Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca5-09-30722/USCOURTS-ca5-09-30722-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

---

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 09-30722

STEWART ENTERPRISES, INC.; S. E. CEMETERIES OF LOUISIANA,

INC.; S. E. FUNERAL HOMES OF LOUISIANA, INC.; S. E.

SOUTH-CENTRAL, INC.; LAKE LAWN PARK, INC.; LAKE LAWN

METAIRIE FUNERAL HOME, individually and as a joint venture between

Stewart Enterprises, Inc., and S.E. Funeral Homes of Louisiana, Inc.;

STEWART RESOURCE CENTER, INC.; STEWART SERVICES, INC.;

ACME MAUSOLEUM CORP.,

Plaintiffs - Appellants Cross-Appellees

v.

RSUI INDEMNITY COMPANY, INC.,

Defendant - Appellee Cross-Appellant

Appeals from the United States District Court

for the Eastern District of Louisiana

Before HIGGINBOTHAM, DAVIS, and BENAVIDES, Circuit Judges.

PER CURIAM:

This appeal presents a familiar dispute in the aftermath of Hurricane

Katrina. Stewart Enterprises, owner of cemeteries, funeral homes and other

commercial properties throughout New Orleans, brought this action against its

excess insurer, RSUI, to recover for wind and flood damage sustained during the

storm. The parties dispute whether RSUI’s excess liability policy covers damage

United States Court of Appeals

Fifth Circuit

F I L E D

August 4, 2010

Lyle W. Cayce

Clerk

 Case: 09-30722 Document: 00511194120 Page: 1 Date Filed: 08/04/2010
No.09-30722

caused by flood, and if so, under what conditions. The district court found the

policy covered flood, but that the coverage was limited by the policy’s anticoncurrent causation clause. Neither party satisfied, both appealed. We find in

favor of coverage and remand for further proceedings.

I

Prior to Katrina, Stewart insured its properties and businesses with three

layers of insurance. The primary layer, issued by Lexington Insurance

Company, provided all risk coverage up to $10 million, including $10 million in

flood coverage. The first excess layer, issued by Lloyd’s, London, provided $15

million of all risk coverage, also including $15 million in flood coverage, excess

to the first $10 million provided by Lexington. Stewart’s second excess layer,

issued by RSUI, provided a coverage limit of $225 million, excess to the $25

million provided by the first two layers. Both the Lloyd’s and RSUI policy

contained “following form” clauses adopting the terms and conditions of the

Lexington primary policy.

During and directly after the storm, Stewart’s properties suffered heavy

damage from wind and flood. As was generally the case after Katrina, it was not

easily determinable what portions of the damage were caused by wind, flood, or

some combination of the two. This difficulty has proven to be a significant

roadblock for many of the victims attempting to recover compensation from their

insurance carriers, of which Stewart is only the latest.

After Katrina, Stewart sought to recover from all three insurers for

damage caused by wind and flood. Both Lexington and Lloyd’s paid the full

balance of their policies, but unfortunately, RSUI and Stewart have been unable

2

 Case: 09-30722 Document: 00511194120 Page: 2 Date Filed: 08/04/2010
No.09-30722

to resolve Stewart’s claims. Central to their dispute is whether the RSUI policy

covers damage caused in whole or in part by flood. RSUI contends that the

policy plainly excludes liability for all flood damage and that to the extent the

policy covers any flood damage, it is limited by the anti-concurrent causation

clause (ACC clause) to damage caused exclusively by flood and not in conjunction

with another peril, such as wind. Stewart disagrees, claiming the RSUI policy

adopts the limits set forth in the Lexington and Lloyd’s policies, covering any of

the $25 million in flood coverage unpaid by Lexington and Lloyd’s, and that the

ACC clause only operates above that $25 million limit.

