United States District Judge, Western District of Texas, sitting by designation. *

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IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 08-30050

ARCTIC SLOPE REGIONAL CORPORATION; ASRC ENERGY SERVICES

INC.; OMEGA NATCHIQ INC

Plaintiffs-Appellants

v.

AFFILIATED FM INSURANCE CO.

Defendant-Appellee

Appeal from the United States District Court

for the Western District of Louisiana

Before JONES, Chief Judge, and JOLLY, Circuit Judge, and MONTALVO,

District Judge.*

EDITH H. JONES, Chief Judge:

This appeal represents a variation on the court’s previous insurance

coverage decisions in Leonard v. Nationwide Mutual Ins. Co., 499 F.3d 419 (5th

Cir. 2007) and Tuepker v. State Farm Fire & Casualty Co., 507 F.3d 346 (5th Cir.

2007). Appellants, the insured parties, admit that Hurricane Rita’s storm surge

in September 2005 flooded Omega Natchiq Inc.’s (“Omega”) office and

United States Court of Appeals

Fifth Circuit

F I L E D

April 2, 2009

Charles R. Fulbruge III

Clerk
No. 08-30050

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construction yard in Iberia Parish, Louisiana, up to three feet deep. This

particular flood was excluded from coverage by the “all risks” policy Arctic Slope

Regional Corporation (“Arctic Slope”), the parent company, had purchased from

insurer Affiliated FM Insurance Co. (“Affiliated”). Arctic Slope contends that the

loss nonetheless falls within an unusual policy provision defining coverage for

wind/hail damage. Like the district court, which ably dissected the policy, we

disagree with Arctic Slope’s position and affirm the judgment for the insurer.

After Affiliated denied coverage for the company’s storm surge losses,

Arctic Slope filed suit on behalf of itself and related companies. The facts

underlying its insurance claim were undisputed. Arctic Slope now appeals from

the district court’s adverse summary judgment on coverage issues.

This court reviews the summary judgment interpreting an insurance

contract de novo. See Leonard, 499 F.3d at 428. In this diversity case, we apply

Louisiana’s principles of construction to the policy at hand. Louisiana courts

construe insurance policies like any other contract according to the parties’

intent as expressed in the words of the policy. LA. CIV. CODE art. 2045-2048. An

insurance policy must be “construed according to the entirety of its terms and

conditions as set forth in the policy, and as amplified, extended, or modified by

any rider, endorsement, or application attached to or made a part of the policy.”

LA. REV. STAT. § 22:881. The Louisiana Supreme Court recently emphasized the

importance of reasonableness in insurance policy interpretation:

An insurance policy should not be interpreted in an unreasonable or

a strained manner so as to enlarge or restrict its provisions beyond

what is reasonably contemplated by its terms or so as to achieve an

absurd conclusion. . . .

If after applying the other general rules of construction an

ambiguity remains, the ambiguous contractual provision is to be

construed against the insurer and in favor of coverage. Under this

rule of strict construction, equivocal provisions seeking to narrow an

insurer’s obligation are strictly construed against the insurer. That
No. 08-30050

Flood means any surface water; tidal or seismic sea wave; rising (including 1

overflowing or breaking of boundaries) of any body of water; including but not limited to

reservoirs, lakes, streams, rivers, ponds and harbors all whether driven by wind or not, and

including spray from any of the foregoing that results from, contributes to, or is aggravated

by any of the above. Flood also includes physical loss or damage from water which backs up

through sewers or drains that are below ground level as a result of flood.

1. Flood Exclusion

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Coverage as provided by Section C., Additional Coverage, Item 2. Flood:

is excluded at any location situated in:

1. Any flood zone or area designated by the Federal Emergency

Management Agency (FEMA) as subject to a flood frequency up to and

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strict construction principle, however, is subject to exceptions. One

of these exceptions is that the strict construction rule applies only

if the ambiguous policy provision is susceptible to two or more

reasonable interpretations. For the rule of strict construction to

apply, the insurance policy must be not only susceptible to two or

more interpretations, but each of the alternative interpretations

must be reasonable.

Sher v. Lafayette Insurance Company, 988 So.2d 186, 193 (La. 2008) (citations

omitted).

Arctic Slope contends that Omega’s storm surge damage was expressly

covered by the wind/hail provision of the Affiliated policy or alternatively that

the policy is ambiguous and must be construed in its favor. A systematic review

of the applicable policy provisions is therefore necessary.

The Affiliated policy covers facilities owned by Arctic Slope and its

subsidiaries throughout the United States for “all risks of direct physical loss or

damage to insured property except as defined and limited herein.” The policy

goes on to cover losses from both “flood” and “wind and hail,” subject to specific

sub-limits, restrictions and exclusions.

Notably, Arctic Slope concedes that while the policy definition of “flood”1

encompasses storm surge damage, the policy excludes flood coverage, at a

minimum, in low-lying flood-prone areas like Omega’s location. Apart from the 2
No. 08-30050

including the 100 year frequency, or

2. Any flood zone or area for which FEMA has not yet determined the flood

hazard frequency or has not yet classified or designated as being in or

out of a flood zone, or any area outside the United States.

The peril of flood is covered in an area protected by dams, levees, dikes,

or walls which:

a. Protect such areas from at least the level of the 100 year flood,

and have no such openings or flood gates, and

b. Were built by and are either maintained or inspected by the

United States (U.S.) Army Corps of Engineers.

Affiliated FM will not undertake any duty to advise the insured on

whether any locations are in an area excluded from coverage under the

Flood Endorsement. The Insured has the responsibility to determine

whether its locations are in an excluded area.

