Paul and Julie Leonard’s two-story home in Pascagoula, Mississippi, is only twelve feet above sea level and less than two hundred yards from the Gulf of Mexico. In 1989, the Leonards bought a homeowners’ insurance policy from Jay Fletcher, an agent for Nationwide Mutual Insurance Co. The policy covered any damage caused by wind. It excluded all damage caused by water, including flooding. With each annual renewal, Nationwide reminded the Leonards that their policy did not cover flood damage, but that such coverage was available. The policy also contained an anticoncurrent-causation (ACC) clause that excluded coverage for damage caused by the synergistic action of a covered peril such as wind and an excluded peril such as water. In August 2005, Hurricane Katrina battered Pascagoula with torrential rain and sustained winds in excess of one hundred miles per hour. Wind damage to the Leonards’ home was modest, but the storm drove ashore a seventeen-foot storm surge that flooded the ground floor. When Nationwide refused to pay for the damage to the ground floor, the Leonards filed a suit in a federal district court against the insurer.

(a) Nationwide argued that the storm surge was a concurrently caused peril—a wall of water pushed ashore by hurricane winds—and thus its damage was excluded under the ACC clause. How would you rule on this point? Should a court “enlarge” an insurer’s policy obligations? Why or why not?

(b) When the Leonards bought their policy in 1989, Fletcher told them that all hurricane damage was covered. Ten years later, Fletcher told Paul Leonard that they did not need additional flood coverage. Did these statements materially misrepresent or alter the policy? Were they unethical? Discuss.