### IN THE UNI TED STAT ES COURT OF APPEALS

FOR THE FIF TH CIRCU IT

N o

. 0 9

- 3 0 7 2 2

S T E W A R T E N T E R P R I S E S

, I N C

. ; S

. E

. C E M E T E R I E S O F L O U I S I A N A

, I N C

. ; S

. E

. F U N E R A L H O M E S O F L O U I S I A N A

, I N C

. ; S

. E

. S O U T H

- C E N T R A L

, I N C

. ; L A K E L A W N P A R K

, I N C

. ; L A K E L A W N

M E T A I R I E F U N E R A L H O M E

, i n d i v i d u a l l y a n d a s a j o i n t v e n t u r e b e t w e e n

S t e w a r t E n t e r p r i s e s

, I n c

. , a n d S

. E

. F u n e r a l H o m e s o f L o u i s i a n a

, I n c

. ;

S T E W A R T R E S O U R C E C E N T E R

, I N C

. ; S T E W A R T S E R V I C E S

, I N C

. ;

A C M E M A U S O L E U M C O R P

. ,

P l a i n t i f f s

- A p p e l l a n t s C r o s s

- A p p e l l e e s

v

.

R S U I I N D E M N I T Y C O M P A N Y

, I N C

. ,

D e f e n d a n t

- A p p e l l e e C r o s s

- A p p e l l a n t

A p p e a l s f

r o m t h e U n i t e d S t a t e s D i s t r i c t C o u r t

f o r t h e E a s t e r n D i s t r i c t o f L o u i s i a n a

B e f o r e H I G G I N B O T H A M

, D A V I S

, a n d B E N A V I D E S

, C i r c u i t J u d g e s

.

P E R C U R I A M :

T h i s a p p e a l p r e s e n t s a f a m i l i a r d i s p u t e i n t h e a f t e r m a t h o f H u r r i c a n e

K a t r i n a

. S t e w a r t E n t e r p r i s e s

, o w n e r o f c e m e t e r i e s

, f u n e r a l h o m e s a n d o t h e r

c o m m e r c i a l p r o p e r t i e s t h r o u g h o u t N e w O r l e a n s

, b r o u g h t t h i s a c t i o n a g a i n s t i t s

e x c e s s i n s u r e r

, R S U I

, t o r e c o v e r f o r w i n d a n d f

l o o d d a m a g e s u s t a i n e d d u r i n g t h e

s t o r m

. T h e p a r t i e s d i s p u t e w h e t h e r R S U I ’ s e x c e s s l i a b i l i t y p o l i c y c o v e r s d a m a g e U n i te d S ta te s C o u rt o f A p p ea l s

F i ft h C i rc u i t



### F I L E D

August 4, 2 010

Lyle W . Cayce

Clerk Case: 09-30722 Document: 00511194120 Page: 1 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

c a u s e d b y f

l o o d

, a n d i f s o

, u n d e r w h a t c o n d i t i o n s

. T h e d i s t r i c t c o u r t f o u n d t h e

p o l i c y c o v e r e d f

l o o d

, b u t t h a t t h e c o v e r a g e w a s l i m i t e d b y t h e p o l i c y ’ s a n t i

c o n c u r r e n t c a u s a t i o n c l a u s e

. N e i t h e r p a r t y s a t i s f i e d

, b o t h a p p e a l e d

. W e f i n d i n

f a v o r o f c o v e r a g e a n d r e m a n d f o r f u r t h e r p r o c e e d i n g s

.

I

P r i o r t o K a t r i n a

, S t e w a r t i n s u r e d i t s p r o p e r t i e s a n d b u s i n e s s e s w i t h t h r e e

l a y e r s o f i n s u r a n c e

. T h e p r i m a r y l a y e r

, i s s u e d b y L e x i n g t o n I n s u r a n c e

C o m p a n y

, p r o v i d e d a l l r i s k c o v e r a g e u p t o $ 1 0 m i l l i o n

, i n c l u d i n g $ 1 0 m i l l i o n i n

f l o o d c o v e r a g e

. T h e f i r s t e x c e s s l a y e r

, i s s u e d b y L l o y d ’ s

, L o n d o n

, p r o v i d e d $ 1 5

m i l l i o n o f a l l r i s k c o v e r a g e

, a l s o i n c l u d i n g $ 1 5 m i l l i o n i n f l o o d c o v e r a g e

, e x c e s s

t o t h e f i r s t $ 1 0 m i l l i o n p r o v i d e d b y L e x i n g t o n

. S t e w a r t ’ s s e c o n d e x c e s s l a y e r

,

i s s u e d b y R S U I

, p r o v i d e d a c o v e r a g e l i m i t o f $ 2 2 5 m i l l i o n

, e x c e s s t o t h e $ 2 5

m i l l i o n p r o v i d e d b y t h e f i r s t t w o l a y e r s

. B o t h t h e L l o y d ’ s a n d R S U I p o l i c y

c o n t a i n e d “ f

o l l o w i n g f

o r m ” c l a u s e s a d o p t i n g t h e t e r m s a n d c o n d i t i o n s o f t h e

L e x i n g t o n p r i m a r y p o l i c y

.

D u r i n g a n d d i r e c t l y a f t e r t h e s t o r m

, S t e w a r t ’ s p r o p e r t i e s s u f f e r e d h e a v y

d a m a g e f

r o m w i n d a n d f

l o o d

. A s w a s g e n e r a l l y t h e c a s e a f t e r K a t r i n a

, i t w a s n o t

e a s i l y d e t e r m i n a b l e w h a t p o r t i o n s o f t h e d a m a g e w e r e c a u s e d b y w i n d

, f l o o d

, o r

s o m e c o m b i n a t i o n o f t h e t w o

. T h i s d i f f i c u l t y h a s p r o v e n t o b e a s i g n i f i c a n t

r o a d b l o c k f

o r m a n y o f t h e v i c t i m s a t t e m p t i n g t o r e c o v e r c o m p e n s a t i o n f r o m t h e i r

i n s u r a n c e c a r r i e r s

, o f w h i c h S t e w a r t i s o n l y t h e l a t e s t

.

A f t e r K a t r i n a

, S t e w a r t s o u g h t t o r e c o v e r f r o m a l l t h r e e i n s u r e r s f o r

d a m a g e c a u s e d b y w i n d a n d f l o o d

. B o t h L e x i n g t o n a n d L l o y d ’ s p a i d t h e f u l l

b a l a n c e o f t h e i r p o l i c i e s

, b u t u n f o r t u n a t e l y

, R S U I a n d S t e w a r t h a v e b e e n u n a b l e

2 Case: 09-30722 Document: 00511194120 Page: 2 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

t o r e s o l v e S t e w a r t ’ s c l a i m s

. C e n t r a l t o t h e i r d i s p u t e i s w h e t h e r t h e R S U I p o l i c y

c o v e r s d a m a g e c a u s e d i n w h o l e o r i n p a r t b y f l o o d

. R S U I c o n t e n d s t h a t t h e

p o l i c y p l a i n l y e x c l u d e s l i a b i l i t y f o r a l l f l o o d d a m a g e a n d t h a t t o t h e e x t e n t t h e

p o l i c y c o v e r s a n y f

l o o d d a m a g e

, i t i s l i m i t e d b y t h e a n t i

- c o n c u r r e n t c a u s a t i o n

c l a u s e ( A C C c l a u s e ) t o d a m a g e c a u s e d e x c l u s i v e l y b y f l o o d a n d n o t i n c o n j u n c t i o n

w i t h a n o t h e r p e r i l

, s u c h a s w i n d

. S t e w a r t d i s a g r e e s

, c l a i m i n g t h e R S U I p o l i c y

a d o p t s t h e l i m i t s s e t f o r t h i n t h e L e x i n g t o n a n d L l o y d ’ s p o l i c i e s

, c o v e r i n g a n y o f

t h e $ 2 5 m i l l i o n i n f

l o o d c o v e r a g e u n p a i d b y L e x i n g t o n a n d L l o y d ’ s

, a n d t h a t t h e

A C C c l a u s e o n l y o p e r a t e s a b o v e t h a t $ 2 5 m i l l i o n l i m i t

.

