverage do not remotely qualify or quantify as a habit within the meaning the
Rule 406. The record demonstrates that Fletcher sold nearly two hundred NFIP
supplemental policies in the years preceding Katrina – twelve of them to
policyholders living in the Leonards’ neighborhood. Evidence was lacking to
suggest that Fletcher’s statements to other policyholders revealed an invariable,
reflexive response to his treatment of inquiries about supplemental flood
insurance. Admission of the statements under Rule 406 was an abuse of
discretion.
III. CONCLUSION
Subject to the foregoing explanation of the trial court's errors, we AFFIRM.

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