Both parties moved for summary judgment before the district court and

the district court denied both motions. The district court first found that the

RSUI policy covered up to $25 million in flood damage, subject to reduction

based on payments for flood damage by either Lexington or Lloyd’s. The district

court then found that the ACC clause barred any recovery for damage jointly

caused by wind and flood, although the policy permitted recovery for damage

caused by wind or flood exclusively (up to the $25 million limit for flood damage).

After the district court certified the issues, both parties filed interlocutory

appeals. We review de novo.

1

II

Both parties agree that Louisiana law governs the interpretation of the

policy. “Under Louisiana law, an insurance policy is a contract between the

2

parties and should be interpreted according to the general rules of interpretation

Nunez v. Allstate Ins. Co., 604 F.3d 840, 844 (5th Cir. 2010). 

1

See In re Katrina Canal Breaches Litigation, 495 F.3d 191, 206 (5th Cir. 2007).

2

3

 Case: 09-30722 Document: 00511194120 Page: 3 Date Filed: 08/04/2010
No.09-30722

of contracts prescribed in the Louisiana Civil Code.” In interpreting the

3

insurance policy, when the words of the policy are clear, and do not lead to

absurd consequences, “no further interpretation may be made in search of the

parties’ intent.” The policy’s provisions “must be interpreted in light of the

4

other provisions so that each is given the meaning suggested by the contract as

a whole.” Where provisions are ambiguous, they are “are generally construed

against the insurer and in favor of coverage” although “a court may look to parol

5

evidence to determine the parties’ intent.” We turn now to the policies.

6

A.

RSUI contends the district court erred in finding the policy provides up to

$25 million in flood damage and argues the policy only provides coverage for

damage from wind and other perils. The RSUI policy is an excess layer

insurance policy with a “following form” provision. This provision states that the

RSUI policy is “subject to the same warranties, terms and conditions . . . as are

contained in or as may be added to” the primary insurance policy—here the

Lexington policy. We start from the ground up, first examining the terms of the

Lexington policy and then looking to the RSUI policy overlay.

Nunez, 604 F.3d at 844-45. 3

 La. Civ. Code art. 2046. 4

Cadwallader, 848 So.2d at 579 (citing La. Civ. Code art. 2056). 5

American Elec. Power Co. Inc. v Affiliated FM Ins. Co., 556 F.3d 282, 286 (5th Cir. 6

2009).

4

 Case: 09-30722 Document: 00511194120 Page: 4 Date Filed: 08/04/2010
No.09-30722

The Lexington policy provides $10 million in all risk coverage subject to

several exclusions and sublimits. The policy is roundabout in its construction:

7

Sections 2 and 9 set general coverage at $10 million per occurrence for all risks,

subject to the exclusions contained in section 10. Section 10(P)(2) excludes all

 The relevant provisions of the Lexington Policy read in full: 7

MANUSCRIPT ALL RISK FORM

. . .

2. LIMITS OF LIABILITY

The company insures up to and shall not be liable for more than $10,000,000

per occurrence.

3. SUBLIMITS OF LIABILITY

. . . 

J. $10,000,000 In aggregate for any one policy year for the peril of 

flood.

. . .

9. PERILS INSURED AGAINST

This policy insures against all risks of direct physical loss of or damage to

property described herein including general average, salvage and all other

similar charges on shipments covered hereunder, if any, except as hereinafter

excluded.

10. PERILS EXCLUDED

This policy does not insure against loss or damage caused directly or indirectly

by any of the excluded perils. Such loss or damage is excluded regardless of any

other cause or event that contributes concurrently or in any sequence to the

loss:

. . . 

P. loss or damage caused by or resulting from:

. . .

(2) Flood, unless specified in Section 3, Sublimits of Liability,

Paragraph J., and then only for such specified amount;

(3) any and all loss from any other cause when occurring 

concurrently or sequentially withEarthquake, Volcanic Eruption 

or Flood, except Fire; . . .

