Opinion ID: 1210817
Heading Depth: 2
Heading Rank: 3

Heading: The Excess Policies

Text: The contract provisions in the non-Commonwealth Excess Policies have only one reasonable meaning: the Flood sublimit caps the liability of the Excess Insurers at $2.5 million for all loss or damage per occurrence, including a Weather Cat Occurrence, as respects Flood. The Excess Policies insure against all risks of direct physical loss of or damage to covered property subject to specific exclusions not applicable in this case. Within that all-risks coverage, certain limits and sublimits set the Excess Insurers' maximum liability, generally on a per occurrence basis. The Flood sublimit applies per occurrence in the term aggregate as respects Flood at any location in Flood Zone A or V. The non-Commonwealth Excess Policies define loss from Flood to include all covered loss or damage to covered property resulting directly or indirectly from ... inundation of normally dry land areas. The Excess Policies also contain deductibles that apply on a per occurrence basis. The relevant deductible in this case is 3% of the damage for the peril of a Named Storm. The parties agree that Named Storm and Weather Cat are interchangeable terms. The Excess Policies define occurrence in order to explain when sublimits or the deductible apply [8] not to exclude the applicability of a particular sublimit. Cf. Northrop Grumman Corp. v. Factory Mut. Ins. Co., 566 F.3d 777, 787, No. 07-56760, 2009 WL 861475,  (9th Cir. Apr. 2, 2009) (holding that a sensible reading of the primary policy suggests that the terms [Named Windstorm and Wind] were defined to explain when the special Named Windstorm deductible would apply) (citing with approval the district court case at issue here). [9] The relevant definition here is that of the Weather Cat Occurrence. A Weather Cat Occurrence is all loss occurring during a 72-hour period caused by or resulting from, inter alia, Flood, wind, hail, sleet, tornadoes, hurricane, or lightning, associated with or occurring in conjunction with a storm or weather disturbance named by the National Weather Service. Because Flood is a weather phenomenon within the Weather Cat Occurrence, the Flood sublimit applies one time per such occurrence to limit loss and damage as respects that Flood. It is undisputed that the Six Flags New Orleans theme park is located in an area designated as Flood Zone A and that Hurricane Katrina was a Named Storm. Thus, the Flood sublimit applies to limit the non-Commonwealth Excess Insurers' liability at $2.5 million over the primary-layer insurers' $25 million policy limit for loss or damage resulting from flooding caused by, associated with, or occurring in conjunction with Hurricane Katrina. Six Flags, however, argues that the Flood sublimit does not apply to Flood loss in a Weather Cat Occurrence because a Named Storm is a distinct peril not subject to the Flood sublimit. [10] As noted above, the Excess Policies provide a deductible that applies to the peril of a Named Storm. The term peril has an industry usage. A peril is [t]he cause of a risk of loss to person or property; esp., the cause of a risk such as fire, accident, theft, forgery, earthquake, flood, or illness. BLACK'S LAW DICTIONARY 1174 (8th ed.2004). To Six Flags, because a Weather Cat Occurrence undisputedly corresponds to a Named Storm, it offers a one-stop shop for insuring all loss resulting from a hurricanein other words, the Weather Cat Occurrence subsumes all of the other perils defined therein and is subject only to sublimits and deductibles expressly addressed to it. While we have no doubt that the parties could have agreed to such a provision, we cannot reasonably interpret the Weather Cat Occurrence definition to have this meaning. Six Flags's proposed construction ignores the language of the Excess Policies and disregards the express purpose of defining an occurrence. To start, Six Flags's argument fails to acknowledge that the Flood sublimit applies to loss or damage per occurrence as respects Flood, not per Flood Occurrence or as respects the peril of Flood. Without reference to the terms of the Excess Policies, Six Flags nonetheless asks us to inferentially foreclose the applicability of the applicable to all loss or damage Flood sublimit to the all loss or damage Weather Cat Occurrence. Reviewing the provisions of the Excess Policies, we conclude that, to give meaning both to the definition of Flood and to per occurrence in the Flood sublimit, the only reasonable interpretation is that the Flood sublimit applies