B o t h p a r t i e s m o v e d f o r s u m m a r y j u d g m e n t b e f o r e t h e d i s t r i c t c o u r t a n d

t h e d i s t r i c t c o u r t d e n i e d b o t h m o t i o n s

. T h e d i s t r i c t c o u r t f i r s t f o u n d t h a t t h e

R S U I p o l i c y c o v e r e d u p t o $ 2 5 m i l l i o n i n f l o o d d a m a g e

, s u b j e c t t o r e d u c t i o n

b a s e d o n p a y m e n t s f

o r f l o o d d a m a g e b y e i t h e r L e x i n g t o n o r L l o y d ’ s

. T h e d i s t r i c t

c o u r t t h e n f

o u n d t h a t t h e A C C c l a u s e b a r r e d a n y r e c o v e r y f o r d a m a g e j o i n t l y

c a u s e d b y w i n d a n d f l o o d

, a l t h o u g h t h e p o l i c y p e r m i t t e d r e c o v e r y f o r d a m a g e

c a u s e d b y w i n d o r f

l o o d e x c l u s i v e l y ( u p t o t h e $ 2 5 m i l l i o n l i m i t f o r f l o o d d a m a g e )

.

A f t e r t h e d i s t r i c t c o u r t c e r t i f i e d t h e i s s u e s

, b o t h p a r t i e s f i l e d i n t e r l o c u t o r y

a p p e a l s

. W e r e v i e w d e n o v o

. 1

I I

B o t h p a r t i e s a g r e e t h a t L o u i s i a n a l a w g o v e r n s t h e i n t e r p r e t a t i o n o f t h e

p o l i c y

. “ U n d e r L o u i s i a n a l a w

, a n i n s u r a n c e p o l i c y i s a c o n t r a c t b e t w e e n t h e

2

p a r t i e s a n d s h o u l d b e i n t e r p r e t e d a c c o r d i n g t o t h e g e n e r a l r u l e s o f i n t e r p r e t a t i o n

Nune z v. A ll state Ins. Co.

, 604 F.3d 840

, 844 (5t h Cir

. 2010)

. 1

See In re Ka trina Ca nal Br ea che s Litiga tion

, 495 F.3d 191

, 206 (5t h Cir

. 2007)

. 2

3 Case: 09-30722 Document: 00511194120 Page: 3 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

o f c o n t r a c t s p r e s c r i b e d i n t h e L o u i s i a n a C i v i l C o d e

. ” I n i n t e r p r e t i n g t h e 3

i n s u r a n c e p o l i c y

, w h e n t h e w o r d s o f t h e p o l i c y a r e c l e a r

, a n d d o n o t l e a d t o

a b s u r d c o n s e q u e n c e s

, “ n o f u r t h e r i n t e r p r e t a t i o n m a y b e m a d e i n s e a r c h o f t h e

p a r t i e s ’ i n t e n t

. ” T h e p o l i c y ’ s p r o v i s i o n s “ m u s t b e i n t e r p r e t e d i n l i g h t o f t h e 4

o t h e r p r o v i s i o n s s o t h a t e a c h i s g i v e n t h e m e a n i n g s u g g e s t e d b y t h e c o n t r a c t a s

a w h o l e

. ” W h e r e p r o v i s i o n s a r e a m b i g u o u s

, t h e y a r e “ a r e g e n e r a l l y c o n s t r u e d

a g a i n s t t h e i n s u r e r a n d i n f a v o r o f c o v e r a g e ” a l t h o u g h “ a c o u r t m a y l o o k t o p a r o l 5

e v i d e n c e t o d e t e r m i n e t h e p a r t i e s ’ i n t e n t

. ” W e t u r n n o w t o t h e p o l i c i e s

. 6

A

.

R S U I c o n t e n d s t h e d i s t r i c t c o u r t e r r e d i n f i n d i n g t h e p o l i c y p r o v i d e s u p t o

$ 2 5 m i l l i o n i n f

l o o d d a m a g e a n d a r g u e s t h e p o l i c y o n l y p r o v i d e s c o v e r a g e f o r

d a m a g e f

r o m w i n d a n d o t h e r p e r i l s

. T h e R S U I p o l i c y i s a n e x c e s s l a y e r

i n s u r a n c e p o l i c y w i t h a “ f o l l o w i n g f

o r m ” p r o v i s i o n

. T h i s p r o v i s i o n s t a t e s t h a t t h e

R S U I p o l i c y i s “ s u b j e c t t o t h e s a m e w a r r a n t i e s

, t e r m s a n d c o n d i t i o n s

. . . a s a r e

c o n t a i n e d i n o r a s m a y b e a d d e d t o ” t h e p r i m a r y i n s u r a n c e p o l i c y

— h e r e t h e

L e x i n g t o n p o l i c y

. W e s t a r t f r o m t h e g r o u n d u p

, f i r s t e x a m i n i n g t h e t e r m s o f t h e

L e x i n g t o n p o l i c y a n d t h e n l o o k i n g t o t h e R S U I p o l i c y o v e r l a y

.

Nune z

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

La. Civ. Cod e a rt. 204 6. 4

Cadw al la der

, 848 So. 2d at 579 (c itin g La. Civ. Cod e a rt. 205 6). 5

Am eri ca n Ele c. Pow er Co. Inc. v Af fi li ated FM In s. Co.

, 556 F.3d 282, 286 (5t h Cir. 6

2009)

.

4 Case: 09-30722 Document: 00511194120 Page: 4 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

T h e L e x i n g t o n p o l i c y p r o v i d e s $ 1 0 m i l l i o n i n a l l r i s k c o v e r a g e s u b j e c t t o

s e v e r a l e x c l u s i o n s a n d s u b l i m i t s

. T h e p o l i c y i s r o u n d a b o u t i n i t s c o n s t r u c t i o n : 7

S e c t i o n s 2 a n d 9 s e t g e n e r a l c o v e r a g e a t $ 1 0 m i l l i o n p e r o c c u r r e n c e f o r a l l r i s k s

,

s u b j e c t t o t h e e x c l u s i o n s c o n t a i n e d i n s e c t i o n 1 0

. S e c t i o n 1 0 ( P ) ( 2 ) e x c l u d e s a l l

The r elevant p rovis ions of t he Lexingto n Po licy read in f ull: 7

MAN USCRIPT ALL RISK FO RM

. . . 2. LIMITS OF LIABILI TY

The com pany ins ures up t o a n d sha ll not be liable for mo re than $10, 000, 000

per oc cur renc e.

3. SUBLIM ITS O F LIABILITY

. . . J. $10, 000, 000 In aggregat e for any one pol icy year for the per il of

flo od.

. . . 9. PERILS INS URED AG AINST

This pol icy ins ures agains t all ris ks of di r e c t p h ysic al los s of or dam age to

pr ope rty des cri bed here in inc l udin g genera l average

, sal vage and all othe r

sim ilar charges on ship me nts cover ed hereund er, if any, excep t as her einaf ter

exclud ed.

10. PERILS EX CLUD ED

This pol icy doe s not ins ure agains t los s or dam age caus ed dir ect ly or indi rec tly

by any of the exclud ed per ils

. Such los s or dam age is exclud ed regar dle ss of any

othe r caus e or event that cont ribut e s conc urr entl y or in any se quenc e to the

los s:

. . . P. los s or dam age c aus ed by or r es ulti ng f rom :

. . . (2) Flood

, unles s sp ecif ied in Sec tio n 3, Subli mi ts of Liabili ty,

Paragr aph J., and t hen only for s uch sp ecif ied am ount ;

(3) any an d all los s fr om any othe r caus e w hen occ urr ing

conc urr entl y or se quent ially wi th E a rt h q u a ke

, V ol ca n ic Erup tio n

or Flood

, excep t Fire;

. . .

