Consumer activist J. Robert Hunter has called on insurance commissioners to repeal the clause that permits carriers to deny claims for covered losses if uncovered events cause damage at the same time.
The anti-concurrent causation clause is used to override coverage for a claim from a covered cause such as wind, when at about the same time an uncovered event—such as flood—damages a property.
“Consumers cannot be expected to understand how this clause works, and will always be shocked to learn that their coverage has been trumped by the occurrence of some other type of claim,” wrote Mr. Hunter, insurance director of the Consumer Federation of America.
During Hurricane Katrina, some insurers used the clause to refuse to pay for wind losses on homes that also had experienced flood damage. “This was even if the flood occurred hours after the hurricane hit the home,” Mr. Hunter wrote.
Insurers that use ACC clauses, he added, “are creating a trap door through which apparent coverage can disappear at great risk to the consumers buying their policies.”
He concluded his letter by stating that “insurance is supposed to remove risk, not create risk. Insurance is supposed to bring certainty, not financial peril to the buyer.”
He said “it is time for [regulators] to act to remove the egregious ACC clause from the insurance policies of your state. Please let me know if I can help in this endeavor.”
In response, industry officials defended the ACC clause’s validity and necessity.
Robert Detlefsen, vice president for public policy at the National Association of Mutual Insurance Companies, said the ACC clause was added to make clear that if any portion of a loss is caused by a noncovered peril, the loss would not be covered.
“Stripping anti-concurrent causation clauses from insurance contracts would prevent insurers from managing their exposures, forcing them to either raise rates or exit markets in jurisdictions where the ACC is disallowed,” Mr. Detlefsen said.
Richard Koon, director of product review for the Florida Office of Insurance Regulation, said the Florida Legislature has made it clear that insurers are allowed to use the ACC clause. “So instead of ‘Dear Commissioner,’ Mr. Hunter’s letter should have been addressed ‘Dear Legislator,’” he said.
Since insurers pay wind claims all the time when there is some flooding damage involved, it would appear the ACC clause is not as all-encompassing as it may sound, he said. “It is the human element at play, and not the wording,” according to Mr. Koon, adding it is up to adjusters to figure out the exact proportion of damage from covered and uncovered perils.