across different types of occurrences to loss or damage that falls under the definition of Flood. [11] In addition, Six Flags's reading avoids recognizing that the definition of an occurrence, which groups certain losses for adjustment purposes, is distinct from the concept of a peril, which is the cause of the loss. Six Flags's proposed construction would transform the definition of a Weather Cat Occurrence into the definition of a Named Storm peril by cross-referencing the non-definitional mention of that peril in the deductible that applies to a Weather Cat Occurrence. We conclude that such a result would conflate the two distinct termsand is too tenuous to provide a reasonable alternative meaning to the Excess Policies. See Northrop Grumman Corp., 566 F.3d at 777, 2009 WL 861475, ; Premier Entm't Biloxi, LLC v. James River Ins. Co., No. 1:06-CV-12, 2007 WL 2908791,  (S.D.Miss. Oct. 3, 2007) (holding that a Weather Cat Occurrence was not a separate peril because although the deductible refers to `each [Weather Cat Occurrence] as insured against by this policy,' the [Weather Cat Occurrence] is never identified as a separate peril). [12] Finally, Six Flags asks us to interpret the Excess Policies by applying a presumption in favor of coverage. Article 2056 of the Louisiana Civil Code provides: In case of doubt that cannot be otherwise resolved, a provision in a contract must be interpreted against the party who furnished its text. A contract executed in a standard form of one party must be interpreted, in case of doubt, in favor of the other party. Because the insurer typically furnishes the text of a policy to the insured, often on its standard form, the Louisiana courts have repeatedly interpreted ambiguous provisions against the insurer and in favor of the insured. See, e.g., Tunstall v. Stierwald, 809 So.2d 916, 921 (La.2002) (The insurer ... bears the burden of showing policy limits or exclusions. (emphasis added)) (citing Mass. Protective Ass'n v. Ferguson, 168 La. 271, 279-80, 121 So. 863 (1929) (interpreting a standard form insurance contract)); La. Ins. Guar. Ass'n, 630 So.2d at 764 (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 insured.); Garcia v. St. Bernard Parish Sch. Bd., 576 So.2d 975, 976 (La.1991) (Equivocal provisions seeking to narrow the insurer's obligation are strictly construed against the insurer, since these are prepared by the insurer and the insured has no voice in the preparation.). These presumptions, however, do not apply to the Excess Policies in this case. First, article 2056 and its derivative rules of construction are inapplicable to an unambiguous insurance contract. Sharp v. Fed. Sav. & Loan Ins. Corp., 858 F.2d 1042, 1046 (5th Cir.1988) ([W]e have already demonstrated that this contract is not ambiguous, and therefore even giving the contract a strict construction we would reach the same result.); Calcasieu-Marine Nat'l Bank of Lake Charles v. Am. Employers' Ins. Co., 533 F.2d 290, 296 (5th Cir.1976) (The special rules of interpretation do indeed apply only when there is an ambiguity; ... [t]his is so even when the result is an apparently harsh consequence to the insured.); Cadwallader, 848 So.2d at 580 ([F]or the rule of strict construction to apply, the insurance policy must be not only susceptible to two or more interpretations, but each of the alternative interpretations must be reasonable.). We will not apply a presumption in favor of Six Flags against the clear terms inand only reasonable construction ofthe language of the Excess Policies. Second, the court has previously determined that, under Louisiana law, the presumption does not apply where the insured is a sophisticated commercial entity that itself drafts or utilizes its agent to secure desired policy provisions. See McDermott Int'l, Inc. v. Lloyds Underwriters of London, 944 F.2d 1199, 1207 (5th Cir.1991) (By having its agent decide upon both the slip and the policy, [the insured] forfeits any benefit from the policy drafter principle.); Sharp, 858 F.2d at 1046 (holding that where the disputed insurance contract clause was a product of... a joint effort, ... there would be no reason to weigh our construction heavily in favor of coverage); Calcasieu-Marine Nat'l Bank of Lake Charles, 533 F.2d at 295 n. 6, 296 (holding that the presumption may not be applicable here[,] ... [where] each party was equally responsible for the policy language); see also Eagle Leasing Corp. v. Hartford Fire Ins. Co., 540 F.2d 1257, 1261 (5th Cir.1976) (concluding under Missouri law, based on a manuscript policy