5

 Case: 09-30722 Document: 00511194120 Page: 5 Date Filed: 08/04/2010
No.09-30722

“loss or damage caused by or resulting from: . . . Flood unless specified in Section

3, Sublimits of Liability, Paragraph J., and then only for such specified amount.”

Section 3(J) provides a sublimit of $10 million aggregate for flood per policy year.

Taking the provisions together, the policy provides for $10 million per occurrence

for all risks, except in the case of flood, where the policy only provides $10

million aggregate per year.

6

 Case: 09-30722 Document: 00511194120 Page: 6 Date Filed: 08/04/2010
No.09-30722

The RSUI policy provides coverage excess to the Lexington policy. The

8

 The RSUI policy reads in relevant part:

8

EXCESS PHYSICAL DAMAGE FORM

. . .

2. APPLICATION OF UNDERLYING PROVISIONS:

In respect of the perils hereby insured against this Policy is subject to the same warranties,

terms and conditions (except as regards the premium, the amount and limits of Liability other

than the deductible or self-insurance provision where applicable, and the renewal agreement,

if any, AND EXCEPT AS OTHERWISE PROVIDED HEREIN) as are contained in or as may

be added to the Policy(ies) of the Primary Insurer(s) prior to the happening of a loss for which

claim is made hereunder and should any alteration be made in the premium for the Policy(ies)

of the Primary Insurer(s), then the premium hereon may be adjusted accordingly.

3. LIMIT:

Provided always thatliability attaches to the insurer(s) only after the Primary and Underlying

Excess Insurer(s) have paid or have admitted liability for the full amount of their respective

liability as set forth in Item 8 of the Schedule and designated “Primary and Underlying Excess

Limit(s)” and then the limits of the Insurer(s) Liability shall be those set forth in Item 8 of the

Schedule under the designation “Excess Limit(s)” and the Insurer(s) shall be liable to pay up

to the full amount of such “Excess Limit(s)”.

4. MAINTENANCE OF PRIMARY AND UNDERLYING POLICY/IES AND LIMITS:

It is a condition precedent to recovery under this Policy that the Policy(ies) and Limit(s) of the

Primary and Underlying Excess Insurer(s) set forth in Item 8 of the Schedule be maintained

in full force and effect, except for any reduction or exhaustion of any underlying aggregate

Limits of Liability contained therein, solely by the amount of loss(es) paid or admitted during

the policy year.

There is no recovery under this excess policy as respects those coverages with are sublimited

within the primary and/or underlying excess policy(ies) to amount less than the amount

indicated in item 8 of the Schedule, however, the Insurer(s) to this excess policy recognize that

the primary and underlying excess policy limits can be eroded or exhausted, wholly or

partially, by application of said sublimits.

In the event of such reduction of the aggregate Limits of Liability of the Primary and

Underlying Excess Insurance’s this Policy shall pay excess over the reduced aggregates limit.

In the event of exhaustion of aggregate Limits of Liability of the Primary and Underlying

Excess Insurances this Policy, subject to all its provisions, shall continue in force as Primary

7

 Case: 09-30722 Document: 00511194120 Page: 7 Date Filed: 08/04/2010
No.09-30722

policy contains in section 2 a “following form” provision which states that the

Insurance in respect of the peril for which the aggregate Limit of Liability has been so

exhausted and the deductible or self-insured amount applicable to that peril as set forth in

Item 8 of the Schedule, shall apply to this Policy.

. . .

THE SCHEDULE

. . .

4. Perils Insured: As defined in the Primary policy issued by Lexington Insurance

Co., policy number 8753559.

. . .

8. (a) Primary Limit(s)

COVERAGE

LAYER

TOTAL LIMIT OF

LIABILITY FOR

PRIMARY

INSURER

INSURER POLICY NO. LIMIT/

PARTICIPATI

ON

I. $10,000,000 LEXINGTON

INS. CO.

