Court Opinion

ID: 4414704
Source: CourtListenerOpinion
Date Created: 2019-07-08 21:00:20.707385+00
Date Added: 2024-06-11T14:23:20.790110
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                            File Name: 19a0343n.06

                                       Nos. 17-1649/1716

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

 FEDERAL-MOGUL LLC,                                      )
                                                                                     FILED
                                                                                Jul 08, 2019
                                                         )
                                                                           DEBORAH S. HUNT, Clerk
        Plaintiff - Appellee/Cross - Appellant,          )
                                                         )
                                                                ON APPEAL FROM THE
 v.                                                      )
                                                                UNITED STATES DISTRICT
                                                         )
                                                                COURT FOR THE EASTERN
 INSURANCE COMPANY OF PENNSYLVANIA,                      )
                                                                DISTRICT OF MICHIGAN
                                                         )
        Defendant - Appellant/Cross - Appellee.          )
                                                         )

       Before: MERRITT, KETHLEDGE, and NALBANDIAN, Circuit Judges.

       KETHLEDGE, Circuit Judge. The parties in this case dispute the meaning of an insurance

policy that limited the insurer’s liability for losses from “Flood for High Hazard Zones.” The

district court held that this limitation applied only to property damage rather than to all loss or

damage arising out of a flood. We respectfully disagree and reverse.

       Federal-Mogul LLC operates an automobile-parts factory in the Rojana Industrial Park in

Thailand. In 2010, Federal-Mogul bought an insurance policy for its factory from the Insurance

Company of the State of Pennsylvania. That policy provided two types of coverage: “Property

Damage,” which covered direct physical loss or damage to insured property; and “Time Element,”

which covered economic losses directly resulting from property damage. The policy also included

various limitations on the Insurance Company’s liability. As relevant here, the policy limited the

Company’s liability for losses from “Flood for High Hazard Zones” to $30 million.
Nos. 17-1649/1716, Federal-Mogul LLC v. Insurance Company of Pennsylvania

       A year later, Federal-Mogul’s factory was damaged in a flood, which caused about $39

million in property damage and $25 million in time-element loss. Federal-Mogul filed a claim for

those losses with the Insurance Company, but the Company refused to pay more than $30 million

because, in its view, the flood had occurred in a High Hazard Zone.

       Federal-Mogul thereafter sued the Insurance Company, arguing among other things that

the $30-million limitation for “Flood for High Hazard Zones” applied only to property damage

and thus that the Company remained liable for the full amount of time-element loss. The district

court granted summary judgment to Federal-Mogul. We review that decision de novo. See Minges

Creek, L.L.C. v. Royal Ins. Co. of Am., 442 F.3d 953, 956 (6th Cir. 2006).

       The parties agree that their insurance policy is governed by Michigan law, under which we

“look to the language of the insurance policy and interpret the terms therein in accordance with

. . . well-established principles of contract construction.” Henderson v. State Farm Fire & Cas.

Co., 596 N.W.2d 190, 193 (Mich. 1999). Federal-Mogul’s policy has seven sections, but only the

first three are relevant here. Section A describes the general terms of the policy and sets forth

various “Limits of Liability.” This section includes both a general limit on liability and more

specific sublimits. The general limit provides that the Insurance Company “shall not be liable

under this ‘policy’ for more than its proportion of $200,000,000 for all loss or damage arising out

of one ‘occurrence’ regardless of the number of ‘locations’ or coverages involved in the

‘occurrence’, except as more specifically limited below[.]” The policy then “more specifically”

limits the insurer’s liability for losses from “Flood” through the following sublimits:

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Nos. 17-1649/1716, Federal-Mogul LLC v. Insurance Company of Pennsylvania

        $200,000,000       Flood Aggregate Limit of Liability for all locations combined in
                           any one policy year, except:

            $70,000,000    Flood for Moderate Hazard Zones (Annual Aggregate);
            $30,000,000    Flood for High Hazard Zones (Annual Aggregate);
            $5,000,000     Flood as respects Errors and Omissions; Contingent Time
                           Element[;] Course of Construction; Service Interruption
                           Property Damage and Time Element combined; Exhibitions,
                           Expositions Fairs or Trade Shows, and Miscellaneous Unnamed
                           Locations ([S]eparate Annual Aggregate); and
            $5,000,000     Flood as respects Automatic Coverage (Annual Aggregate)

Section B describes the policy’s coverage for “Property Damage.” As relevant here, the section

includes specific “Flood” coverage for “direct physical loss or damage caused by or resulting from

Flood.” Finally, Section C describes the policy’s coverage for “Time Element.” This section

covers various forms of economic loss—e.g., lost profits—that “directly result[] from direct

physical loss or damage of the type insured by this ‘policy[.]’” The question here is whether the

$30-million sublimit for “Flood for High Hazard Zones” applies only to the policy’s “Flood”

coverage for property damage or rather to all loss or damage arising out of a flood.

