# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

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No. 1 6- 28 46

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Hud so n En te rp ris es , Inc ., do in g b us in es s as Riv er Val le y Mari na

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff - App el la nt

v.

Cert ai n Un de rwri te rs at Ll oyd's Lon do n In su ran ce Co m pa ni es , Sub sc rib in g t o

Po li cy #1 0NC G01 55 9 a nd Agre em en t Nu m be rs NPPI1 01 14 56 an d NPP I0 91 12 45 6

ll ll ll ll ll ll ll ll ll ll l Defe nd

an t - Ap pe ll ee

__ __ __ __ __ __

App eal fro m

Uni te d S ta te s Di st ric t Co ur t

fo r th e Eas te rn Dis tri ct of Ark an sa s - Li tt le Ro ck

__ __ __ __ __ __

Su bm it te d: Apri l 5 , 20 17

Fil ed : Ap ril 28 , 20 17

__ __ __ __ __ __

Befo re GRUENDER, MURPHY, an d KELLY, Circ ui t J ud ge s.

__ __ __ __ __ __

MURP HY, Circ ui t J ud ge

.

On t he ni gh t o f Apr il 30

, 20 11 a st or m ge ne rat ed st ro ng win ds an d left se ve n

in ch es of rai n in th e Lit tl e Mau m el le Ri ve r ba si n. The Ri ve r Vall ey Mar in a lo st fiv e

of it s do ck s to th e st or m

. The do ck s were co ve red by an in su ran ce po li cy is su ed by

Cert ai n Und erwri te rs at Llyod's Lon do n In su ran ce Co m pa ni es (Un de rwri te rs ) whi ch

ex c l u de d lo ss es "ca us ed di rect ly or in di rect ly" by flo od

. Und erwri te rs de ni edco ve rag e ba se d o n th e flo od ex cl us io n. The m ari na th en fil ed th is act io n ag ai ns t

Und er w rit ers

, al le gi ng th at th ey br each ed th e po li cy

. The di st ric t co ur t gr an te d 1

Und erwri te rs su m

m ary jud gm en t aft er co nc lu di ng th at th e do ck s were lo st to flo od

.

Hud so n a pp eal s, an d we a ffi rm

.

I.

Ray an d Deb ra Hud so n ow n Hud so n Ent erp ris es

, whi ch op erat es th e Ri ve r

Vall ey Mar in a. The m ari na own s ei gh t do ck s on th e no r t h ba nk of th e Lit tl e

Mau m el le Ri ve r in Lit tl e Ro ck , Ar ka ns as

. The Lit t l e Mau m el le Ri ve r ru ns wes t to

eas t un ti l it co nv erg es wit h th e Ark an sa s Ri ve r. The m ari na is lo cat ed ap pr ox im at el y

two m il es ab ov e th e Lit tl e Ma um el le 's c on flu en ce wi th th e Ark an sa s R iv er.

On th e ni gh t of Apr il 30 , 2 01 1 ap pr ox im at el y se ve n in ch es of rai n fe l l in th e

Lit tl e Mau m el le wate rs he d. Sev eral area res id en ts te st ifi ed th at th e riv er ro se at le as t

th ree feet ab ov e it s n o r m al le ve ls an d ex ceed ed it s ba nk s in so m e pl aces

. Ph ot os

in di cat e th at th ere was st an di ng wate r in th e pa rk in g lo t ne ar on e of th e m ari na 's

do c k s th e ne xt da y

. The rai n al so gr eat ly i nc reas ed th e sp eed of th e riv er's cu rren t.

In ad di ti on to rai n, th e st or m br ou gh t wit h it hi gh win ds th at to re do wn tre e br an ch es

ne ar t he m ari na

.

The m ari na lo st fiv e of it s e ig ht do ck s to th e st or m

. The th ree do ck s th at

su rv iv ed th e st or m were lo cat ed up st ream fro m th e do ck s th at were swe pt away. The

m ari na was co ve red by an in su ran ce po li cy is su ed by Und erwri te rs

. Afte r th e st or m

,

th e mar i n a co nt act ed Und erwri te rs to ob ta in co m pe ns at io n fo r th e lo ss

. Its po li cy

in su red th e m ari na ag ai ns t "d ire ct ph y si cal lo ss of or da m ag e to " it s ei gh t do ck s. The

po li cy co nt ai ne d a n e xc lu si on , ho wev er, wh ic h s ta te d:

The Hon or ab le D.P. Mar sh al l Jr

., Uni te d St at es Dis tri ct Ju dg e fo r th e East ern 1

Dis tri ct of Ark an sa s.