8753559 $10,000,000

(100%)

(b) Underlying Excess Limit(s):

COVERAGE

LAYER

TOTAL LIMIT OF

LIABILITY FOR

PRIMARY

INSURER

INSURER POLICY NO. LIMIT/

PARTICIPATI

ON

II. $15,000,000

XS

$10,000,000

Underwriters

@ Lloyds

BO66422340A0

4

$15,000,000

(100%)

III. $225,000,000

XS

$25,000,000

RSUI

Indemnity Co.

NHD338080 $225,000,000

(%100)

9. Total Limits [including “Primary” and “Underlying Excess”] subject to annual 

aggregates [per layers and participation’s as outlined in item 8 above]:

$25,000,000 any one policy year in respect of the peril of Flood

$25,000,000 any one policy year in respect of the peril of Earthquake

8

 Case: 09-30722 Document: 00511194120 Page: 8 Date Filed: 08/04/2010
No.09-30722

policy “is subject to the same warranties, terms and conditions (except as

regards the premium, the amount and limits of Liability other than the

deductible or self-insurance provision where applicable, and the renewal

agreement, if any, AND EXCEPT AS OTHERWISE PROVIDED HEREIN)” as

the Lexington primary policy. Under section 3, RSUI’s liability is only triggered

once Lexington and Lloyd’s pay the limits of their policy as set forth in Item 8 of

the schedule.

The policy’s coverage limits are set forth in the attached Schedule. Item

4 sets forth the perils insured, again by reference to the Lexington policy,

stating, “Perils Insured: As defined in the Primary policy issued by Lexington

Insurance Co.” Item 8 sets forth the primary and underlying general policy

limits, $10 and $15 million respectively, which under section 3 of the RSUI

policy must be paid before triggering RSUI’s liability. The only mention of flood

insurance comes in Item 9: “Total Limits [including “Primary” and “Underlying

Excess”] subject to annual aggregates [per layers and participation’s as outlined

in item 8 above]: $25,000,000 any one policy year in respect of the peril of Flood;

$25,000,000 any one policy year in respect of the peril of Earthquake.”

Additional complication is created by the Lloyd’s policy, which sits as the

primary excess insurance layer between the Lexington and RSUI policies, and

9

 The Lloyd’s policy reads in relevant part:

9

EXCESS PHYSICAL DAMAGE FORM

. . .

2. APPLICATION OF UNDERLYING PROVISIONS

In respect of the perils hereby insured against this Policy is subject to the same warranties,

terms and conditions (except as regards the premium, the amount and limits of Liability other

than the deductible or self-insurance provision where applicable, and the renewal agreement,

if any, AND EXCEPT AS OTHERWISE PROVIDED HEREIN) as are contained in or as may

be added to the Policy(ies) of the Primary Insurer(s) prior to the happening of a loss for which

9

 Case: 09-30722 Document: 00511194120 Page: 9 Date Filed: 08/04/2010
No.09-30722

contains an identical “following form” provision keyed to the Lexington primary

policy. Unlike the RSUI policy, the Lloyd’s policy specifically provides for excess

flood coverage, supplying an additional $15 million of flood coverage excess to

the $10 million provided by the Lexington policy. The Lloyd’s policy also differs

from the RSUI policy in including under Item 4 of its Schedule, Perils Insured,

“All risks of Direct Physical Loss or Damage including Flood and Earthquake

excluding Boiler and Machinery as per Primary Policy.”

claim is made hereunder and should any alteration be made in the premium for the Policy(ies)

of the Primary Insurer(s), then the premium hereon may be adjusted accordingly.

. . .

SCHEDULE

. . . 

4. Perils Insured: All risks of Direct Physical Loss or Damage including Flood and 

Earthquake excluding Boiler and Machinery as per Primary Policy.

. . .

8. (a) Primary Limit(s)

COVERAGE

LAYER

TOTAL LIMIT OF

LIABILITY FOR

PRIMARY

INSURER

INSURER Participation Policy No.

I. $10,000,000 LEXINGTON

INS. CO.

100% 8753559

. . .

