United States Court of Appeals

for the Fifth Circuit

No. 20-30140

consolidated with

No. 20-30175

McDonnel Group, L.L.C.,

Plaintiff—Appellant,

Jung, L.L.C., 

Intervenor Plaintiff—Appellant,

versus

Starr Surplus Lines Insurance Company; 

Lexington Insurance Company, 

Defendants—Appellees,

______________________________

All Star Electric Incorporated, 

Plaintiff—Appellant,

versus

Starr Surplus Lines Insurance Company; 

Lexington Insurance Company, 

Defendants—Appellees,

United States Court of Appeals

Fifth Circuit

FILED

September 24, 2021

Lyle W. Cayce

Clerk

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______________________________

Jung, L.L.C.,

Plaintiff—Appellant,

versus

Starr Surplus Lines Insurance Company; 

Lexington Insurance Company, 

Defendants—Appellees,

______________________________

Mechanical Construction Company, L.L.C., 

now known as Bernhard MCC, L.L.C.,

Plaintiff—Appellant,

versus

Starr Surplus Lines Insurance Company; 

Lexington Insurance Company, 

Defendants—Appellees.

Appeals from the United States District Court 

for the Eastern District of Louisiana

No. 2:18-CV-1380

No. 2:19-CV-10462

No. 2:19-CV-2227

No. 2:19-CV-2230

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Before Smith, Clement, and Oldham, Circuit Judges.

Jerry E. Smith, Circuit Judge:

The McDonnel Group (“McDonnel”) served as the general contractor for the renovation of the Jung Hotel and Residences (“Jung”). McDonnel purchased insurance from the insurer defendants. During the renovation, 

the project flooded, resulting in over three million dollars in damage. The

insurers denied the claim, contending that the full amount fell below the flood 

deductible.

McDonnel, its subcontractors, and Jung (together “plaintiffs”) interpret the deductible differently, contending that most of the damage was covered, and sued for declaratory relief and bad-faith damages. The district 

court granted partial summary judgment for the defendants, determining that 

the policy is unambiguous and adopting the defendants’ interpretation. The 

plaintiffs appeal. Because the policy is ambiguous, we reverse the summary 

judgment and remand.

I.

Beginning in 2014, McDonnel served as the general contractor for the 

renovation and redevelopment of Jung’s property (“the project”).1

 In early 

2015, McDonnel took out insurance from Starr Surplus Lines Company and 

Lexington Insurance Company (jointly, the “insurers”). 

During the spring and summer of 2017, the project suffered a number

of water intrusions, culminating in a heavy rain that caused extensive damage. 

McDonnel submitted a notice of loss to the insurers, claiming damages of 

1 The other plaintiffs—Mechanical Construction Co., L.L.C., and All Star Electric, 

Inc.—were subcontractors for McDonnel.

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$3,226,164.30.

The parties’ divergent views on the proper deductible give rise to the

dispute. The plaintiffs assert that the correct flood deductible is $500,000 

and that the insurers should therefore pay a claim of $2,726,164.30—the 

flood damage less $500,000. The insurers contend that the proper deductible is $3,443,475. Thus, the claim, in their view, fell $217,310.70 below the 

deductible, entitling the plaintiffs to nothing under the policy.

McDonnel sued in February 2018. The plaintiffs moved for partial 

summary judgment, requesting that the district court adopt their interpretation of the flood deductible amount, and the insurers filed an opposition and 

a cross-motion for summary judgment. On February 11, 2020, the court 

granted the insurers’ cross-motion and denied the plaintiffs’ motions. The 

court determined that the policy language was “clear and unambiguous” 

regarding the flood deductible and adopted the insurers’ interpretation.

The plaintiffs moved for certification of interlocutory appeal under 

28 U.S.C. § 1292(b), an entry of final judgment under Federal Rule of Civil 

Procedure 54(b), and a motion to continue trial. The district court granted 

the motion, giving rise to this appeal.

II.

A.

We review a summary judgment de novo. See, e.g., Bayou Steel Corp. v. 

Nat’l Union Fire Ins. Co. of Pittsburgh, 642 F.3d 506, 509 (5th Cir. 2011). 

Moreover, “[b]ecause the proper interpretation of an insurance policy presents a legal question, not a factual one, the district court’s interpretations of 

the [p]olicy are also reviewed de novo.” Naquin v. Elevating Boats, L.L.C., 

817 F.3d 235, 238 (5th Cir. 2016).

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B.

