When is it an Act of God?
By Henry E. Seaton
Reprinted from etrucker.com
Q We are an insurance agent for motor carriers in the Gulf Coast area. After Hurricane Katrina, carriers were left to deal with huge cargo claims, per occurrence limitations in their cargo policies and the question of how the “Act of God” defense applies. Even if they could raise their per occurrence limits, would carriers be afforded meaningful protection if the same thing happened again?
A This is a compound question involving two issues: (1) When does the Act of God exception apply? (2) Would upping a motor carrier’s cargo limit afford any protection under the circumstances?
Qualifying for the Act of God exception is a two-prong test. First, there must have been an Act of God that is the proximate cause of the loss. The term “Act of God” cannot be applied to a gust of wind or heavy rain; the defense typically is reserved for weather conditions of epic proportion – tornadoes, hurricanes, blizzards, hail the size of golf balls, etc. Clearly, Katrina as a natural disaster would qualify, and since the hurricane caused the waves that broke the levees and flooded the city, proximate cause was established.
The second prong of the defense, though, requires the carrier to show it was free from negligence. While it was pretty well conceded that the people in New Orleans did not have notice or time to react to the levee break, it could be argued that non-negligence often is not the case. For example, if a carrier stores loaded trailers in a flood-prone area and then does not take reasonable steps to move them when an evacuation notice is issued, it could be argued that the reasonable man standard is violated and the carrier’s negligence defeats the defense.
The insurance aspect of your question poses some additional considerations. Typically cargo policies exclude damage due to wetness, moisture and rust. If the carrier’s policy has this kind of exclusion, it may get coverage added back by a windstorm peril provision, but do not assume coverage.
Yet if a loss results from a natural disaster that qualifies as an Act of God, and you have a true legal liability policy or one that at least covers the peril involved, then one would think you would have coverage under the policy if your negligence precluded the Act of God defense and you were found liable.
In sum, I think my advice is pretty basic: (1) Don’t store trailers in a flood plain or below sea level if you can help it; (2) exercise reasonable prudence in evacuating and protecting the shipper’s goods against inclement weather; and (3) be shy about warranting coverage for more than the common law standard requires. After all, if the cargo loss to the shipper is actually a casualty loss of epic proportions that isn’t your fault, isn’t the shipper better served to seek indemnity from his insurer than to come after you?