-2

-W e w i l l n o t p a y f o r l o s s o r d a

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

t h e f o l l o w i n g

. S u c h l o s s o r d a m a g e is e x c l u d e d re g a

rd 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 ri b u t e s c o n c u

rr 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

. T h e s e e x c l u s i o n s a

p p l y w h e t h e r o r n o t t

h e l o s s e v e n t re s u l t s i n w i d e s p re a d

da m a g e a f

f e c t i n g a s u

b s t a n t i a l a re a

, o r re m a i n s l o c a l i z e d

- e v e n w h e n

re s t ri c t e d t o t h e i n s u re d p re m i s e s

.

. . . . 4

. W a t e r - (a ) F l o o d

, s u

rf a c e w a t e r, w a v e s

, t i d e s

, t i d a l w a

v e s

, o v e rf l o w o f

a n y b o d y o f w a t e r, o r t h e i r s p ra y

, a l l w h e t h e r d ri v e n b y w i n d o r n o t ;

. . . .

A few da y s aft er th e st or m

, Und erwri te rs se nt an ad jus te r to ta ke ph ot og rap hs

of th e m ari na an d ta lk to th e Hud so ns

. Mr. Hud so n to ld th e ad jus te r th at th e "[t ]he

ve lo ci ty of th at wate r" cau se d th e da m ag e to th e do ck s. U nd erwri te rs de ni ed

co ve rag e aft er fin di ng th at th e lo ss was cau se d by "a fla sh flo od th at oc cu rred on th e

Lit tl e Ma um el le Ri ve r fo ll owi ng he av y rai ns ." The Hud so ns la te r cam e to be li ev e,

ho wev er, th at a ut il it y po le cau se d th ei r lo ss whe n it fel l on to th e do ck s as a res ul t of

th e st or m 's h ig h wi nd s.

Hud so n Ent erp ris es (Hu ds on ) fil ed th is act io n ag ai ns t Und erwri te rs in s ta te

co ur t

. U n d e r w rit ers rem ov ed th e cas e to fed eral co ur t. Dur in g di sc ov ery, Hud so n

se rv ed an in te rro ga to ry on Und erwri te r s t h at st at ed

, "In th e co ur se of y ou r

i n v e s ti ga ti on of th e fact s an d ci rcu m st an ces fo rm in g th e ba si s fo r th e cl ai m fo r

be ne fit s ten de red by Plai nt iff

. . . di d y ou ob ta in an y ex pe rt op in io n rela ti ng to y ou r

de t e r m in at io n to de ny pa y m en t of su ch cl ai m ? " Und erwri te rs an swe red on

Nov em be r 16

, 20 15 by st at in g "d is co ve ry is on go in g an d [Un de rwri te rs ] ha ve no t y et

m ad e a de te rm in at io n as to whe th er an ex pe r t w i tn es s m ay te st ify at tri al ." The

an swe r th en in di ca t e d " [ i]f Und erwri te rs de ci de to ha ve a te st ifyin g ex pe rt,

Und erwri te rs wil l ide ntify sa id ex pe rt( s) in acco rd an ce wit h th e Fed eral Ru le s of Ci vi l

Pro ced ur e."

The di st ric t co ur t en te red a cas e sc he du li ng or de r whi ch req ui red Und erwri te rs

to "i de nt ify al l ex pe rt wit ne ss e s a n d pr od uc e th ei r op in io ns by 27 Ja nu ary 20 16 ."

-3

-Und erwri te rs di sc lo se d th ei r ci vi l en gi ne eri ng ex pe rt to Hud so n on Ja nu ary 27

, 20 16

.

The ex pe rt co nc lu de d th a t th e fla sh flo od was th e so le cau se of Hud so n's lo ss an d

reject ed Hud so n's ut il it y

po le hypo th es is . Hud so n o bjec te d t o Un de rwri te rs ' ex pe rt

an d as ke d th at hi s op in io ns be st ric ke n be cau se th e ex pe rt ha d be en di sc lo se d to o la te

an d be cau se Und erwri te rs ha d no t su pp le m en te d th ei r in te rro ga to ry an swe r aft er

ret ai ni ng hi m

. At th e he ari ng on Hud so n's m ot io n to st rik e, co un se l fo r Und erwri te rs

st at ed th at he ha d fi rs t co nt act ed th e ex pe rt o n Dec em be r 18 an d had no t re cei ve d a

dr aft ex pe rt rep or t un ti l th e la st week of Ja nu ary. The di st ric t co ur t de ni ed th e m ot io n

to st rik e.