The parties agree that the policy is governed by Louisiana law. Therefore, we look to the decisions of the Supreme Court of Louisiana, and, in the 

absence of on-point caselaw, “must make an Erie guess.” Six Flags, Inc. v. 

Westchester Surplus Lines Ins. Co., 565 F.3d 948, 954 (5th Cir. 2009).

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

parties and should be construed by using the general rules of interpretation 

of contracts set forth in the Louisiana Civil Code.” Cadwallader v. Allstate 

Ins. Co., 848 So. 2d 577, 580 (La. 2003). The insured party bears the burden 

“to prove the incident falls within the policy’s terms.” Doerr v. Mobil Oil 

Corp., 774 So. 2d 119, 124 (La. 2000).

Words in a contract are normally interpreted according to their “generally prevailing meaning,” but “[w]ords of art and technical terms” are 

given their “technical meaning when the contract involves a technical matter.” La. Civ. Code art. 2047 (2021); see also Cadwallader, 848 So. 2d 

at 580 (stating that article 2047 applies to insurance policies). “An insurance 

policy . . . should not be interpreted in an unreasonable or strained manner so 

as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion.” Whitehead v. 

Curole, 277 So. 3d 409, 414 (La. Ct. App. 2019).

Where a policy is ambiguous, it is “generally construed against the 

insurer and in favor of coverage.” Cadwallader, 848 So. 2d at 580 (citing La. 

Civ. Code art. 2056 (2021)).2 A policy provision is ambiguous only if it “is 

2 See also Pioneer Expl., L.L.C. v. Steadfast Ins. Co., 767 F.3d 503, 512–13 (5th Cir. 

2014) (“If the insurance contract terms are ambiguous, these ambiguities are generally 

strictly construed against the insurer and in favor of coverage.”); La. Ins. Guar. Ass’n v. 

Interstate Fire & Cas. Co., 630 So. 2d 759, 764 (La. 1994) (“If after applying the other general rules of construction an ambiguity remains, the ambiguous contractual provision is to 

be construed against the drafter, or, as originating in the insurance context, in favor of the 

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susceptible to two or more reasonable interpretations.” Id. Courts may not 

“authorize a perversion of the words or the exercise of inventive powers to 

create an ambiguity where none exists . . . when the terms express with 

sufficient clearness the parties’ intent.” Whitehead, 277 So. 3d at 414–15.

Where “a contract can be construed from the four corners of the 

instrument without looking to extrinsic evidence, the question of contractual 

interpretation is answered as a matter of law.” Sims v. Mulhearn Funeral 

Home, Inc., 956 So. 2d 583, 590 (La. 2007). Where there is an ambiguity in 

the policy, however, “the court may look to extrinsic evidence to determine 

the parties’ intent.” Doerr, 774 So. 2d at 124. “Each provision . . . must be 

interpreted in light of the other provisions so that each is given the meaning 

suggested by the contract as a whole.” La. Civ. Code art. 2050 (2021).

III.

The sole issue is whether the flood deductible is ambiguous.3

 It is.

A.

The insurance policy originally valued the project and insured it for

$76,086,833. That amount was increased, via multiple endorsements, to 

$86,086,833. The deductibles, sub-limits, and term aggregate limits, however, remained unchanged from the original policy. As relevant here, the 

policy included a term aggregate limit of liability, confining the amount that 

insured.”).

3 McDonnel presents the issues differently, breaking out essentially the same question into three issues: whether the district court erred by concluding that the flood deductible was clear and unambiguous; whether the court erred in failing to find that the deductible was unambiguous in favor of McDonnel and Jung’s interpretation; and whether the 

court erred by failing to find that the deductible was ambiguous. But those questions boil 

down to a core issue—whether the district court’s determination that the flood deductible 

was unambiguous was correct under Louisiana law.

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the insured parties could claim from flood damage to $10,000,000.4 The 

policy also included a deductible for flood damage of “5% of the total insured 

values at risk at the time and place of loss subject to a $500,000 minimum

deduction as respects as respects [sic] FLOOD*.”

B.

The correct deductible amount, and thus the millions of dollars at 

stake, hinge on the correct interpretation of “5% of the total insured values at 

risk.” McDonnel contends that, because of the flood sub-limit, “the maximum amount that an insured . . . could ever recover for a claim arising from 

flood damage is $10 million.” Thus, “the total amount insured”—the “total 

insured values at risk”—for flood damage was limited to $10,000,000. 