5 Case: 09-30722 Document: 00511194120 Page: 5 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

“ l o s s o r d a m a g e c a u s e d b y o r r e s u l t i n g f r o m :

. . . F l o o d u n l e s s s p e c i f i e d i n S e c t i o n

3

, S u b l i m i t s o f L i a b i l i t y

, P a r a g r a p h J

. , a n d t h e n o n l y f o r s u c h s p e c i f

i e d a m o u n t

. ”

S e c t i o n 3 ( J ) p r o v i d e s a s u b l i m i t o f $ 1 0 m i l l i o n a g g r e g a t e f o r f l o o d p e r p o l i c y y e a r

.

T a k i n g t h e p r o v i s i o n s t o g e t h e r

, t h e p o l i c y p r o v i d e s f o r $ 1 0 m i l l i o n p e r o c c u r r e n c e

f o r a l l r i s k s

, e x c e p t i n t h e c a s e o f f l o o d

, w h e r e t h e p o l i c y o n l y p r o v i d e s $ 1 0

m i l l i o n a g g r e g a t e p e r y e a r

.

6 Case: 09-30722 Document: 00511194120 Page: 6 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

T h e R S U I p o l i c y p r o v i d e s c o v e r a g e e x c e s s t o t h e L e x i n g t o n p o l i c y

. T h e 8

The RS UI p olic y re ads in r elevant p art : 8

EXCESS PH YS ICAL D AMAG E FO RM

. . . 2. APPLICATION OF UN DERLY ING PRO VISION S:

In re sp ect of

t he per ils he reby ins ured agai nst t his Pol icy is sub ject t o the sam e w arr antie s,

ter ms and cond itio ns (exc ept as regar ds the pr em ium

, the amo unt and lim its of Liabili ty othe r

than the ded uct ible or se lf- ins uranc e pr ovis ion wh ere app lica ble, and the rene wa l agree me nt,

if any, AND EXCEPT AS OTH ERWISE PROVID ED HEREIN) as are cont ained in or as may

be add ed to the Polic y(ies ) of the Prim ary Insur er( s) pr ior to the happ ening of a los s for wh ich

clai m is mad e here unde r and sho uld any alte rat ion be mad e in the pr em ium for the Polic y(ies )

of the Prim ary Insur er( s)

, then t he pr em ium he reo n m ay be ad just ed acc ord ingly.

3. LIMIT:

Provid ed alw ays that liabil ity att ache s to the ins urer (s ) only aft er the Prim ary and Und erlyi ng

Exces s Insur er( s) have paid or have adm itt ed liab ilit y for the full am ount of thei r res pec tive

liabil ity as se t for th in Item 8 of the Sche dule and des ignate d “Pri mar y and Und erlyi ng Exces s

Limi t( s) ” and then the lim its of the Insur er( s) Liabili ty sha ll be thos e se t for th in Item 8 of the

Sche dule unde r the des ignati on “Exces s Limi t( s) ” and the Insur er( s) sha ll be liable to pay up

to the full am ount of

s uch “Exces s Limi t( s) ”.

4. MAINTEN ANCE O F PRIMARY AN D UN DERLY ING PO LICY/IES AN D LIMITS:

It is a cond itio n pr ece dent to rec overy unde r this Polic y that the Polic y(ies ) and Limi t( s) of the

Prim ary and Under lying Exces s I nsur er( s) se t for th in Item 8 of the Sche dule be mai ntain ed

in full for ce and eff

ect

, excep t f

o r a n y red uct ion or exhaus tio n of any unde rlying aggregat e

Limi ts of Liabili ty cont ained ther ein, so lely by the amo unt of los s( es ) paid or adm itt ed dur ing

the pol icy year.

There is no rec overy unde r this exces s pol icy as res pec ts thos e cover ages wi th are sub lim ite d

wi thin the pr im ary and/ or unde rlying exces s po l i c y(ies ) to amo unt les s than the amo unt

indi cat ed in ite m 8 of the Sche dule

, how ever, the Insur er( s) to this exces s pol icy rec ognize that

t he pr im ary and unde rlying exces s pol icy lim its can be ero ded or exhaus ted

, w h o l l y o r

par tial ly, by ap pli cat ion of sai d sub lim its

.

In the event of suc h red uct ion of the aggregat e Limi ts of Liabili ty of the Prim ary an d

Und erlyi ng Exces s Insur ance ’s this Polic y sha ll pay exces s over the red uced aggregat es lim it.

In the even t of exhaus tio n of aggregat e Limi ts of Liabili ty of the Prim ary and Und erlyi ng

Exces s Insur ance s this Polic y, sub ject to all its pr ovis ions

, sha ll cont inue in for ce as Prim ary

7 Case: 09-30722 Document: 00511194120 Page: 7 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

p o l i c y c o n t a i n s i n s e c t i o n 2 a “ f o l l o w i n g f

o r m ” p r o v i s i o n w h i c h s t a t e s t h a t t h e

Insur ance in res pec t of the p e r i l f o r wh ich the aggregat e Limi t of Liabili ty has been so

exhaus ted and the ded uct ible or se lf- ins ured amo unt ap p l i c a b l e to that per il as se t for th in

Item 8 of the Sche dule

, sha ll app ly t o t his Pol icy.

. . .

THE SCH EDU LE

. . . 4. Peril s Insur ed: As def ined in the Prim ary pol icy iss ued by Lexingto n Insur ance

Co., p olic y num ber 8753559

.

. . . 8. (a) Pr im ary Limi t( s)

COVERAG E

LAYER TOTAL LIMIT O F

LIABILI TY FOR

PRIMARY

INSU RER INSU RER POLICY N O. LIMIT/

PARTICIPAT I

ON

I. $10, 000, 000 LEXING TON

INS. CO

. 8753559 $10, 000, 000

(100 %)

(b) U nder lying Exc es s Limi t( s) :

COVERAG E

LAYER TOTAL LIMIT O F

LIABILI TY FOR

PRIMARY

INSU RER INSU RER POLICY N O. LIMIT/

PARTICIPAT I

ON

II. $15, 000, 000

XS

$10, 000, 000 Und erw rit ers

@ Lloyds BO6 6422340 A0

4 $15, 000, 000

(100 %)

III. $225, 000, 000

XS

$25, 000, 000 RSUI

Indem nity Co. NH D3 38080 $225, 000, 000

(% 100)

9. Total Limi ts [inc ludi ng “Pri mar y” and “U nder lying Exces s” ] sub jec t t o a nnual

aggregat es [ per la yers and p art icip atio n’s as ou tlin ed in ite m 8 ab ove] :

$25, 000, 000 any o ne pol icy year in res pec t of the per il of Flood

$25, 000, 000 any o ne pol icy year in res pec t of the per il of Eart hquak e

8 Case: 09-30722 Document: 00511194120 Page: 8 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

p o l i c y “ i s s u b j e c t t o t h e s a m e w a r r a n t i e s

, t e r m s a n d c o n d i t i o n s ( e x c e p t a s

r e g a r d s t h e p r e m i u m

, t h e a m o u n t a n d l i m i t s o f L i a b i l i t y o t h e r t h a n t h e

d e d u c t i b l e o r s e l f

- i n s u r a n c e p r o v i s i o n w h e r e a p p l i c a b l e

, a n d t h e r e n e w a l

a g r e e m e n t

, i f a n y

, A N D E X C E P T A S O T H E R W I S E P R O V I D E D H E R E I N ) ” a s

t h e L e x i n g t o n p r i m a r y p o l i c y

. U n d e r s e c t i o n 3

, R S U I ’ s l i a b i l i t y i s o n l y t r i g g e r e d

o n c e L e x i n g t o n a n d L l o y d ’ s p a y t h e l i m i t s o f t h e i r p o l i c y a s s e t f o r t h i n I t e m 8 o f

t h e s c h e d u l e

.