The pa rti es la te r fil ed cro ss m ot io ns fo r su m m ary jud gm en t. The di st ric t co ur t

de ni ed Hud so n's m ot io n an d gr an te d th at of Und erwri te rs

. The co ur t co nc lu de d th at

th e r e was no ge nu in e is su e of m at eri al fact reg ard in g whe th er or no t a flo od ha d

cau se d th e da m ag e to Hud so n's do ck s an d th at th e po li cy ex cl us io n th eref or e ap pl ie d.

Hud so n a p p e a l s

, arg ui ng th at th e di st ric t co ur t ab us ed it s di sc ret io n by refu si ng to

st rik e th e rep or t an d op in io ns of th e Und erwri te rs ex pe rt an d erre d by gr an ti ng th ei r

m ot io n fo r su m

m ary jud gm en t.

II.

Hud so n arg ue s th at th e di st ric t co ur t ab us ed it s d i sc ret io n whe n it refu se d to

st rik e Und erwri te rs ' ex pe rt rep or t an d op in io ns

. W e rev ie w a di s t r i c t c o u rt' s

"d is co ve ry ru li ng s in a m an ne r b o t h n a r r ow an d de fere nt ia l, an d rev ers al is on ly

warra nt ed if an erro ne ou s ru li ng am ou nt ed to a gr os s ab us e of di sc ret io n." Ro bi ns on

v. Po tt er, 45 3 F.3 d 99 0, 99 4– 95 (8 th Cir . 20 06 ) (i nt ern al qu ot at io n m ark s o m it te d)

.

Hud so n ap pe ars to arg ue th at Und erwri te rs di sc lo se d th e i r e x p e rt in an un ti m el y

fas hi on

. A pa rty m

us t di sc lo se ex pe rt te st im on y "at th e ti m es an d in th e se qu en ce th at

th e co ur t or de rs ." Fed

. R. Ci v. P. 26 (a)( 2) (D). Und erwri te rs th us co m pl ie d wit h th e

Fed eral Ru le s of Ci vi l Pro ced ur e by d is c l o s i n g th ei r ex pe rt on th e la st da y al lo wed

by the sch ed ul in g o rd er.

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-Hud so n al so arg ue s th at th e di st ric t co ur t sh ou ld ha ve st ric ke n th e ex pe rt rep or t

fo r Und erwri te rs be cau s e th ey di d no t su pp le m en t th ei r in te rro ga to ry an swe rs in a

ti m el y fas hi on aft er the y ha d sec ur ed th ei r ex pe rt. A par ty tha t h as res po nd ed to an

in te rro ga to ry "m

us t su pp le m en t or co rrec t it s di sc lo su re or res po ns e: (A) in a ti m el y

m an ne r if th e pa rty le arn s th at in so m e m at eri al res pe ct th e di sc lo su re or res po ns e is

in co m pl et e or in co rrec t." Fed

. R

. C i v

. P

. 26 (e)( 1)

. Hud so n's in te rro ga to ry as ke d

Und erwri te rs if th ey ha d ob ta in ed "an y ex pe rt op in io n rel at in g to y ou r de te rm in at io n

to de ny pa y m en t of su ch cl ai m ." In Nov em be r 20 15 Und erwri te rs res po nd ed th at

"t he y ha ve no t y et m ad e a de te rm in at io n as to whe th er an ex pe rt wit ne ss m ay te st ify

at tri al ." Und erwri te rs co un se l di d no t rece iv e dr aft ex pe rt rep or ts un ti l th e la st week

of Ja nu ary. On Ja nu ary 27

, Und erwri te rs di sc lo se d to Hu d s o n t h e rep or ts an d

op in io ns of th ei r two ex pe rt wit ne ss es

. Bec au se on ly a few da y s ha d pa ss ed at m os t

be twee n whe n Und erwri te rs ob ta in ed th ei r ex pe rt' s o p i n i on an d di sc lo se d it to

Hud so n, we can no t co nc lu de th at th e di st ric t co u r t g r o ss ly ab us ed it s di sc ret io n by

de nyin g Hu ds on 's m ot io n t o s tri ke

.

III.

Hud so n arg ue s th at th e di st ric t co ur t erre d by gr an ti ng Und erwri te rs su m m ary

jud gm en t. W e rev ie w a di st ric t co u rt' s "g ran t of su m m ary jud gm en t de no vo an d

c o n s i d er th e fact s in th e li gh t m os t fav or ab le to th e no nm ov in g pa rty." Nich ol s v

.

Tri- Nat'l Log is ti cs , I nc ., 8 09 F.3 d 98 1, 98 5 (8 th Ci r. 20 16 ). A d is tri ct co ur t's gra nt

of "[s ]um m ary jud gm en t is on ly ap pr op ria te whe n 'th ere is no ge nu in e d is pu te as t o

an y m at eri al fact an d th e m ov in g pa rty is en ti tl ed to jud gm en t as a m at te r of la w.'"