Under the plaintiffs’ interpretation,5 therefore, the deductible is $500,000.6

The insurers, to the contrary, assert that the deductible is much 

higher. In their view, the term “total insured values” refers to the value of 

the entire project: $68,869,506.7

 Because the deductible for the flood sublimit is 5% of the total insured value, the deductible is $3,443,475.8

The difference in interpretations reduces, in large part, to the interpretation of a key sentence of the flood deductible. Essentially, the plaintiffs 

read the deductible as saying “5% of the total insured values at risk . . . as 

4 The policy states that “[T]he maximum amount this Company will pay for loss 

or damage . . . in any one policy term shall not exceed the following amounts for loss caused 

by the following perils . . . $10,000,000 by the peril of FLOOD* – Term Aggregate.”

5 Jung makes a similar argument regarding the correct deductible.

6 $500,000 is both 5% of $10,000,000 and the minimum deductible per the policy.

7 The insurers calculate that amount because the entire project value was 

$86,086,883, and the project was 80% complete at the time of the flood. So 80% of 

$86,086,883 is $68,869,506.

8 So 5% of $68,860,506 is $3,443,475.

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respects FLOOD,” and the insurers read the provision as “5% of the total 

insured values at risk at the time and place of loss,subject to a $500,000 minimum deduction . . . as respects FLOOD.” In other words, under the 

plaintiffs’ theory, “as respects FLOOD” modifies “total insured values at 

risk.” Under the insurers’ theory, “as respects FLOOD” pertains only to 

the “$500,000 minimum deduction.” Both parties’ interpretations are reasonable, so the policy is ambiguous. See Cadwallader, 848 So. 2d at 580.

C.

The plaintiffs rely heavily on Terra-Adi International Dadeland, LLC 

v. Zurich American Insurance Co., No. 06-22380-CIV-HUCK/SIMONTON, 

2007 WL 675971 (S.D. Fla. Mar. 1, 2007). In Terra-Adi, the district court 

interpretated a policy provision similar to the one here. It included a sublimit of $10,000,000 for damage from windstorms and stated the following 

deductible: “5% of the total insured values at risk at the time and place of loss 

subject to a minimum deduction of $250,000, as respects the peril of 

WINDSTORM.” Id. at *3.

The court in Terra-Adi determined that the insured’s interpretation 

of the policy was reasonable: Because the $10,000,000 sub-limit was the 

maximum total insured value at risk for windstorms, the correct deductible 

calculation was 5% of $10,000,000 instead of the insured value of the entire 

project. See id. The court observed that the insurer’s contention that the 

term “total insured values at risk” referred to “the aggregate value of physical property insured under the [policy]—not merely the value of the property 

insured against the peril of windstorm”—was a “different, but also reasonable” interpretation. Id. at *4. Florida law, like Louisiana law, commands that 

where “more than one interpretation of a policy provision is possible, [the 

court] must resolve the ambiguity against the insurer who drafted the language of the insurance contract.” Id. at *2 (citing Allstate Ins. Co. v. Swain, 

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921 So. 2d 717, 719 (Fla. Dist. Ct. App. 2006)). Thus, the court granted 

summary judgment to the insured party. See id. at *5. Interpreting a nearly 

identical deductible, we determine that the language is ambiguous here too. 

The insurers do not contest that Terra-Adi is directly on point and 

supports the plaintiffs’ interpretation. Instead, the insurers minimize the 

import of that ruling, characterizing it as “an unreported opinion from the 

Southern District of Florida handed down over thirteen years ago” and correctly noting that it is not binding. Moreover, the insurers contend that 

Terra-Adi is an outlier even within its own jurisdiction, pointing to El-Ad 

Enclave at Miramar Condominium Association Inc. v. Mt. Hawley Insurance Co., 

752 F. Supp. 2d 1282 (S.D. Fla. 2010). But that case involved policy language

different from the policy here.9 Indeed, another opinion highlighted the difference between the policy language in Terra-Adi and in El-Ad, observing, 

“Terra-ADI did not involve the same language at issue . . . in El-Ad.” Arbor 

Keys Condo. Ass’n, Inc. v. Mt. Hawley Ins. Co., No. 10-62008-CIVSEITZ/SIMONTON, 2011 WL 13097298, at *8 n.7 (S.D. Fla. Oct. 6, 2011).