9. Primary and Underlying Excess Limit(s)

USD 10,000,000 Ultimate net loss per occurrence subject to an aggregate limit of

USD 10,000,000 any one Policy year in respect of the peril of Flood, and

USD 10,000,000 any one Policy year in respect of the peril of Earthquake

Which in turn excess of Underlying deductibles

10. Excess Limit(s)

USD 15,000,000 Ultimate net loss per occurrence subject to an aggregate limit of

USD 15,000,000 any one Policy year in respect of the peril of Flood, and

USD 15,000,000 any one Policy year in respect of the peril of Earthquake

Which in turn excess of Underlying deductibles

10

 Case: 09-30722 Document: 00511194120 Page: 10 Date Filed: 08/04/2010
No.09-30722

The Lexington and Lloyd’s policies each have two relevant limits, the total

limit per occurrence and the flood aggregate limit. As the insurers did not

specify what, if any, portion of their payments were for flood damage, there is a

possibility that although the total limits were reached, the flood limits were not.

Stewart urges that in this scenario the RSUI policy steps in to cover the unpaid

aggregate limit once the total limits of the underlying policy are reached. The

district court agreed with Stewart, focusing on the language contained within

Items 4 and 9 of the RSUI Schedule and finding the reference back to the

Lexington policy and the recitation of the annual aggregate limit of $25 million

for flood damage afforded coverage under the RSUI policy.

We begin with Item 4 of the RSUI policy which defines perils insured by

reference to the Lexington policy. Under the Lexington policy, flood is excluded

from coverage, with the exception of a $10 million sublimit, such that up to $10

million in damage, flood is treated as an included peril. It is unclear whether

the parties intended to incorporate this exception to the exclusion. The

resolution turns in part on the scope of the following form provision. The

following form provision states “this Policy is subject to the same warranties,

terms and conditions (except as regards to the premium, the amount and Limits

of Liability other than the deductible . . .) as are contained in” the primary

policy—notably excluding the “Limits of Liability” from its incorporation. As the

flood exception is arguably a “limit of liability,” section 2 suggests it is not

incorporated. But Item 4 provides an independent reference to the Lexington

policy and it is unclear whether it is governed by section 2’s limitation. We are

thus faced with an ambiguity: Whether Item 4 incorporates the Lexington

policy’s coverage of flood damage, or whether, because the flood coverage is a

11

 Case: 09-30722 Document: 00511194120 Page: 11 Date Filed: 08/04/2010
No.09-30722

sublimit exception to the flood exclusion, Item 4 only incorporates the flood

exclusion itself.

10

Looking to the remainder of the RSUI policy and schedule only further

muddies the water. Items 8 and 9 of the RSUI Schedule provide a summary of

the policy limits provided by the various layers of coverage. Item 8 sets forth the

overall policy limits contained within each of the layers. Item 9 sets forth two

sublimits with aggregate yearly limits, flood and earthquake, distinguishing

them from perils covered on a per occurrence basis. RSUI contends this is the

sole purpose of Item 9, to highlight the fact that Stewart’s coverage in the

underlying policies for flood and earthquake are limited to an aggregate yearly

amount and that Item 9 does not suggest that RSUI itself is liable for the $25

million in flood coverage. RSUI points to the language “[including ‘Primary’ and

‘Underlying Excess’]” as limiting that provision to summarizing the coverage

provided by the underlying policies. But the word “including” does not exclude

RSUI—the language instead suggests that the total limit subject to annual

aggregate for flood is $25 million to be provided by Lexington, Lloyd’s, and RSUI

10 RSUI points to the Lloyd’s policy which contains an identical following form

provision. Unlike the RSUI policy’s Schedule, the Lloyd’s Schedule adds an additional $15

million in excess coverage for flood damage. RSUI reasons that if the RSUI and Lloyd’s

provisions are both to be read as to provide liability for the Lexington policy’s $10 million

sublimit, it would lead to inconsistencies within the Lloyd’s policy indicating thatthe following

form provision was not intended to incorporate the sublimit in the Lexington policy. But this

argument does not bear on whether under the Lexington policy flood damage is defined as a

covered peril such that the RSUI policy also treats flood as a covered peril. 

