IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 2, 2009
No. 08-30050 Charles R. Fulbruge III
Clerk
ARCTIC SLOPE REGIONAL CORPORATION; ASRC ENERGY SERVICES
INC.; OMEGA NATCHIQ INC
Plaintiffs-Appellants
v.
AFFILIATED FM INSURANCE CO.
Defendant-Appellee
Appeal from the United States District Court
for the Western District of Louisiana
Before JONES, Chief Judge, and JOLLY, Circuit Judge, and MONTALVO,
District Judge.*
EDITH H. JONES, Chief Judge:
This appeal represents a variation on the court’s previous insurance
coverage decisions in Leonard v. Nationwide Mutual Ins. Co., 499 F.3d 419 (5th
Cir. 2007) and Tuepker v. State Farm Fire & Casualty Co., 507 F.3d 346 (5th Cir.
2007). Appellants, the insured parties, admit that Hurricane Rita’s storm surge
in September 2005 flooded Omega Natchiq Inc.’s (“Omega”) office and
*
United States District Judge, Western District of Texas, sitting by designation.
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construction yard in Iberia Parish, Louisiana, up to three feet deep. This
particular flood was excluded from coverage by the “all risks” policy Arctic Slope
Regional Corporation (“Arctic Slope”), the parent company, had purchased from
insurer Affiliated FM Insurance Co. (“Affiliated”). Arctic Slope contends that the
loss nonetheless falls within an unusual policy provision defining coverage for
wind/hail damage. Like the district court, which ably dissected the policy, we
disagree with Arctic Slope’s position and affirm the judgment for the insurer.
After Affiliated denied coverage for the company’s storm surge losses,
Arctic Slope filed suit on behalf of itself and related companies. The facts
underlying its insurance claim were undisputed. Arctic Slope now appeals from
the district court’s adverse summary judgment on coverage issues.
This court reviews the summary judgment interpreting an insurance
contract de novo. See Leonard, 499 F.3d at 428. In this diversity case, we apply
Louisiana’s principles of construction to the policy at hand. Louisiana courts
construe insurance policies like any other contract according to the parties’
intent as expressed in the words of the policy. L A. C IV. C ODE art. 2045-2048. An
insurance policy must be “construed according to the entirety of its terms and
conditions as set forth in the policy, and as amplified, extended, or modified by
any rider, endorsement, or application attached to or made a part of the policy.”
L A. R EV. S TAT. § 22:881. The Louisiana Supreme Court recently emphasized the
importance of reasonableness in insurance policy interpretation:
An insurance policy should not be interpreted in an unreasonable or
a strained manner so as to enlarge or restrict its provisions beyond
what is reasonably contemplated by its terms or so as to achieve an
absurd conclusion. . . .
If after applying the other general rules of construction an
ambiguity remains, the ambiguous contractual provision is to be
construed against the insurer and in favor of coverage. Under this
rule of strict construction, equivocal provisions seeking to narrow an
insurer’s obligation are strictly construed against the insurer. That
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No. 08-30050
strict construction principle, however, is subject to exceptions. One
of these exceptions is that the strict construction rule applies only
if the ambiguous policy provision is susceptible to two or more
reasonable interpretations. For 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.
Sher v. Lafayette Insurance Company, 988 So.2d 186, 193 (La. 2008) (citations
omitted).
Arctic Slope contends that Omega’s storm surge damage was expressly
covered by the wind/hail provision of the Affiliated policy or alternatively that
the policy is ambiguous and must be construed in its favor. A systematic review
of the applicable policy provisions is therefore necessary.
The Affiliated policy covers facilities owned by Arctic Slope and its
subsidiaries throughout the United States for “all risks of direct physical loss or
damage to insured property except as defined and limited herein.” The policy
goes on to cover losses from both “flood” and “wind and hail,” subject to specific
sub-limits, restrictions and exclusions.
Notably, Arctic Slope concedes that while the policy definition of “flood”1
encompasses storm surge damage, the policy excludes flood coverage, at a
minimum, in low-lying flood-prone areas like Omega’s location.2 Apart from the
1
Flood means any surface water; tidal or seismic sea wave; rising (including
overflowing or breaking of boundaries) of any body of water; including but not limited to
reservoirs, lakes, streams, rivers, ponds and harbors all whether driven by wind or not, and
including spray from any of the foregoing that results from, contributes to, or is aggravated
by any of the above. Flood also includes physical loss or damage from water which backs up
through sewers or drains that are below ground level as a result of flood.
2
1. Flood Exclusion
Coverage as provided by Section C., Additional Coverage, Item 2. Flood:
is excluded at any location situated in:
1. Any flood zone or area designated by the Federal Emergency
Management Agency (FEMA) as subject to a flood frequency up to and
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No. 08-30050
defined time period and locations in which flood damage is covered, the policy
specifically excludes loss or damage caused by “[f]lood, [s]eepage or [i]nflux of
water from natural underground sources below the surface of the ground . . .”
See Group I Exclusions.
Wind/hail coverage is afforded by Form S2 accompanying the policy, a list
of Wind and Hail Prone Areas that includes Iberia Parish, Louisiana, among
counties of nine states, Puerto Rico and the Virgin Islands. Reimbursement for
wind/hail damage is subject to a special sub-limit and deductible. The policy
definition of “wind and/or hail” is rather broad:
Wind and/or hail means direct and/or indirect action of wind
and/or hail and all loss or damage resulting therefrom whether
caused by wind, by hail or by any other peril other than fire or
explosion including but not limited to, loss or damage caused when
water, in any state, rain, sleet, snow, sand, dust or any other
substance, material, object or thing is carried, blown, driven, or
otherwise transported by wind onto or into said location.