T h e p o l i c y ’ s c o v e r a g e l i m i t s a r e s e t f o r t h i n t h e a t t a c h e d S c h e d u l e

. I t e m

4 s e t s f o r t h t h e p e r i l s i n s u r e d

, a g a i n b y r e f e r e n c e t o t h e L e x i n g t o n p o l i c y

,

s t a t i n g

, “ P e r i l s I n s u r e d : A s d e f i n e d i n t h e P r i m a r y p o l i c y i s s u e d b y L e x i n g t o n

I n s u r a n c e C o

. ” I t e m 8 s e t s f o r t h t h e p r i m a r y a n d u n d e r l y i n g g e n e r a l p o l i c y

l i m i t s

, $ 1 0 a n d $ 1 5 m i l l i o n r e s p e c t i v e l y

, w h i c h u n d e r s e c t i o n 3 o f t h e R S U I

p o l i c y m u s t b e p a i d b e f o r e t r i g g e r i n g R S U I ’ s l i a b i l i t y

. T h e o n l y m e n t i o n o f f l o o d

i n s u r a n c e c o m e s i n I t e m 9 : “ T o t a l L i m i t s [ i n c l u d i n g “ P r i m a r y ” a n d “ U n d e r l y i n g

E x c e s s ” ] s u b j e c t t o a n n u a l a g g r e g a t e s [ p e r l a y e r s a n d p a r t i c i p a t i o n ’ s a s o u t l i n e d

i n i t e m 8 a b o v e ] : $ 2 5

, 0 0 0

, 0 0 0 a n y o n e p o l i c y y e a r i n r e s p e c t o f t h e p e r i l o f F l o o d ;

$ 2 5

, 0 0 0

, 0 0 0 a n y o n e p o l i c y y e a r i n r e s p e c t o f t h e p e r i l o f E a r t h q u a k e

. ”

A d d i t i o n a l c o m p l i c a t i o n i s c r e a t e d b y t h e L l o y d ’ s p o l i c y

, w h i c h s i t s a s t h e

p r i m a r y e x c e s s i n s u r a n c e l a y e r b e t w e e n t h e L e x i n g t o n a n d R S U I p o l i c i e s

, a n d 9

The Llo yd’s p olic y re ads in r elevant p art : 9

EXCESS PH YS ICAL D AMAG E FO RM

. . . 2. APPLICATION OF UN DERLY ING PRO VISION S

In re sp ect of

t he per ils he reby ins ured agai nst t his Pol icy is sub ject t o the sam e w arr antie s,

ter ms and cond itio ns (exc ept as regar ds the pr em ium

, the amo unt and lim its of Liabili ty othe r

than the ded uct ible or se lf- ins uranc e pr ovis ion wh ere app lica ble, and the rene wa l agree me nt,

if any, AND EXCEPT AS OTH ERWISE PROVID ED HEREIN) as are cont ained in or as may

be add ed to the Polic y(ies ) of the Prim ary Insur er( s) pr ior to the happ ening of a los s for wh ich

9 Case: 09-30722 Document: 00511194120 Page: 9 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

c o n t a i n s a n i d e n t i c a l “ f o l l o w i n g f

o r m ” p r o v i s i o n k e y e d t o t h e L e x i n g t o n p r i m a r y

p o l i c y

. U n l i k e t h e R S U I p o l i c y

, t h e L l o y d ’ s p o l i c y s p e c i f i c a l l y p r o v i d e s f

o r e x c e s s

f l o o d c o v e r a g e

, s u p p l y i n g a n a d d i t i o n a l $ 1 5 m i l l i o n o f f l o o d c o v e r a g e e x c e s s t o

t h e $ 1 0 m i l l i o n p r o v i d e d b y t h e L e x i n g t o n p o l i c y

. T h e L l o y d ’ s p o l i c y a l s o d i f f e r s

f r o m t h e R S U I p o l i c y i n i n c l u d i n g u n d e r I t e m 4 o f i t s S c h e d u l e

, P e r i l s I n s u r e d

,

“ A l l r i s k s o f D i r e c t P h y s i c a l L o s s o r D a m a g e i n c l u d i n g F l o o d a n d E a r t h q u a k e

e x c l u d i n g B o i l e r a n d M a c h i n e r y a s p e r P r i m a r y P o l i c y

. ”

clai m is mad e here unde r and sho uld any alte rat ion be mad e in the pr em ium for the Polic y(ies )

of the Prim ary Insur er( s)

, then t he pr em ium he reo n m ay be ad just ed acc ord ingly.

. . . SCH EDU LE

. . . 4. Peril s Insur ed: All ris ks of Di rec t Physic al Los s or Da mage inclu ding Flood and

Eart hquak e e xclud ing Bo iler and M achin ery as per Pr im ary Polic y.

. . . 8. (a) Pr im ary Limi t( s)

COVERAG E

LAYER TOTAL LIMIT O F

LIABILI TY FOR

PRIMARY

INSU RER INSU RER Part icip atio n Polic y N o.

I. $10, 000, 000 LEXING TON

INS. CO

. 100% 8753559

. . . 9. Prim ary and Und erlyi ng Exce ss Lim it( s)

USD 10, 000, 000 Ult im ate net los s per oc cur renc e s ubject t o a n aggr egate li mi t of

USD 10, 000, 000 any o ne Polic y year in r es pec t of the per il of Flood

, and

USD 10, 000, 000 any o ne Polic y year in r es pec t of the per il of Eart hquak e

Whic h i n t urn exces s of Und erlyi ng d educ tibl es

10. Exces s Limi t( s)

USD 15, 000, 000 Ult im ate net los s per oc cur renc e s ubject t o a n aggr egate li mi t of

USD 15, 000, 000 any o ne Polic y year in r es pec t of the per il of Flood

, and

USD 15, 000, 000 any o ne Polic y year in r es pec t of the per il of Eart hquak e

Whic h i n t urn exces s of Und erlyi ng d educ tibl es

1 0 Case: 09-30722 Document: 00511194120 Page: 10 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

T h e L e x i n g t o n a n d L l o y d ’ s p o l i c i e s e a c h h a v e t w o r e l e v a n t l i m i t s

, t h e t o t a l

l i m i t p e r o c c u r r e n c e a n d t h e f l o o d a g g r e g a t e l i m i t

. A s t h e i n s u r e r s d i d n o t

s p e c i f y w h a t

, i f a n y

, p o r t i o n o f t h e i r p a y m e n t s w e r e f o r f l o o d d a m a g e

, t h e r e i s a

p o s s i b i l i t y t h a t a l t h o u g h t h e t o t a l l i m i t s w e r e r e a c h e d

, t h e f l o o d l i m i t s w e r e n o t

.

S t e w a r t u r g e s t h a t i n t h i s s c e n a r i o t h e R S U I p o l i c y s t e p s i n t o c o v e r t h e u n p a i d

a g g r e g a t e l i m i t o n c e t h e t o t a l l i m i t s o f t h e u n d e r l y i n g p o l i c y a r e r e a c h e d

. T h e

d i s t r i c t c o u r t a g r e e d w i t h S t e w a r t

, f o c u s i n g o n t h e l a n g u a g e c o n t a i n e d w i t h i n

I t e m s 4 a n d 9 o f t h e R S U I S c h e d u l e a n d f i n d i n g t h e r e f e r e n c e b a c k t o t h e

L e x i n g t o n p o l i c y a n d t h e r e c i t a t i o n o f t h e a n n u a l a g g r e g a t e l i m i t o f $ 2 5 m i l l i o n

f o r f l o o d d a m a g e a f

f o r d e d c o v e r a g e u n d e r t h e R S U I p o l i c y

.