Likewise, we reject RSUI’s claim that, if liable for flood at all, it should only be liable

for the initial $10 million sublimit under the Lexington policy, noting that nothing in the RSUI

policy incorporates any provision of the Lloyd’s policy. Item 4 defines perils insured and

incorporates the Lexington policy’s coverage of flood, but the amount of coverage is derived

from the remainder of the policy.

12

 Case: 09-30722 Document: 00511194120 Page: 12 Date Filed: 08/04/2010
No.09-30722

together. Read in conjunction with Item 4, the policy seems to provide coverage

for $25 million of flood damage, aggregate per year, between the three insurers.

11

Under Louisiana law, ambiguities in the policy are to be interpreted in

favor of the insured. Governed by this blackletter interpretive rule, we find the

policy provides flood coverage. Of course, had RSUI wished to deny coverage for

flood damage within the Lexington and Lloyd’s aggregate limits, it could have

done so, but the court will not engage in interpretive gymnastics to favor the

party that drafted the contract.

Reading the RSUI policy to cover flood within the $25 million aggregate

limit also makes practical sense. Neither Lexington nor Lloyd’s expressly

allocated any portion of its payments between wind and flood. Under RSUI’s

reading, Stewart’s total recovery could depend on arbitrary accounting decisions

by Lexington and Lloyd’s. For instance, suppose Stewart suffered $30 million

in flood damage and $70 million in wind damage. The total payout by Lexington

and Lloyd’s will never exceed $25 million, and it matters not to them for what

they are paying: $25 million is $25 million. But under RSUI’s reading it would

matter to Stewart a great deal. Were the court to find Lexington and Lloyd’s

allotted all $25 million to flood damage, Stewart could recover the full $70

RSUI points to section 10 of its policy, contending that it too bars flood coverage. The 11

provision reads:

For the purpose of attachment of coverage for excess layers, it is further agreed

that loss involving any interest and/or peril covered in any primary or

underlying excess layers, but excluded in higher excess layers, shall be

recognized by such excess layers as eroding or exhausting the occurrence limits

of the primary and/or underlying excess layer(s). Nothing herein, however,

shall be deemed to extend coverage in such layer(s) to include loss from the

specifically excluded peril in the excess layer itself.

This language only begs the question of which perils are excluded in the excess layer and adds

nothing to our analysis.

13

 Case: 09-30722 Document: 00511194120 Page: 13 Date Filed: 08/04/2010
No.09-30722

million from RSUI, for a total collection of $95 million (of $100 million in damage

suffered). On the other hand, if Lexington and Lloyd’s allotted all $25 million

to wind damage, RSUI would only have to pay $45 million—the remaining

amount liability for wind damage—leaving Stewart to collect a total of only $70

million and nothing for the damage by flood. In contrast under Stewart’s

reading, Stewart receives the same amount regardless of how Lexington and

Lloyd’s characterize their payments—Stewart will be able to recover a total of

$25 million in flood and $70 million in wind. While it would be foolish to rest an

interpretation of an insurance contract on its practical sensibility, we take

comfort that our reading reduces the chance that the amount of the insured’s

recovery will be arbitrary.