The insurers also point to Castle Oil Corp. v. Ace American Insurance 

Co., 137 A.D.3d 833 (N.Y. App. Div. 2016). In that case, the court also determined whether to calculate a policy deductible as a percentage of a sub-limit

or, instead, of a broader, aggregate amount at risk. See id. at 834–37. The 

policy “provided that ‘2% of the total insurable values at risk per location 

subject to a minimum of $250,000’ would be deducted from each adjusted 

claim arising out of a flood ‘occurrence.’” Id. at 834. The court concluded 

that the deductible should not be calculated based on 2% of the relevant sublimit because “the average insured could have only one reasonable expec9 In El-Ad Enclave, 752 F. Supp. 2d at 1288, the relevant policy provision stated 

that “the ‘peril deductible’ is $10,000 per occurrence for all ‘covered perils,’ except 

‘3.00% of total values at risk Per Building . . . at the time of loss for Winstorm [sic] or Hail.”

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tation as to the meaning of the phrase ‘total insurable values at risk,’ namely, 

its own risk of loss and damage.” Id. at 837. The insurers urge the same 

interpretation and outcome here.

McDonnel, on the other hand, emphasizes that the policy language in 

Castle Oil used the term “total insurable values at risk,” but the policies in 

Terra-Adi and here used the term “total insured values at risk.” McDonnel 

correctly points out that this court has acknowledged that those terms may 

have different meanings. See Saratoga Res., Inc. v. Lexington Ins. Co., 

642 F. App’x 359, 362 (5th Cir. 2016) (per curiam).10 The plain meaning of 

the terms also suggests a difference—“insurable values” is the total value 

that the insurance could have insured, and “insured values” is the total value 

for which the insured actually purchased coverage.11 Moreover, unlike the 

policy here, the policy in Castle Oil did not include a modifier comparable to 

“as respects flood.” Thus, McDonnel is correct that the present policy is 

meaningfully different from the policy in Castle Oil.

12

10 Saratoga Resources suggests, 642 F. App’x at 362, that there may be a difference 

between “total insurable values” and “total insured values.” The court noted that the 

insured asked the court to interpret the terms “insurable” and “insured” as having the 

same meaning. Id. The court “[p]ut[] aside” the question of whether the terms had the 

same meaning, leaving open the possibility that they are meaningfully different. See id.

11 Cf. Castle Oil, 137 A.D.3d at 836–37. “[I]n deciding how much coverage to seek, 

a primary concern of the average insured is the value of what is at risk . . . . How much 

insurance the average insured chooses to obtain is not the same as the ‘total insurable values at 

risk.” Id. (emphasis added).

12 The insurers also cite Beverly Hills Condominium 1-12, Inc. v. Aspen Specialty 

Insurance Co., No. 06-60980-CIV, 2007 WL 1183939 (S.D. Fla. Feb. 1, 2007). The policy 

in that case is distinguishable for the same reasons as is the policy in Castle Oil, using the 

term “total insurable values.” Id. at *2. Moreover, the policy in Beverly Hills Condominium

explicitly defined the term “insurable values at risk” to include all the property at risk 

instead of individual units. Id. at *4. The policy here omits such a definition.

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D.

“An insurance contract is to be construed as a whole and each provision in the contract must be interpreted in light of the other provisions.” 

Sims, 956 So. 2d at 589. The rest of the policy sheds little light on the deductible in question. Outside of the deductibles provision, the term “total 

insured value” appears only twice. Both times, it refers to the value of the 

project. That lends some credence to the insurers’ interpretation of the 

deductible, although the fact that the “as respects flood” modifier is absent 

in the other uses of the term still leaves the meaning unclear.

Furthermore, the term “total insured values” is not included in the 

definitions section of the policy. Instead, that section includes a definition 

for the “Total Contract Value”—the “total value of all property insured . . . 

which will become part of or will be expended in the project.” That term, in 

contrast to “total insured values,” appears frequently throughout the policy. 

The predominant use of “Total Contract Value” to denote the value of the 

entire project indicates that the policy, read in its entirety, does not provide 

clarity regarding the term “total insured values at risk . . . as respects flood.”

E.

Both the plaintiffs and the insurers contend that, unless the deductible 

is read according to their respective interpretation, absurd results would 

ensue. Under Louisiana law, “an insurance policy . . . should not be interpreted in an unreasonable or strained manner . . . so as to achieve an absurd 

conclusion.” Whitehead, 277 So. 3d at 414.13

McDonnel asserts that the insurers’ interpretation would lead to 

13 See also Six Flags, 565 F.3d at 954. Under Louisiana law, where “the words of a 

contract are clear and explicit and lead to no absurd consequences, no further interpretation 

may be made in search of the parties’ intent.” Id. (quoting La. Civ. Code Ann.

art. 2046) (emphasis added).