Id

. (q uo ti ng Pi ns on v. 45 Dev

., LLC, 75 8 F

. 3 d 9 4 8

, 9 5 1– 52 (8 th Ci r. 20 14 )). W e

r e v i ew de no vo qu es ti on s of co nt ract in te rp ret at io n. And ers on v. Hes s Co rp

., 6 4 9

F.3 d 89 1, 89 6 (8 t h C i r

. 2 0 1 1 ). It is un di sp ut ed th at Ark an sa s la w ap pl ie s to th is

di ve rs it y act io n. See Em

p'r s Rei ns ur an ce Co

. v. Mas s. Mut

. Life In s. Co., 65 4 F.3d

78 2, 7 89 (8t h C ir. 2 01 1)

.

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-Hud so n fir st arg ue s th at th e te rm " f l oo d" in th e ex cl us io n to th e in su ran ce

co nt ract is am

bi gu ou s. In Ark an sa s, "t he in te nt to ex cl ud e co ve rag e in an in su ran ce

po li cy sh ou ld be ex pr es se d in cl ear an d un am bi gu ou s la ng ua ge

, an d an in su ran ce

po li cy , h av in g be en dr aft ed by t he in su rer wit ho ut co ns ul ta t i o n w i t h th e in su red , i s

to be in te rp ret ed an d co ns tru ed li be ral ly in fav or of th e in su red an d st ric tl y ag ai ns t th e

in su r e r

. " Nati on wid e Mu t. In s. Co . v . Wort he y , 8 61 S.W .2d 30 7, 31 0 (Ark . 1 99 3)

.

If po li cy la ng ua ge is am bi g uo us

, "an d it is fai rly su sc ep ti bl e of two or m or e

in te rp ret at io ns

, on e fav or ab le to th e in su red an d th e ot he r fav or ab le to th e in su rer, th e

on e fav or ab le to th e in su red wil l b e ad op te d." Id.

Hud so n cl ai m s th at th e te rm "fl oo d" is am bi gu ou s be cau se it is no t de fin ed in

th e po li cy

. An un de fin ed te rm in an in su ran ce po li cy

, ho wev er, is no t au to m at ic al ly

am bi gu ou s. Ess ex In s. Co

. v. Hol de r, 26 1 S.W .3d 45 6, 45 8 (Ark

. 20 07 ). Mo reo ve r,

th e Ark an sa s Co ur t of App eal s ha s co nc lu de d th at an id en ti cal ly wor d e d po li cy

ex cl us io n is un am

bi gu ou s. Ebb in g v. St at e Farm Fi re & Cas

. Co

., 1 S.W .3d 45 9,

46 1– 62 (Ark

. Ct

. App

. 19 99 ). Ebb in g de fin ed "fl oo d wate rs " as "t ho se wate rs ab ov e

th e hi gh es t li ne of th e or di na ry flo w of a st ream

, an d ge ne ral l y s p e a k i n g th ey ha ve

ov erfl owe d a riv er, st ream

, or na tu ral wate r co ur se an d h a v e f o r med a co nt in uo us

bo dy wit h th e wate r flo win g in th e or di na ry ch an ne l." Id

. at 46 2 (q uo ti ng Fern da le v.

Great Am

. In s. Co

., 52 7 P.2 d 93 9, 94 0 (Co lo

. App

. 19 74 )). Alt ho ug h on ly de ci si on s

fro m a st at e's hi gh es t co u r t co nt ro l ou r in te rp ret at io n of st at e la w, Hud so n ha s no t

pr ov id ed an y reas on why Ebb in g is no t pr ed ic ti ve of ho w th e Ark an sa s Su pr em e

Co ur t wou ld ru le on th is is su e. See Pi ns on

, 75 8 F.3 d at 95 2. W e th eref or e co nc lu de

th at th e t erm "fl oo d" in th is in su ran ce co nt ract is un am bi gu ou s an d ad op t th e

de fin it io n o f "fl oo d" gi ve n i n Eb bi ng

.