One more critical policy feature is relevant. Prefacing the Group I
Exclusions (including the flood exclusion noted above) is the following anti-
including the 100 year frequency, or
2. Any flood zone or area for which FEMA has not yet determined the flood
hazard frequency or has not yet classified or designated as being in or
out of a flood zone, or any area outside the United States.
The peril of flood is covered in an area protected by dams, levees, dikes,
or walls which:
a. Protect such areas from at least the level of the 100 year flood,
and have no such openings or flood gates, and
b. Were built by and are either maintained or inspected by the
United States (U.S.) Army Corps of Engineers.
Affiliated FM will not undertake any duty to advise the insured on
whether any locations are in an area excluded from coverage under the
Flood Endorsement. The Insured has the responsibility to determine
whether its locations are in an excluded area.
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No. 08-30050
concurrent cause (“ACC”) clause, tailored as a Louisiana mandatory
endorsement:
Group I. This policy does not insure against loss or damage caused
directly or indirectly or resulting from any of the following. Loss or
damage is excluded regardless of any other cause or event whether
or not insured under this policy that contributes concurrently or in
any sequence to the loss or damage.
Arctic Slope maintains that Omega’s damage falls squarely within the
plain language of the wind/hail provision because the storm surge consisted of
water driven by wind onto or into Omega’s property. See Leonard, 499 F.3d at
437, n.15 (defining a storm surge as “water that is pushed toward the shore by
the force of the winds swirling around the storm. This advancing surge
combines with the normal tides to create the hurricane storm tide . . . This rise
in water level can cause severe flooding in coastal areas.”). Based on this
premise, the company posits two levels of ambiguity in the policy. First, the
policy is allegedly ambiguous because it excludes coverage for the storm surge
damage within the flood definition while authorizing coverage for the same
damage in the wind/hail provision. The district court rejected Arctic Slope’s
proffered interpretation of the wind/hail provision as unreasonable in light of the
entire policy. We need not opine on that conclusion, however, because even if a
hurricane storm surge falls within the definitions of both an excluded peril (flood
at Omega’s site) and a covered peril (wind/hail), the policy is not ambiguous.
The policy explicitly states that it covers all risks of direct physical loss or
damage “except as excluded under this policy.” Section A, Perils Insured. There
is no ambiguity when the policy is read as a whole. The exclusion of storm surge
as a flood event cannot be reversed by its possible inclusion as a wind/hail event.
Second, Arctic Slope considers the ACC clause ambiguous because there
is only one cause of damage–storm surge–not separate causes defined as
separate perils in the policy; and because the flood exclusion is awkwardly
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No. 08-30050
articulated within that clause.3 Neither of these arguments withstands analysis.
Notwithstanding Arctic Slope’s creative efforts to manufacture ambiguity, the
ACC clause is unequivocal and unyielding. It excludes insurance against loss
or damage caused by or resulting from any of the listed causes, including flood
(as defined by the policy). It then repeats that loss or damage is excluded
“regardless of any other cause or event whether or not insured under this policy
that contributes concurrently or in any sequence to the loss or damage.” The
storm surge flood occasioned by Hurricane Rita “whether driven by wind or not”
is not covered by this policy. Consequently, the ACC clause precludes coverage
of the loss or damage under the wind/hail provision as water “carried, blown,
driven or otherwise transported by wind onto or into said location.” 4 In this
situation, the ACC clause operates exactly as it was intended, and it is not
ambiguous. The clause eliminates application of an efficient proximate cause
rule, whereby a jury could be called upon to determine the relative contribution
of the covered and the excluded perils, by excluding coverage altogether.
The interpretation of the ACC in Affiliated’s policy is therefore essentially
similar to our interpretation of an ACC clause in Leonard. This court concluded
that the policy’s plain language left “no interpretive leeway to conclude that
recovery can be obtained for wind damage that occurred concurrently or in
sequence with the excluded water damage.” Leonard, 499 F.3d at 430 (internal
quotation omitted). Leonard further explained that damage caused by wind
3
Restating in full the flood exclusion within Group I of Excluded Perils, the provision
states:
8. Flood, Seepage or Influx of Water from Natural Underground Sources
below the surface of the ground. Except as provided in Section C.,
Additional Coverage, Item 2. Flood. . . .
4
Unlike in Leonard, the damage here was all allegedly caused by storm surge. Arctic
Slope did not assert damages attributable separately and independently either to wind or
flooding.
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No. 08-30050
“concurrently or in any sequence” with water is exemplified by “the storm-surge
flooding that follows on the heels of a hurricane’s landfall.” Id. Hence, “if wind
and water synergistically caused the same damage, such damage is excluded.”
Id. (emphasis in original). The fact that the wind/hail provision in this case is
written more broadly than the wind-only provision in Leonard does not, in our
view, render the ACC clause ambiguous.
We also reject Arctic Slope’s contention that the description of a flood peril
excluded by the ACC clause is itself ambiguous. It is simply a microcosm of the
general scope of policy coverage, that is, certain perils are covered as defined and
limited in the policy and subject to the policy’s express exclusions. Hence, flood
loss, as supplementally defined to include seepage or influx of water from below
ground, remains excluded under the ACC clause, although it is covered, subject
to other qualifications, as defined by Part C, Additional Coverage, Section 2.
There is no ambiguity; instead, coverage has been carefully apportioned under
the policy to certain flood losses.
CONCLUSION
For the foregoing reasons, Omega’s loss from Hurricane Rita’s storm surge
is not covered by Affiliated’s policy, either as a matter of express policy
interpretation or by inference drawn from ambiguity. The judgment of the
district court is AFFIRMED.
7