W e b e g i n w i t h I t e m 4 o f t h e R S U I p o l i c y w h i c h d e f i n e s p e r i l s i n s u r e d b y

r e f e r e n c e t o t h e L e x i n g t o n p o l i c y

. U n d e r t h e L e x i n g t o n p o l i c y

, f l o o d i s e x c l u d e d

f r o m c o v e r a g e

, w i t h t h e e x c e p t i o n o f a $ 1 0 m i l l i o n s u b l i m i t

, s u c h t h a t u p t o $ 1 0

m i l l i o n i n d a m a g e

, f l o o d i s t r e a t e d a s a n i n c l u d e d p e r i l

. I t i s u n c l e a r w h e t h e r

t h e p a r t i e s i n t e n d e d t o i n c o r p o r a t e t h i s e x c e p t i o n t o t h e e x c l u s i o n

. T h e

r e s o l u t i o n t u r n s i n p a r t o n t h e s c o p e o f t h e f o l l o w i n g f

o r m p r o v i s i o n

. T h e

f o l l o w i n g f

o r m p r o v i s i o n s t a t e s “ t h i s P o l i c y i s s u b j e c t t o t h e s a m e w a r r a n t i e s

,

t e r m s a n d c o n d i t i o n s ( e x c e p t a s r e g a r d s t o t h e p r e m i u m

, t h e a m o u n t a n d L i m i t s

o f L i a b i l i t y o t h e r t h a n t h e d e d u c t i b l e

. . . ) a s a r e c o n t a i n e d i n ” t h e p r i m a r y

p o l i c y

— n o t a b l y e x c l u d i n g t h e “ L i m i t s o f L i a b i l i t y ” f r o m i t s i n c o r p o r a t i o n

. A s t h e

f l o o d e x c e p t i o n i s a r g u a b l y a “ l i m i t o f l i a b i l i t y

, ” s e c t i o n 2 s u g g e s t s i t i s n o t

i n c o r p o r a t e d

. B u t I t e m 4 p r o v i d e s a n i n d e p e n d e n t r e f e r e n c e t o t h e L e x i n g t o n

p o l i c y a n d i t i s u n c l e a r w h e t h e r i t i s g o v e r n e d b y s e c t i o n 2 ’ s l i m i t a t i o n

. W e a r e

t h u s f a c e d w i t h a n a m b i g u i t y : W h e t h e r I t e m 4 i n c o r p o r a t e s t h e L e x i n g t o n

p o l i c y ’ s c o v e r a g e o f f l o o d d a m a g e

, o r w h e t h e r

, b e c a u s e t h e f l o o d c o v e r a g e i s a

1 1 Case: 09-30722 Document: 00511194120 Page: 11 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

s u b l i m i t e x c e p t i o n t o t h e f l o o d e x c l u s i o n

, I t e m 4 o n l y i n c o r p o r a t e s t h e f l o o d

e x c l u s i o n i t s e l f

. 1 0

L o o k i n g t o t h e r e m a i n d e r o f t h e R S U I p o l i c y a n d s c h e d u l e o n l y f u r t h e r

m u d d i e s t h e w a t e r

. I t e m s 8 a n d 9 o f t h e R S U I S c h e d u l e p r o v i d e a s u m m a r y o f

t h e p o l i c y l i m i t s p r o v i d e d b y t h e v a r i o u s l a y e r s o f c o v e r a g e

. I t e m 8 s e t s f o r t h t h e

o v e r a l l p o l i c y l i m i t s c o n t a i n e d w i t h i n e a c h o f t h e l a y e r s

. I t e m 9 s e t s f o r t h t w o

s u b l i m i t s w i t h a g g r e g a t e y e a r l y l i m i t s

, f l o o d a n d e a r t h q u a k e

, d i s t i n g u i s h i n g

t h e m f r o m p e r i l s c o v e r e d o n a p e r o c c u r r e n c e b a s i s

. R S U I c o n t e n d s t h i s i s t h e

s o l e p u r p o s e o f I t e m 9

, t o h i g h l i g h t t h e f a c t t h a t S t e w a r t ’ s c o v e r a g e i n t h e

u n d e r l y i n g p o l i c i e s f o r f l o o d a n d e a r t h q u a k e a r e l i m i t e d t o a n a g g r e g a t e y e a r l y

a m o u n t a n d t h a t I t e m 9 d o e s n o t s u g g e s t t h a t R S U I i t s e l f i s l i a b l e f o r t h e $ 2 5

m i l l i o n i n f

l o o d c o v e r a g e

. R S U I p o i n t s t o t h e l a n g u a g e “ [ i n c l u d i n g ‘ P r i m a r y ’ a n d

‘ U n d e r l y i n g E x c e s s ’ ] ” a s l i m i t i n g t h a t p r o v i s i o n t o s u m m a r i z i n g t h e c o v e r a g e

p r o v i d e d b y t h e u n d e r l y i n g p o l i c i e s

. B u t t h e w o r d “ i n c l u d i n g ” d o e s n o t e x c l u d e

R S U I

— t h e l a n g u a g e i n s t e a d s u g g e s t s t h a t t h e t o t a l l i m i t s u b j e c t t o a n n u a l

a g g r e g a t e f

o r f l o o d i s $ 2 5 m i l l i o n t o b e p r o v i d e d b y L e x i n g t o n

, L l o y d ’ s

, a n d R S U I

RSUI poi nts to the Lloyd’ s pol icy wh ich c o n t a i n s an ide ntic al fol low ing for m 1 0

p r o v i sio n. Unli ke the RSUI pol icy’s Sche dule

, the Lloyd’ s Sche dule add s an add itio nal $15

mi llion in exces s cove r a g e f or flo od dam age. RSUI reas ons that if the RSUI and Lloyd’ s

pr ovis ions are both to be read as to pr ovide liabil i t y for the Lexingto n pol icy’s $10 mi llion

sub lim it, it wo uld lead to inco nsi st enci es wi thin the Lloyd’ s pol icy indi cat ing that the fol low ing

for m pr ovis ion wa s not inte nded to inco rp orat e the sub lim it in the Lexingto n pol icy. But this

argum ent do es not bear on w heth er und er the Lexington pol icy flo od dam age i s def ined as a

cover ed per il suc h t hat the RSUI pol icy als o t reat s flo od as a c overe d per il.

Lik ew ise

, we r eject RS UI’s claim that, if liable for fl ood at all, it should only be liable

for the init ial $10 mi llion sub lim it unde r the Lexingto n pol icy, noti ng that noth ing in the RSUI

pol icy inco rp orat es any pr ovis ion o f the Lloyd’ s pol icy. Item 4 def ines per ils ins ured and

inco rp orat es the Lexingto n pol icy’s cover age of flo od, but the amo unt of cove r a g e i s d e r ived

fr om t he rem aind er of the pol icy.

1 2 Case: 09-30722 Document: 00511194120 Page: 12 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

t o g e t h e r

. R e a d i n c o n j u n c t i o n w i t h I t e m 4

, t h e p o l i c y s e e m s t o p r o v i d e c o v e r a g e

f o r $ 2 5 m i l l i o n o f f

l o o d d a m a g e

, a g g r e g a t e p e r y e a r

, b e t w e e n t h e t h r e e i n s u r e r s

. 1 1

U n d e r L o u i s i a n a l a w

, a m b i g u i t i e s i n t h e p o l i c y a r e t o b e i n t e r p r e t e d i n

f a v o r o f t h e i n s u r e d

. G o v e r n e d b y t h i s b l a c k l e t t e r i n t e r p r e t i v e r u l e

, w e f i n d t h e

p o l i c y p r o v i d e s f

l o o d c o v e r a g e

. O f c o u r s e

, h a d R S U I w i s h e d t o d e n y c o v e r a g e f o r

f l o o d d a m a g e w i t h i n t h e L e x i n g t o n a n d L l o y d ’ s a g g r e g a t e l i m i t s

, i t c o u l d h a v e

d o n e s o

, b u t t h e c o u r t w i l l n o t e n g a g e i n i n t e r p r e t i v e g y m n a s t i c s t o f a v o r t h e

p a r t y t h a t d r a f

t e d t h e c o n t r a c t

.