attributable to both parties alike, that [w]e do not feel compelled to apply, or, indeed, justified in applying the general rule that an insurance policy is construed against the insurer in the commercial insurance field when the insured is not an innocent but a corporation of immense size, carrying insurance with annual premiums in six figures, managed by sophisticated business men, and represented by counsel on the same professional level as the counsel for insurers (footnote omitted)). But cf. Lake Charles Harbor & Terminal Dist. v. Imperial Cas. & Indem. Co., 857 F.2d 286, 288 (5th Cir.1988) (refusing to alter the presumption where the insurance broker chose the terms but received no compensation from the insured and where there was no evidence of the insured's superior bargaining power). Here, the summary judgment evidence, construed in favor of Six Flags, shows that IRI provided Six Flags with the Weather Cat Occurrence definition for inclusion in its primary level policy. Marsh, Six Flags's agent, in turn directed the inclusion of identical language in the Excess Policies. IRI is not an Excess Insurer and not a party to this dispute. Under these circumstances, we cannot apply the presumption against the Excess Insurers, who did not draft the disputed provision, or in favor of Six Flags, which is undisputedly a sophisticated commercial entity that utilized Marsh to secure an insurance package suitable to its unique risks. Overall, we conclude that the non-Commonwealth Excess Policies unambiguously establish that the Flood sublimit applies to loss and damage as respects Flood caused by, associated with, or occurring in conjunction with Hurricane Katrina.
Six Flags argues that the Commonwealth Flood definition endorsement evidences the Excess Insurers' intent to prevent the applicability of the Flood sublimit to loss caused by a Named Storm. In its only relevant departure from the other Excess Policies, the Commonwealth Flood definition endorsement replaces the language to define the term Flood. It states that: The term flood is defined as loss or damage caused by waves, tidal water or tidal wave, overflow of streams or other bodies of water, or spray from any of the foregoing, all whether driven by wind or not. Loss resulting from, contributed to or aggravated by a flood caused by a peril not otherwise excluded under this policy shall not be considered in application of the policy flood limit or deductible provisions. Six Flags argues that this endorsement clarifies, for the Commonwealth policy as well as for the non-Commonwealth Excess Policies, that Flood caused by the peril of a Named Storm is not considered in the application of the Flood sublimit. The Excess Insurers counter that Commonwealth's definition of Flood means only that loss caused by other perils is not subject to the Flood sublimit and the inclusion of the phrase all whether driven by wind or not, which has been universally interpreted to include hurricane-related flooding, would be rendered ineffective. We conclude that the Commonwealth Flood definition endorsement creates an ambiguity in the Commonwealth policy but not the non-Commonwealth Excess Policies. One reasonable interpretation of the endorsement, when considered with the entire Commonwealth policy, is that loss resulting from a flood caused by a peril (such as a Named Storm) is not subject to the Flood sublimit. The Excess Insurers do not dispute that Hurricane Katrina was a Named Storm and cannot (at least at this time) dispute that Hurricane Katrina caused the flooding at issue here. Thus, under this interpretation, the Flood sublimit would not apply to loss resulting from the flood at the Six Flags New Orleans theme park caused by Hurricane Katrina. The Excess Insurers counter that Commonwealth's re-wording was meant only to clarify that loss caused by a separate peril is not subject to the Flood sublimit when that loss also resulted from Flood. [13] Thus, the Excess Insurers argue that caused by a peril modifies lossfor Six Flags, caused by a peril modifies flood. Even if this alternative interpretation is reasonable, which we do not decide at this time, the existence of two reasonable alternative interpretations would create an ambiguity in the Commonwealth policy. See Bonin, 930 So.2d at 911 (holding that a provision in an insurance contract is ambiguous if it is susceptible to two or more reasonable interpretations). While we do not conclude at this time that only one reasonable interpretation is possible, we simply hold that at least one reasonable interpretation