        To answer that question, we begin with the policy’s general limit of liability, which limits

the Insurance Company’s liability “for all loss or damage arising out of one ‘occurrence’” to $200

million “except as more specifically limited below.” The policy expressly defines an “occurrence”

to include “losses from the peril[] of . . . Flood.” Thus, by its plain terms, the general limit applies

to “all loss or damage arising out of” a flood. Below the general limit, however, the policy “more

specifically” limits the insurer’s liability for “Flood for High Hazard Zones” to $30 million. The

policy does not define the scope of this sublimit, but it does define the term “Flood.” Specifically,

the policy defines that term “wherever used” as:

        Flood; rising waters; surface waters; waves; tide or tidal water; rain accumulation;
        runoff from natural or man made objects; the release of water, the rising,
        overflowing or breaking of boundaries of natural or man-made bodies of water; or
        the spray there from, surface waters or sewer back-up resulting from any of the

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Nos. 17-1649/1716, Federal-Mogul LLC v. Insurance Company of Pennsylvania

       foregoing; regardless of any other cause or event contributing concurrently or in
       any other sequence of loss. However, direct physical damage by fire, explosion or
       sprinkler leakage resulting from Flood is not considered to be loss by Flood within
       the terms and conditions of this “policy”.

Notably absent from this definition is any reference to the policy’s “Flood” coverage. Rather the

policy—here and elsewhere—uses the term “Flood” to refer more generally to a type of peril

insured by the policy. See R. 1-1, Page ID 88 (referring to “losses from the peril[] of . . . Flood”).

Thus, when the policy limits the Insurance Company’s liability for “Flood,” it limits the insurer’s

liability for losses from a particular type of peril rather than a particular type of coverage. To be

sure, the “Flood for High Hazard Zones” sublimit does not expressly say what losses it limits. But

in the absence of language restricting the sublimit only to property damage, we read the sublimit—

like the general limit—to apply to all loss or damage arising out of a “Flood[,]” “regardless of the

number of ‘locations’ or coverages involved[.]”

       The other sublimits for “Flood” reinforce this interpretation. Specifically, the policy

includes a $5-million sublimit for “Flood as respects . . . Contingent Time Element . . . and . . .

Service Interruption Property Damage and Time Element combined.” If (as Federal-Mogul says)

the term “Flood” refers only to the policy’s “Flood” coverage for property damage, however, then

there would be no reason to limit (to $5 million) the Company’s liability for “Contingent Time

Element” losses caused by “Flood.” This sublimit therefore confirms that the various caps on

“Flood” are not limited only to claims for property damage.

       Federal-Mogul points out that courts have construed flood sublimits in other insurance

policies to apply only to property damage. But we do not construe insurance policies “in gross.”

Bennett v. State Farm Mut. Auto. Ins. Co., 731 F.3d 584, 585 (6th Cir. 2013) (internal quotation

marks omitted). Rather we interpret each policy according to its terms. And here those terms

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Nos. 17-1649/1716, Federal-Mogul LLC v. Insurance Company of Pennsylvania

show that the sublimit applies to all loss or damage arising out of a flood,

“regardless of the number of . . . coverages involved[.]”

       Finally, Federal-Mogul argues that the “Flood for High Hazard Zones” sublimit is at least

ambiguous, and that Michigan courts construe “ambiguous terms . . . in favor of the insured.”

Frankenmuth Mut. Ins. Co. v. Masters, 595 N.W.2d 832, 837 (Mich. 1999). But Federal-Mogul

has not shown that the sublimit is ambiguous. Michigan law therefore requires us to “enforce the

terms of the contract as written.” Id.

       Both parties also challenge the district court’s award of prejudgment interest. But that

issue is moot in light of our holding that the district court erred in granting summary judgment to

Federal-Mogul.

       The district court’s judgment is reversed, and the case remanded for further proceedings

consistent with this opinion.

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