R e a d i n g t h e R S U I p o l i c y t o c o v e r f l o o d w i t h i n t h e $ 2 5 m i l l i o n a g g r e g a t e

l i m i t a l s o m a k e s p r a c t i c a l s e n s e

. N e i t h e r L e x i n g t o n n o r L l o y d ’ s e x p r e s s l y

a l l o c a t e d a n y p o r t i o n o f i t s p a y m e n t s b e t w e e n w i n d a n d f l o o d

. U n d e r R S U I ’ s

r e a d i n g

, S t e w a r t ’ s t o t a l r e c o v e r y c o u l d d e p e n d o n a r b i t r a r y a c c o u n t i n g d e c i s i o n s

b y L e x i n g t o n a n d L l o y d ’ s

. F o r i n s t a n c e

, s u p p o s e S t e w a r t s u f f e r e d $ 3 0 m i l l i o n

i n f l o o d d a m a g e a n d $ 7 0 m i l l i o n i n w i n d d a m a g e

. T h e t o t a l p a y o u t b y L e x i n g t o n

a n d L l o y d ’ s w i l l n e v e r e x c e e d $ 2 5 m i l l i o n

, a n d i t m a t t e r s n o t t o t h e m f o r w h a t

t h e y a r e p a y i n g : $ 2 5 m i l l i o n i s $ 2 5 m i l l i o n

. B u t u n d e r R S U I ’ s r e a d i n g i t w o u l d

m a t t e r t o S t e w a r t a g r e a t d e a l

. W e r e t h e c o u r t t o f i n d L e x i n g t o n a n d L l o y d ’ s

a l l o t t e d a l l $ 2 5 m i l l i o n t o f l o o d d a m a g e

, S t e w a r t c o u l d r e c o v e r t h e f u l l $ 7 0

RSUI poi nts to se cti on 10 of its pol icy, cont endi ng that it too bars flo od cover age. The 1 1

pr ovis ion read s:

For the pur pos e of att achm ent of cover age for exces s layers

, it is fur ther agree d

that los s involving any inte res t and/ or per il cover ed i n a n y pr im ary or

unde rlying e x c e s s layers

, but exclud ed in higher exces s layers

, sha ll be

rec ognized by suc h exces s layers as ero ding or exhaus ting the occ urr ence lim its

of the pr im ary and/ or unde rlying exces s layer( s)

. Not hing h e r e i n

, how ever,

sha ll be de e m e d t o e xtend cover age in suc h layer( s) to inclu de los s fr om the

sp ecif ical ly e xclud ed per il in the exces s layer its elf

. This language only begs the ques tio n of wh ich per ils are exclud ed in the exces s layer and add s

noth ing t o o ur analys is.

1 3 Case: 09-30722 Document: 00511194120 Page: 13 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

m i l l i o n f

r o m R S U I

, f

o r a t o t a l c o l l e c t i o n o f $ 9 5 m i l l i o n ( o f $ 1 0 0 m i l l i o n i n d a m a g e

s u f f e r e d )

. O n t h e o t h e r h a n d

, i f L e x i n g t o n a n d L l o y d ’ s a l l o t t e d a l l $ 2 5 m i l l i o n

t o w i n d d a m a g e

, R S U I w o u l d o n l y h a v e t o p a y $ 4 5 m i l l i o n

— t h e r e m a i n i n g

a m o u n t l i a b i l i t y f

o r w i n d d a m a g e

— l e a v i n g S t e w a r t t o c o l l e c t a t o t a l o f o n l y $ 7 0

m i l l i o n a n d n o t h i n g f o r t h e d a m a g e b y f l o o d

. I n c o n t r a s t u n d e r S t e w a r t ’ s

r e a d i n g

, S t e w a r t r e c e i v e s t h e s a m e a m o u n t r e g a r d l e s s o f h o w L e x i n g t o n a n d

L l o y d ’ s c h a r a c t e r i z e t h e i r p a y m e n t s

— S t e w a r t w i l l b e a b l e t o r e c o v e r a t o t a l o f

$ 2 5 m i l l i o n i n f

l o o d a n d $ 7 0 m i l l i o n i n w i n d

. W h i l e i t w o u l d b e f o o l i s h t o r e s t a n

i n t e r p r e t a t i o n o f a n i n s u r a n c e c o n t r a c t o n i t s p r a c t i c a l s e n s i b i l i t y

, w e t a k e

c o m f o r t t h a t o u r r e a d i n g r e d u c e s t h e c h a n c e t h a t t h e a m o u n t o f t h e i n s u r e d ’ s

r e c o v e r y w i l l b e a r b i t r a r y

.

L a s t l y

, R S U I a r g u e s t h a t p a r o l e v i d e n c e i n d i c a t e s t h e p a r t i e s d i d n o t

i n t e n d t h e R S U I p o l i c y t o c o v e r a n y f l o o d d a m a g e

. P a r o l e v i d e n c e s h o u l d o n l y

b e u s e d t o d e t e r m i n e t h e i n t e n t i o n s o f t h e p a r t i e s a t t h e t i m e t h e c o n t r a c t w a s

m a d e

, n o t a f

t e r t h e f a c t

. R S U I p r o v i d e s a s e v i d e n c e a c o n f i r m a t i o n o f c o v e r a g e 1 2

m a d e d i r e c t l y a f

t e r t h e s i g n i n g o f t h e i n s u r a n c e a g r e e m e n t

. T h e c o n f i r m a t i o n 1 3

o f c o v e r a g e i n c l u d e s t h e l a n g u a g e

, “ P e r i l s C o v e r e d : A l l R i s k o f D i r e c t P h y s i c a l

D a m a g e o r L o s s e x c l u d i n g F l o o d

, E a r t h q u a k e a n d B o i l e r a n d M a c h i n e r y

. ” W e

f i n d t h i s s h o r t s u m m a r y s t a t e m e n t t o b e i n s u f f i c i e n t t o r e s o l v e a n y a m b i g u i t y

i n t h e p o l i c i e s i n f a v o r o f t h e i n s u r e r

. T h e s t a t e m e n t m a y b e r e a d a s s i m p l y

See Mi ll er v. M

il le r

, 1 S o.3 d 815, 818 ( La. App

. 2d Cir. 200 9). 1 2

RSUI als o pr ovide s em ails w rit ten in De cem ber, 2005, aft er Ka tri na and aft er 1 3

Ste wa rt began look ing to rec over— thes e are not pr obat ive of the par tie s’ inte nt at the tim e of

cont rac ting. Mo reo ver, the em ails do not act ually sp eak to the ques tio n. Rather they me rely

res tat e wh a t i s alre ady acc ept ed, that Ste wa rt has a pol icy lim it of $25 mi llion for flo od

wi thou t add res sin g wh ethe r RSUI is liable for any par t of that $25 mi llion lef t unpai d by the

unde rlying ins urer s.

1 4 Case: 09-30722 Document: 00511194120 Page: 14 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

r e s t a t i n g t h e f a c t t h a t n o f l o o d c o v e r a g e i s p r o v i d e d a b o v e t h e $ 2 5 m i l l i o n s e t

f o r t h i n t h e u n d e r l y i n g p o l i c i e s

— i

. e

. , t h a t t h e p o l i c y p r o v i d e s n o a d d i t i o n a l f l o o d

c o v e r a g e

. W i t h o u t m o r e

, w e f i n d t h i s e v i d e n c e t o b e i n s u f f i c i e n t t o c l a r i f

y t h e

p o l i c y ’ s a m b i g u i t y

.

B

.