favors coverage of the loss from Hurricane Katrina without application of the Flood sublimit. The district court may decide in the first instance whether the Excess Insurers' proposed alternative interpretations are reasonable. [14] The Excess Insurers also contend that our interpretation of the Commonwealth policy would render ineffective the phrase all whether driven by wind or not. We have interpreted similar language to exclude coverage for hurricane-caused flooding where the policies at issue expressly deny coverage for flooding caused or contributed to by other perils. See Tuepker, 507 F.3d at 352, 354; Leonard, 499 F.3d at 430, 437-38. The phrase, however, is not rendered ineffective here because the Commonwealth policy does not comparably provide for the applicability of the Flood sublimit if the flooding was caused by another peril and because the endorsement arguably dictates the opposite result. [15] As noted above, a reasonable interpretation of the policy is that water driven by wind is Floodgiving meaning to that provision; however, if that wind-driven Flood is caused by another covered peril, such as a Named Storm, then the Flood sublimit does not apply. Because a reasonable reading of the Commonwealth Flood definition endorsement leads to the conclusion that it excludes the applicability of the Flood sublimit to Flood that was caused by the peril of a Named Stormin this case, Hurricane Katrinawe therefore reverse the district court's order granting summary judgment to Commonwealth and remand to the district court. [16] Six Flags asserts that this conclusion extends to the non-Commonwealth Excess Policies. In particular, it argues that the definition of Flood in the non-Commonwealth Excess Policies should be read in light of the definition contained in the Commonwealth Flood definition endorsement. [17] The non-Commonwealth Excess Policies do not contain a provision that similarly conditions the applicability of the Flood sublimit on the peril causing the flood. Thus, to the extent that the Commonwealth policy differs from the non-Commonwealth Excess Policies, Six Flags asks us to modify the non-Commonwealth Excess Policies to find an ambiguity. We decline to interpret the non-Commonwealth Excess Policies by reference to the Commonwealth Flood definition endorsement. Louisiana statutory rules require that: No agreement in conflict with, modifying, or extending the coverage of any contract of insurance shall be valid unless it is in writing and physically made a part of the policy or other written evidence of insurance, or it is incorporated in the policy or other written evidence of insurance by specific reference to another policy or written evidence of insurance. LA.REV.STAT. ANN. § 22:867. Thus, our inquiry focuses on whether the Excess Policies incorporate the Commonwealth policy or Commonwealth Flood definition endorsement by specific reference. See Ins. Co. of N. Am. v. Bd. of Comm'rs of Port of New Orleans, 733 F.2d 1161, 1167 (5th Cir.1984). Sufficient specific references include such phrases as as per primary policies, id.; as per Underlying policy(ies) as far as applicable, Heinhuis v. Venture Assocs., Inc., 959 F.2d 551, 552-53 (5th Cir.1992); or, the provisions of the immediate underlying policy are incorporated as a part of this policy, Hunter v. Office of Health Servs., 385 So.2d 928, 937 (La.Ct.App.1980). The non-Commonwealth Excess Policies contain no such words of incorporation. The only discussion of the other policies is the Excess Clause, which states that, inter alia, the primary level insurance policies may insure different risks than the Excess Policies, and the Participation Clause, which sets out the proportion of each layer of coverage for which the particular insurer is liable. Like all sophisticated corporations using an agent, Six Flags could have required that its insurers use identical words in all of the applicable policies, but it did not do so in this case. Six Flags has pointed us to no authority supporting the coextensive interpretation of differing policies so long as the insured intended to obtain the same coverage from each policy. [18] At minimum, because it is the Commonwealth Flood definition endorsement's language and not the common provisions of the Excess Policies that creates the ambiguity, we cannot impose that ambiguity on all of the Excess Insurers, particularly here where other Excess Insurers did not incorporate the Commonwealth Flood definition endorsement. We therefore hold that we must review the Excess Policies as independent units.