Hud so n ne xt arg ue s th at th ere is a ge nu in e is su e of m at eri al fact as to whe th er

th e da m ag e to th e do ck s oc cu rred as th e res ul t of a flo od

. Hud so n cl ai m s th at st ro ng

win ds were th e so le cau se of it s da m ag e s h e re be cau se th ey cau se d a ut il it y po le to

cras h in to it s do ck s. In su pp or t of th is cl ai m

, Hud so n rel ie s on th e te st im on y of

-6

-se ve ral area res id en ts th at th e s t o r m on Apr il 30 an d May 1 in vo lv ed ve ry st ro ng

win ds th at kn oc ke d do wn tre e li m bs

. Hud so n al so su bm it te d ev id en ce th at th e win ds

w e r e g u st in g at 40 m il es pe r ho ur du rin g th e st or m

. Hud so n fin al ly rel i e s o n a

ph ot og rap h t ha t s ho ws a d own ed ut il it y po le lying on on e o f th e m ari na do ck s.

U nde rw ri te rs ' ci vil en gin ee ri ng ex pe rt rej ect ed Hud so n's utilit y pol e hy pot he sis

.

Its ex pe rt co nc lu de d th at th e ut il it y po le ha d no t fal le n do wn as th e res ul t of win d

be cau se it wou ld ha ve ta ke n win d gu st s of m or e th an 20 0 m i l es pe r ho ur to kn oc k

do wn a ut il it y po le of th at si ze. The ex pe rt al so co nc lu de d th at ev en if th e win d ha d

cau se d th e po le to fal l, th e im pa ct co ul d no t ha ve cau se d th e st ru ct ur al da m ag e to th e

do ck s. In li gh t of th is ex pe rt rep or t, Hud so n ' s su bm is si on of la y te st im on y th at th e

st or m ge ne rat ed st ro ng win d gu st s a n d a ph ot og rap h of th e do wne d ut il it y po le di d

n o t c r e a t e a ge nu in e is su e of m at eri al fact as to whe th er win d or flo od cau se d th e

da m ag e to th e d oc ks

.

Hud so n al te rn at iv el y arg ue s th at th e da m ag e he re was no t cau se d by a "fl oo d"

bu t rat he r by st ro ng "cu rren t wit hi n th e ba nk s of " th e Lit tl e Mau m el le Ri ve r. The re

is ho wev er no ge nu in e is su e of m at eri al fact th at th e st or m on th e ni gh t of Apr il 30

cau se d th e wate rs of th e Lit tl e Mau m el le to r i s e "ab ov e th e hi gh es t li ne of th e

or di na ry flo w" of th e r i v e r

. S e e Ebb in g, 1 S.W .3d at 46 2 (q uo ti ng Fern da le

, 52 7

P.2 d at 94 0)

. Sev eral la y wit ne ss es te st ifi ed th at th e st or m cau se d th e riv er to ris e at

le as t th ree feet ab ov e it s or di na ry flo w l ev el

. Mo reo ve r, bo th pa rti es ag ree th at th e

st or m cau se d th e riv er to ov erfl ow its ba nk s an d l eft st an di ng wate r in a pa rk in g l ot

ne ar on e of th e mar i n a ' s d o c k s. The fact s sh ow th at th e rai n ev en t on th e ni gh t of

Apr il 30 crea te d a flo od on th e Lit tl e Ma um el le Riv er.

The re is al so no ge nu in e is su e of m at eri al fact th at th e fo rce ge ne rat ed fro m th e

flo od wate rs d i r e c tl y or in di rect ly cau se d th e da m ag e to th e m ari na 's do ck s. The

Und erwri te rs ex pe rt op in ed th at at th e ti m e of th e st or m

, th e riv er's cu rren t wou ld

ha ve ex ert ed at le as t 75 ,00 0 po un ds of hydro dynam ic fo rce on th e do ck s. The ex pe rt

-7

-fu rth er st at ed th at 75 ,00 0 po u n d s w a s "m uc h m or e th an en ou gh fo rce" to cau se th e

da m ag e to th e m ari na be cau se th e cab le s s e c u r i ng th e do ck s to th e riv erb an k were

on ly rat ed fo r 14 ,40 0 p ou nd s o f fo rce. Hu ds on 's a rg um en t t ha t t he da m ag e was th e

res ul t of a st ro ng cu rren t wit hi n th e ba n k s o f t h e Lit tl e Mau m el le Ri ve r do es no t

de feat su m

m ary jud gm en t be cau se th is da m ag e was cau se d b y th e st ro ng cu rren t i n

wate rs whi ch were "ab ov e th e hi gh es t li ne of th e or di na ry flo w" of th e riv er. See

Ebb in g, 1 S.W .3d at 46 2 (qu ot in g Fern da le

, 52 7 P.2d at 94 0)

. At the ve ry le as t, th e

flo od in di rect ly caus ed th e d am ag e to th e m ari na

.

IV.

Fo r th e rea so ns st at ed ab ov e, we affi rm th e d is tri ct co ur t.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

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