F i n d i n g f

l o o d c o v e r a g e

, w e n o w t u r n t o w h e t h e r t h e A C C c l a u s e b a r s

r e c o v e r y f o r d a m a g e c a u s e d c o n c u r r e n t l y b y w i n d a n d f l o o d w i t h i n t h e $ 2 5

m i l l i o n l i m i t

. S t e w a r t c l a i m s t h a t t h e d i s t r i c t c o u r t ’ s r e a d i n g o f t h e A C C c l a u s e 1 4

c r e a t e s a n a b s u r d r e s u l t : p e r m i t t i n g r e c o v e r y f o r d a m a g e c a u s e d e x c l u s i v e l y b y

w i n d o r e x c l u s i v e l y b y f l o o d

, b u t b a r r i n g r e c o v e r y w h e n t h e d a m a g e i s c a u s e d b y

a c o m b i n a t i o n o f t h e t w o

. W e a g r e e t h a t t h i s r e s u l t i s a b s u r d a n d c o u l d n o t 1 5

h a v e b e e n i n t e n d e d b y t h e p a r t i e s

.

A t i s s u e i s t h e i n t e r p r e t a t i o n o f t w o A C C c l a u s e s c o n t a i n e d w i t h i n s e c t i o n

1 0 o f t h e L e x i n g t o n p o l i c y a n d a d o p t e d t h r o u g h t h e R S U I p o l i c y ’ s f o l l o w i n g f

o r m

p r o v i s i o n

. T h e r e l e v a n t p r o v i s i o n s s t a t e :

1 0

. P E R I L S E X C L U D E D

T h i s p o l i c y d o e s n o t i n s u r e a g a i n s t l o s s o r d a m a g e c a u s e d d i r e c t l y

o r i n d i r e c t l y b y a n y o f t h e e x c l u d e d p e r i l s

. S u c h l o s s o r d a m a g e i s

S t e wa rt argues RSUI wa ived its ACC claus e def ens e. We dis agree find ing it w a s 1 4

ade quate ly r ais ed bef

ore t he dis tri ct cour t.

RS UI a lso ar gues t hat the ACC cl aus e i s given a m uch sim ple r read ing by denyi ng 1 5

all flo od cover age, and that ther e f o r e t h e bes t read ing of the fol low ing for m claus e is that it

did not inco rp orat e the Lexingto n pol icy’s flo od sub lim its

. But this argum ent pr oves to muc h

as the ACC claus e is cont ained wi thin the Lexingt o n pol icy its elf and any inte rp ret ive

dif fic ulti es ap ply to both p olic ies ir res pec tive of RSUI’s f ollo wi ng f

orm p rovis ion.

1 5 Case: 09-30722 Document: 00511194120 Page: 15 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

e x c l u d e d r e g a r d l e s s o f a n y o t h e r c a u s e o r e v e n t t h a t c o n t r i b u t e s

c o n c u r r e n t l y o r i n a n y s e q u e n c e t o t h e l o s s :

. . . P

. l o s s o r d a m a g e c a u s e d b y o r r e s u l t i n g f r o m :

. . . ( 2 ) F l o o d

, u n l e s s s p e c i f i e d i n S e c t i o n 3

, S u b l i m i t s o f

L i a b i l i t y

, P a r a g r a p h J

. , a n d t h e n o n l y f o r s u c h s p e c i f i e d

a m o u n t ;

( 3 ) a n y a n d a l l l o s s f r o m a n y o t h e r c a u s e w h e n o c c u r r i n g

c o n c u r r e n t l y o r s e q u e n t i a l l y w i t h E a r t h q u a k e

, V o l c a n i c

E r u p t i o n o r F l o o d

, e x c e p t F i r e ;

. . . 1 6

T h e d i s t r i c t c o u r t f

o u n d t h a t P ( 3 ) p r e c l u d e d r e c o v e r y f o r a n y d a m a g e ( i n c l u d i n g

w i n d ) i f i t w a s c a u s e d c o n c u r r e n t l y o r s e q u e n t i a l l y b y f l o o d

, e v e n w i t h i n t h e $ 2 5

m i l l i o n e x c e p t i o n t o t h e f l o o d e x c l u s i o n

. I n o t h e r w o r d s

, S t e w a r t c o u l d r e c o v e r

f o r d a m a g e e x c l u s i v e l y c a u s e d b y w i n d o r e x c l u s i v e l y c a u s e d b y f l o o d

, b u t n o t f

o r

d a m a g e c a u s e d b y f

l o o d a n d w i n d t o g e t h e r

. T h e c o u r t “ r e c o g n i z e [ d ] t h e u n u s u a l

n a t u r e o f s u c h a n i n t e r p r e t a t i o n

, b u t [ f o u n d ] i t s u p p o r t e d b y t h e p o l i c y

l a n g u a g e

. ”

W e a c k n o w l e d g e t h a t t h e d i s t r i c t c o u r t ’ s r e a d i n g i s t h e m o s t

s t r a i g h t f

o r w a r d r e a d i n g o f t h e c o n t r a c t

. T h e r e a r e t w o A C C c l a u s e s i n t h e

L e x i n g t o n p o l i c y

. T h e p r e f a t o r y c l a u s e c o n t a i n s a g e n e r a l A C C c l a u s e

, b a r r i n g

r e c o v e r y f

o r a n y d a m a g e c a u s e d b y a n i n c l u d e d p e r i l i f a n e x c l u d e d p e r i l

c o n t r i b u t e s c o n c u r r e n t l y o r i n s e q u e n c e t o t h e l o s s

. T o t h e e x t e n t P ( 2 ) d e f i n e s

f l o o d a s a n e x c l u d e d p e r i l

, t h e p r e f a t o r y c l a u s e b a r s r e c o v e r y f o r d a m a g e c a u s e d

b y a n i n c l u d e d p e r i l a c t i n g i n c o n j u n c t i o n w i t h f l o o d

. P ( 3 ) p r o v i d e s a s e p a r a t e

p r o h i b i t i o n f

r o m P ( 2 ) a n d s t a t e s u n a m b i g u o u s l y t h a t a n y l o s s f r o m a n o t h e r

c a u s e

, o c c u r r i n g c o n c u r r e n t l y o r s e q u e n t i a l l y w i t h f l o o d

, s h a l l b e c o n s i d e r e d a n

RSUI Polic y § 10(P) (2) -( 3). 1 6

1 6 Case: 09-30722 Document: 00511194120 Page: 16 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

e x c l u d e d p e r i l

. T h e c l a u s e s a p p e a r t o o v e r l a p

, b u t t h e p r e f a t o r y c l a u s e d o e s n o t

a p p l y t o t h e $ 1 0 m i l l i o n f l o o d s u b l i m i t

, a s i t s u b s u m e s t h e e x c e p t i o n t o t h e

e x c l u s i o n t h r o u g h P ( 2 )

. T h e P ( 3 ) i n d e p e n d e n t f l o o d A C C c l a u s e d o e s n o t

s u b s u m e P ( 2 )

, c r e a t i n g a n i n d e p e n d e n t b a r t o a l l d a m a g e c a u s e d b y f l o o d a c t i n g

c o n c u r r e n t l y w i t h a n o t h e r p e r i l

.

T h i s c o u r t g e n e r a l l y e n f o r c e s t h e p l a i n r e a d i n g o f A C C c l a u s e s

, e v e n i n t h e

f a c e o f p o t e n t i a l a m b i g u i t y c a u s e d b y t h e s t r u c t u r e o f t h e i n s u r a n c e c o n t r a c t

.

