An insurance policy that lists named windstorms among the covered perils doesn’t cover flood damages caused by Hurricane Harvey even though flooding wasn’t specifically excluded, a panel of the 5th Circuit Court of Appeals ruled Thursday.
The panel reversed a decision by the U.S. District Court for the Southern District of Texas, finding that the policy issued to SCD Memorial Place II by Landmark American Insurance Co. covered only named perils.
“This policy defines carefully which perils it covers; all others can be understood to be excluded,” the opinion says.
SCD, an affiliate of the Swedish construction real estate developer Skanska AB, owned an office building in Houston with an insured value of $71,100,000. The building was insured through a primary property policy issued by Lexington Insurance Co. that covered multiple Skanka-owned properties, but with a windstorm deductible equal to 2.5 percent of the insured value. SCD bought a second “buy back” policy from Landmark that had its own $250,000 deductible but covered the rest of the deductible for the Lexington policy, which amounted to $1,777,500.
When Hurricane Harvey struck Houston in 2017, Buffalo Bayou overflowed its banks after water was released from upstream reservoirs and inundated the SCD building. There was no dispute that the damage was caused by a named storm. Lexington paid $15 million under its “all risks” policy for damages that exceeded the deductible amount.
SCD asked Landmark to pay what it said was owed under what it called its “deductible buy back policy,” which had a limit of $1,527,500. While Landmark says its policy did not list flooding as a named peril, SCD argued that the policy did say that it contains the same warranties and conditions as the primary insurer’s policy.
Landmark denied the claim. The carrier said it is undisputed that the damage to SCD’s property was caused solely by flooding, which was not listed as a named peril in the policy. In a reply brief, the insurer said SCD’s interpretation that its policy covers all of the perils named in the Lexington policy was “baseless.”
Landmark filed a lawsuit seeking a declaratory judgment that no coverage was owed.
A magistrate judge sided with SCD, and U.S. District Court Judge Andrew S. Hanen accepted his recommendation to grant a motion to dismiss Landmark’s suit.
Landmark argued that while its policy covered the perils of “windstorm or hail” that are “associated with a named storm,” that doesn’t mean it covers all perils associated with a named storm. The insurance contract is a “named perils” policy, not an all-risk policy like the one issued by Lexington.
The 5th Circuit panel agreed.
“If SCD’s interpretation of the policy were correct, then the Landmark policy simply could have stated that all damage from a Named Storm is covered (regardless of the peril that caused the damage),” the opinion says. “But the Landmark policy does not state this. Instead, the policy frames its coverage as applying to specific ‘[c]overed perils.'”
The court reversed the district court and rendered judgment in favor of Landmark.
Top photo: City of Houston skyline view of Buffalo Bayou Park, still underwater during the aftermath of Hurricane Harvey, Aug. 30, 2017 in Houston. (Photo by Juan DeLeon/Icon Sportswire) (Icon Sportswire via AP Images)
*This article was originally published by Claims Journal, our sister publication