Lastly, RSUI argues that parol evidence indicates the parties did not

intend the RSUI policy to cover any flood damage. Parol evidence should only

be used to determine the intentions of the parties at the time the contract was

made, not after the fact. RSUI provides as evidence a confirmation of coverage

12

made directly after the signing of the insurance agreement. The confirmation

13

of coverage includes the language, “Perils Covered: All Risk of Direct Physical

Damage or Loss excluding Flood, Earthquake and Boiler and Machinery.” We

find this short summary statement to be insufficient to resolve any ambiguity

in the policies in favor of the insurer. The statement may be read as simply

 See Miller v. Miller, 1 So.3d 815, 818 (La. App. 2d Cir. 2009). 12

RSUI also provides emails written in December, 2005, after Katrina and after 13

Stewart began looking to recover—these are not probative of the parties’ intent at the time of

contracting. Moreover, the emails do not actually speak to the question. Rather they merely

restate what is already accepted, that Stewart has a policy limit of $25 million for flood

without addressing whether RSUI is liable for any part of that $25 million left unpaid by the

underlying insurers.

14

 Case: 09-30722 Document: 00511194120 Page: 14 Date Filed: 08/04/2010
No.09-30722

restating the fact that no flood coverage is provided above the $25 million set

forth in the underlying policies—i.e., that the policy provides no additional flood

coverage. Without more, we find this evidence to be insufficient to clarify the

policy’s ambiguity.

B.

Finding flood coverage, we now turn to whether the ACC clause bars

recovery for damage caused concurrently by wind and flood within the $25

million limit. Stewart claims that the district court’s reading of the ACC clause

14

creates an absurd result: permitting recovery for damage caused exclusively by

wind or exclusively by flood, but barring recovery when the damage is caused by

a combination of the two. We agree that this result is absurd and could not

15

have been intended by the parties.

At issue is the interpretation of two ACC clauses contained within section

10 of the Lexington policy and adopted through the RSUI policy’s following form

provision. The relevant provisions state:

10. PERILS EXCLUDED

This policy does not insure against loss or damage caused directly

or indirectly by any of the excluded perils. Such loss or damage is

Stewart argues RSUI waived its ACC clause defense. We disagree finding it was

14

adequately raised before the district court.

 RSUI also argues that the ACC clause is given a much simpler reading by denying 15

all flood coverage, and that therefore the best reading of the following form clause is that it

did not incorporate the Lexington policy’s flood sublimits. But this argument proves to much

as the ACC clause is contained within the Lexington policy itself and any interpretive

difficulties apply to both policies irrespective of RSUI’s following form provision.

15

 Case: 09-30722 Document: 00511194120 Page: 15 Date Filed: 08/04/2010
No.09-30722

excluded regardless of any other cause or event that contributes

concurrently or in any sequence to the loss:

. . .

P. loss or damage caused by or resulting from:

. . .

(2) Flood, unless specified in Section 3, Sublimits of

Liability, Paragraph J., and then only for such specified

amount;

(3) any and all loss from any other cause when occurring

concurrently or sequentially with Earthquake, Volcanic

Eruption or Flood, except Fire; . . .

16

The district court found that P(3) precluded recovery for any damage (including

wind) if it was caused concurrently or sequentially by flood, even within the $25

million exception to the flood exclusion. In other words, Stewart could recover

for damage exclusively caused by wind or exclusively caused by flood, but not for

damage caused by flood and wind together. The court “recognize[d] the unusual

nature of such an interpretation, but [found] it supported by the policy

language.”

We acknowledge that the district court’s reading is the most

straightforward reading of the contract. There are two ACC clauses in the

Lexington policy. The prefatory clause contains a general ACC clause, barring

recovery for any damage caused by an included peril if an excluded peril

contributes concurrently or in sequence to the loss. To the extent P(2) defines

flood as an excluded peril, the prefatory clause bars recovery for damage caused

by an included peril acting in conjunction with flood. P(3) provides a separate

prohibition from P(2) and states unambiguously that any loss from another

cause, occurring concurrently or sequentially with flood, shall be considered an

 RSUI Policy § 10(P)(2)-(3). 16

16

 Case: 09-30722 Document: 00511194120 Page: 16 Date Filed: 08/04/2010
No.09-30722

excluded peril. The clauses appear to overlap, but the prefatory clause does not

apply to the $10 million flood sublimit, as it subsumes the exception to the

exclusion through P(2). The P(3) independent flood ACC clause does not

subsume P(2), creating an independent bar to all damage caused by flood acting

concurrently with another peril.