F o r i n s t a n c e

, i n L e o n a r d v

. N a t i o n w i d e M u t u a l I n s u r a n c e C o

. w e h e l d a n A C C 1 7

c l a u s e b a r r e d r e c o v e r y f o r d a m a g e f

r o m s t o r m s u r g e s t a t i n g “ [ t ] h e p l a i n

l a n g u a g e o f t h e p o l i c y l e a v e s t h e d i s t r i c t c o u r t n o i n t e r p r e t i v e l e e w a y t o c o n c l u d e

t h a t r e c o v e r y c a n b e o b t a i n e d f o r w i n d d a m a g e t h a t o c c u r r e d c o n c u r r e n t l y o r i n

s e q u e n c e w i t h t h e e x c l u d e d w a t e r d a m a g e

. ” T h e c o u r t r e j e c t e d c l a i m s t h a t t h e 1 8

p o l i c y ’ s d e f

i n i t i o n s o f s t o r m s u r g e a n d w i n d s t o r m l e d t o a m b i g u i t y i n t h e A C C

c l a u s e

— w h e r e t h e d a m a g e w a s c a u s e d i n p a r t b y f l o o d

, i t w a s e x c l u d e d

. T h i s

c o n c l u s i o n w a s r e i n f o r c e d b y T u e p k e r v

. S t a t e F

a r m & C a s u a l t y C o m p a n y

. 1 9

T h e r e t h e p l a i n t i f

f s s o u g h t t o s h o w a m b i g u i t y i n t h e A C C c l a u s e b y p o i n t i n g t o

a p r o v i s i o n s e t t i n g a h i g h e r d e d u c t i b l e f o r h u r r i c a n e d a m a g e

. T h e p l a i n t i f f s

a r g u e d t h a t t h i s i n d i c a t e d t h e p o l i c y c o v e r e d h u r r i c a n e d a m a g e s u c h a s s t o r m

s u r g e

, a n d t h a t t h e A C C c l a u s e s h o u l d n o t a p p l y

. T h e c o u r t r e j e c t e d t h e c l a i m

a n d f o u n d t h a t “ t h e e n d o r s e m e n t d o e s n o t e n l a r g e o r c h a n g e t h e s c o p e o f

499 F.3d 419 (5t h Cir. 2007) ; see al so Ar ctic Slop e Regi onal Corp ora tion v. Af fi li ated 1 7

FM Ins. Co.

, 564 F.3d 707 (5t h Cir. 2009) (up hold ing ACC claus e on es se ntial ly sam e ground s

as Leona rd ); Bil be v. Be ls om

, 530 F.3d 314 ( 5th Cir. 200 8).

Id. at 430. 1 8

507 F.3d 346 ( 5th Cir. 200 7). 1 9

1 7 Case: 09-30722 Document: 00511194120 Page: 17 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

c o v e r a g e u n d e r t h e p o l i c y

. ” I n b o t h t h e s e c a s e s t h e c o u r t r e j e c t e d c l a i m s o f 2 0

a m b i g u i t y f

i n d i n g A C C c l a u s e s w e r e u n a m b i g u o u s a n d e n f o r c e a b l e

.

B u t i n t h e a b o v e c a s e s a n d e v e r y c a s e c i t e d b y R S U I

, t h e A C C c l a u s e

o p e r a t e d t o p r e v e n t r e c o v e r y f o r d a m a g e c a u s e d b y a n i n c l u d e d p e r i l o c c u r r i n g

c o n c u r r e n t l y w i t h a n e x c l u d e d p e r i l

— e

. g

. , f l o o d d a m a g e w a s e x p l i c i t l y e x c l u d e d

w h i l e w i n d d a m a g e w a s i n c l u d e d

. A C C c l a u s e s p e r m i t p a r t i e s t o c o n t r a c t

a r o u n d c o m m o n

- l a w c a u s a t i o n r u l e s

, s u c h a s e f f i c i e n t p r o x i m a t e c a u s a t i o n

.

U n d e r t h i s c a u s a t i o n r u l e

, a n i n s u r e d m a y r e c o v e r f o r d a m a g e c a u s e d j o i n t l y b y

a n i n c l u d e d a n d e x c l u d e d p e r i l i f t h e i n c l u d e d p e r i l i s t h e “ d o m i n a n t a n d e f f i c i e n t

c a u s e o f t h e l o s s

. ” T h e d e t e r m i n a t i o n o f t h e d o m i n a n t c a u s e m a y b e d i f f i c u l t 2 1

a n d p r o m o t e e x t e n s i v e l i t i g a t i o n b e t w e e n t h e p a r t i e s

. P a r t i e s u s e a n A C C c l a u s e

a s a m e a n s o f a v o i d i n g s u c h a d i s p u t e

. Y e t t h i s r a t i o n a l e d o e s n o t a p p l y t o c a s e s

s u c h a s t h i s w h e r e t h e i n s u r e r s e e k s t o u s e t h e A C C c l a u s e t o b a r r e c o v e r y f o r

d a m a g e c a u s e d b y t w o i n c l u d e d p e r i l s

. H e r e

, f o r d a m a g e u p t o t h e $ 2 5 m i l l i o n

s u b l i m i t

, f

l o o d i s a n i n c l u d e d p e r i l

. T h u s t h e c o u r t ’ s i n c o n g r u o u s r e s u l t s t a t e d

a b o v e : S t e w a r t c a n r e c o v e r f o r d a m a g e c a u s e d e x c l u s i v e l y b y w i n d o r e x c l u s i v e l y

b y f l o o d

, b u t n o t f

o r d a m a g e c a u s e d b y t h e t w o p e r i l s a c t i n g c o n c u r r e n t l y

.

R S U I ’ s r e a d i n g t u r n s t h e r a t i o n a l e f o r i n c l u d i n g a n A C C c l a u s e o n i t s

h e a d

, c r e a t i n g d i f

f i c u l t c a u s a t i o n d e t e r m i n a t i o n s w h e r e n o n e o t h e r w i s e e x i s t

.

R S U I ’ s i n t e r p r e t a t i o n w o u l d f o r c e t h e i n s u r e d t o d e m o n s t r a t e t h a t d a m a g e w a s

c a u s e d e x c l u s i v e l y b y o n e o f t h e t w o i n c l u d e d p e r i l s

. T h i s r e a d i n g i s u n t e n a b l e

a n d c a n o n l y b e t h e r e s u l t o f a n a w k w a r d u s e o f t e r m s t h a t a s s u m e s a f u l l

e x c l u s i o n o f

f l o o d d a m a g e

. W e w i l l n o t r e a d t h e p o l i c y t o f o r c e S t e w a r t t o p r o v e

Id. at 355. 2 0

Le onar d

, 499 F.3d at 431 ( inte rnal cit atio ns and quot atio ns om itt ed)

. 2 1

1 8 Case: 09-30722 Document: 00511194120 Page: 18 Date Filed: 08/04/2010N o

. 0 9

- 3 0 7 2 2

a w i n d l e s s f

l o o d

. W e r e a d t h e A C C c l a u s e t o o n l y a p p l y t o d a m a g e i n e x c e s s o f

t h e $ 2 5 m i l l i o n a g g r e g a t e l i m i t

.

* * *

R e a d o b j e c t i v e l y

, t h e p o l i c y a t b e s t d o e s n o t a n s w e r t h e p r e s e n t c l a i m s

w i t h s u f

f i c i e n t c l a r i t y t o e s c a p e t h e p r i n c i p l e t h a t s u c h u n c e r t a i n t y i s t o b e

r e s o l v e d i n f a v o r o f t h e i n s u r e d

. R e a d i n g i n f a v o r o f t h e i n s u r e d

, w e f i n d t h e

R S U I p o l i c y c o v e r s f

l o o d t o t h e e x t e n t t h e a g g r e g a t e l i m i t s u n d e r t h e L e x i n g t o n

a n d L l o y d ’ s p o l i c i e s h a v e n o t b e e n f u l l y p a i d

. W e a l s o f i n d t h a t t h e p o l i c i e s ’

A C C c l a u s e d o e s n o t o p e r a t e w i t h i n t h e $ 2 5 m i l l i o n d o l l a r l i m i t

. W e A F F I R M

i n p a r t

, R E V E R S E i n p a r t

, a n d R E M A N D f o r f u r t h e r p r o c e e d i n g s

. S t e w a r t ’ s

m o t i o n t o d i s m i s s t h e a p p e a l i s D E N I E D

.

1 9 Case: 09-30722 Document: 00511194120 Page: 19 Date Filed: 08/04/2010