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absurd results because, although the flood sub-limit was fixed at 

$10,000,000, the total project coverage amount increased 8%, causing the 

flood deductible to increase while the amount covered for floods remained 

static. McDonnel points out that, theoretically, it would be possible for the 

flood deductible to exceed the sub-limit.

14 That result does seem at least 

inequitable, if not absurd.15 

The insurers, on the other hand, point out that under the plaintiffs’ 

interpretation, $500,000 is both the minimum and the maximum deductible 

for flood damage. The insurers aver that that result is problematic because 

the policy states that $500,000 is the minimum deductible. But, because 5% 

of the $10,000,000 sub-limit is also $500,000, that amount is both the minimum and maximum deductible under the plaintiffs’ theory.

The insurers’ contention that the deductible is absurd would be 

stronger if the sub-limit were less than $10,000,000 with the plaintiffs contending that the minimum deductible was higher than any theoretical maximum. But setting $500,000 as both the minimum and the maximum deductible is not absurd—it merely means that $500,000 is the deductible. 

Moreover, McDonnel points out that, early in the project, there may have 

been less than $10,000,000 in covered property. Thus, it is likely that 5% of 

the total insured values would have been less than the $500,000 minimum 

for some duration of the project. 

14 That eclipse would occur if the total project coverage reached $200,000,000 

because 5% of $200,000,000 is $10,000,000, the amount of the sub-limit.

15 Cf. Penthouse Owners Ass’n v. Certain Underwriters at Lloyds, London, 612 F.3d 

383, 387 (5th Cir. 2010) (“The purpose of a deductible is to shift some of the insurer’s risk 

(that is, covered risk), to the insured, which is accomplished by setting a limit on the value 

of covered losses below which the insurer is not obligated to pay.” (emphases added)).

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IV.

The parties introduce extrinsic evidence to support their respective 

policy interpretations.

A.

Extrinsic evidence is admissible to resolve a contractual ambiguity 

under Louisiana law. See Bd. of Supervisors of La. State Univ. v. 2226 Canal 

St., L.L.C., 262 So. 3d 909, 914. (La. Ct. App. 2018). McDonnel points to 

correspondence from its insurance broker informing it “that the deductible 

for flood would be $500,000.00.” Jung points to similar correspondence 

from the broker, both before and after the parties contracted. The insurers, 

on the other hand, introduce three pieces of extrinsic evidence, including 

“Binders” that were issued before the final policy was signed.16

The district court determined that the policy was unambiguous and 

did not analyze any extrinsic evidence in interpreting the policy. Thus, 

because we conclude that the policy was ambiguous, we remand for the district court to determine whether extrinsic evidence resolves the ambiguity. 

See, e.g., Six Flags, 565 F.3d at 961 n.16.

B.

On remand, the district court should also determine whether the presumption in favor of coverage in the case of an ambiguity applies here. That 

presumption is not automatic, and “under Louisiana law, the presumption 

[in favor of the insured] does not apply where the insured is a sophisticated 

commercial entity that itself drafts or utilizes its agents to secure desired 

16 The timing of the extrinsic evidence could be significant: “Parol evidence should 

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

not after the fact.” Stewart Enters. v. RSUI Indem. Co., 614 F.3d 117, 124 (5th Cir. 2010) 

(per curiam).

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policy provisions.” Id. at 958.17 It is uncertain from the briefing whether the 

plaintiffs fall into that exception to the presumption, and we indicate no view 

on whether their level of sophistication or any involvement in negotiating the 

policy satisfies the exception.

The policy is ambiguous. The summary judgment is REVERSED

and REMANDED. We set no limits on what proceedings the district 

court should conduct on remand, and we do not mean to intimate what decisions it should reach.

17 See also Certain Underwriters at Lloyds London v. Perraud, 623 F. App’x 628, 631 

(5th Cir. 2015) (noting that most courts, including courts interpreting Louisiana law, take 

a “middle ground, deeming the exception [to the presumption in favor of the insured] 

triggered where the insured—or a broker acting on the insured’s behalf—actually negotiates, drafts, or proposes portions of the policy.”).

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