This court generally enforces the plain reading of ACC clauses, even in the

face of potential ambiguity caused by the structure of the insurance contract.

For instance, in Leonard v. Nationwide Mutual Insurance Co. we held an ACC

17

clause barred recovery for damage from storm surge stating “[t]he 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.” The court rejected claims that the

18

policy’s definitions of storm surge and windstorm led to ambiguity in the ACC

clause—where the damage was caused in part by flood, it was excluded. This

conclusion was reinforced by Tuepker v. State Farm & Casualty Company.

19

There the plaintiffs sought to show ambiguity in the ACC clause by pointing to

a provision setting a higher deductible for hurricane damage. The plaintiffs

argued that this indicated the policy covered hurricane damage such as storm

surge, and that the ACC clause should not apply. The court rejected the claim

and found that “the endorsement does not enlarge or change the scope of

499 F.3d 419 (5th Cir. 2007); see also Arctic Slope Regional Corporation v. Affiliated 17

FM Ins. Co., 564 F.3d 707 (5th Cir. 2009) (upholding ACC clause on essentially same grounds

as Leonard); Bilbe v. Belsom, 530 F.3d 314 (5th Cir. 2008). 

 Id. at 430. 

18

 507 F.3d 346 (5th Cir. 2007). 19

17

 Case: 09-30722 Document: 00511194120 Page: 17 Date Filed: 08/04/2010
No.09-30722

coverage under the policy.” In both these cases the court rejected claims of

20

ambiguity finding ACC clauses were unambiguous and enforceable.

But in the above cases and every case cited by RSUI, the ACC clause

operated to prevent recovery for damage caused by an included peril occurring

concurrently with an excluded peril—e.g., flood damage was explicitly excluded

while wind damage was included. ACC clauses permit parties to contract

around common-law causation rules, such as efficient proximate causation.

Under this causation rule, an insured may recover for damage caused jointly by

an included and excluded peril if the included peril is the “dominant and efficient

cause of the loss.” The determination of the dominant cause may be difficult

21

and promote extensive litigation between the parties. Parties use an ACC clause

as a means of avoiding such a dispute. Yet this rationale does not apply to cases

such as this where the insurer seeks to use the ACC clause to bar recovery for

damage caused by two included perils. Here, for damage up to the $25 million

sublimit, flood is an included peril. Thus the court’s incongruous result stated

above: Stewart can recover for damage caused exclusively by wind or exclusively

by flood, but not for damage caused by the two perils acting concurrently.

RSUI’s reading turns the rationale for including an ACC clause on its

head, creating difficult causation determinations where none otherwise exist.

RSUI’s interpretation would force the insured to demonstrate that damage was

caused exclusively by one of the two included perils. This reading is untenable

and can only be the result of an awkward use of terms that assumes a full

exclusion of flood damage. We will not read the policy to force Stewart to prove

 Id. at 355. 20

 Leonard, 499 F.3d at 431 (internal citations and quotations omitted). 

21

18

 Case: 09-30722 Document: 00511194120 Page: 18 Date Filed: 08/04/2010
No.09-30722

a windless flood. We read the ACC clause to only apply to damage in excess of

the $25 million aggregate limit.

* * *

Read objectively, the policy at best does not answer the present claims

with sufficient clarity to escape the principle that such uncertainty is to be

resolved in favor of the insured. Reading in favor of the insured, we find the

RSUI policy covers flood to the extent the aggregate limits under the Lexington

and Lloyd’s policies have not been fully paid. We also find that the policies’

ACC clause does not operate within the $25 million dollar limit. We AFFIRM

in part, REVERSE in part, and REMAND for further proceedings. Stewart’s

motion to dismiss the appeal is DENIED.

19

 Case: 09-30722 Document: 00511194120 Page: 19 Date Filed: 08/04/2010