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defined time period and locations in which flood damage is covered, the policy

specifically excludes loss or damage caused by “[f]lood, [s]eepage or [i]nflux of

water from natural underground sources below the surface of the ground . . .”

See Group I Exclusions.

Wind/hail coverage is afforded by Form S2 accompanying the policy, a list

of Wind and Hail Prone Areas that includes Iberia Parish, Louisiana, among

counties of nine states, Puerto Rico and the Virgin Islands. Reimbursement for

wind/hail damage is subject to a special sub-limit and deductible. The policy

definition of “wind and/or hail” is rather broad:

Wind and/or hail means direct and/or indirect action of wind

and/or hail and all loss or damage resulting therefrom whether

caused by wind, by hail or by any other peril other than fire or

explosion including but not limited to, loss or damage caused when

water, in any state, rain, sleet, snow, sand, dust or any other

substance, material, object or thing is carried, blown, driven, or

otherwise transported by wind onto or into said location.

One more critical policy feature is relevant. Prefacing the Group I

Exclusions (including the flood exclusion noted above) is the following anti-
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concurrent cause (“ACC”) clause, tailored as a Louisiana mandatory

endorsement:

Group I. This policy does not insure against loss or damage caused

directly or indirectly or resulting from any of the following. Loss or

damage is excluded regardless of any other cause or event whether

or not insured under this policy that contributes concurrently or in

any sequence to the loss or damage.

Arctic Slope maintains that Omega’s damage falls squarely within the

plain language of the wind/hail provision because the storm surge consisted of

water driven by wind onto or into Omega’s property. See Leonard, 499 F.3d at

437, n.15 (defining a storm surge as “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.”). Based on this

premise, the company posits two levels of ambiguity in the policy. First, the

policy is allegedly ambiguous because it excludes coverage for the storm surge

damage within the flood definition while authorizing coverage for the same

damage in the wind/hail provision. The district court rejected Arctic Slope’s

proffered interpretation of the wind/hail provision as unreasonable in light of the

entire policy. We need not opine on that conclusion, however, because even if a

hurricane storm surge falls within the definitions of both an excluded peril (flood

at Omega’s site) and a covered peril (wind/hail), the policy is not ambiguous.

The policy explicitly states that it covers all risks of direct physical loss or

damage “except as excluded under this policy.” Section A, Perils Insured. There

is no ambiguity when the policy is read as a whole. The exclusion of storm surge

as a flood event cannot be reversed by its possible inclusion as a wind/hail event.

Second, Arctic Slope considers the ACC clause ambiguous because there

is only one cause of damage–storm surge–not separate causes defined as

separate perils in the policy; and because the flood exclusion is awkwardly
No. 08-30050

 Restating in full the flood exclusion within Group I of Excluded Perils, the provision 3

states:

8. Flood, Seepage or Influx of Water from Natural Underground Sources

below the surface of the ground. Except as provided in Section C.,

Additional Coverage, Item 2. Flood. . . .

 Unlike in Leonard, the damage here was all allegedly caused by storm surge. Arctic 4

Slope did not assert damages attributable separately and independently either to wind or

flooding.

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articulated within that clause. Neither of these arguments withstands analysis. 3

Notwithstanding Arctic Slope’s creative efforts to manufacture ambiguity, the

ACC clause is unequivocal and unyielding. It excludes insurance against loss

or damage caused by or resulting from any of the listed causes, including flood

(as defined by the policy). It then repeats that loss or damage is excluded

“regardless of any other cause or event whether or not insured under this policy

that contributes concurrently or in any sequence to the loss or damage.” The

storm surge flood occasioned by Hurricane Rita “whether driven by wind or not”

is not covered by this policy. Consequently, the ACC clause precludes coverage

of the loss or damage under the wind/hail provision as water “carried, blown,

driven or otherwise transported by wind onto or into said location.” In this 4

situation, the ACC clause operates exactly as it was intended, and it is not

ambiguous. The clause eliminates application of an efficient proximate cause

rule, whereby a jury could be called upon to determine the relative contribution

of the covered and the excluded perils, by excluding coverage altogether.

The interpretation of the ACC in Affiliated’s policy is therefore essentially

similar to our interpretation of an ACC clause in Leonard. This court concluded

that the policy’s plain language left “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, 499 F.3d at 430 (internal

quotation omitted). Leonard further explained that damage caused by wind
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“concurrently or in any sequence” with water is exemplified by “the storm-surge

flooding that follows on the heels of a hurricane’s landfall.” Id. Hence, “if wind

and water synergistically caused the same damage, such damage is excluded.”

Id. (emphasis in original). The fact that the wind/hail provision in this case is

written more broadly than the wind-only provision in Leonard does not, in our

view, render the ACC clause ambiguous.

We also reject Arctic Slope’s contention that the description of a flood peril

excluded by the ACC clause is itself ambiguous. It is simply a microcosm of the

general scope of policy coverage, that is, certain perils are covered as defined and

limited in the policy and subject to the policy’s express exclusions. Hence, flood

loss, as supplementally defined to include seepage or influx of water from below

ground, remains excluded under the ACC clause, although it is covered, subject

to other qualifications, as defined by Part C, Additional Coverage, Section 2.

There is no ambiguity; instead, coverage has been carefully apportioned under

the policy to certain flood losses.

CONCLUSION

For the foregoing reasons, Omega’s loss from Hurricane Rita’s storm surge

is not covered by Affiliated’s policy, either as a matter of express policy

interpretation or by inference drawn from ambiguity. The judgment of the

district court is AFFIRMED.