Four years after the devastation of Hurricane Katrina, the storm continues to produce a tempest or perhaps a flood (metaphors have consequences in this instance) of insurance coverage litigation. The latest decision is Six Flags, Inc. v. Westchester Surplus Lines Insurance Co., 565 F.3d 948 (5th Cir. 2009).  The decision presents yet another variant on the vexed question or whether a loss resulted from flood or wind.

Six Flags’ theme park in east New Orleans sustained heavy damage during Hurricane Katrina, from both flooding and high winds. Six Flags had obtained multilayered, manuscript, all-risks, first-party property insurance for its domestic theme parks for the period June 15, 2004 through November 1, 2005. The combined limits of its primary and excess policies totaled $450 million. Through its broker, Marsh, Inc., Six Flags obtained manuscript insurance coverage.  The policies provided four distinct layers of coverage: (1) a primary layer with $25 million limits; (2) a first excess layer with $50 million in limits; (3) a second excess layer with $125 million in limits; and (4) a third excess layer with $250 million in limits. Six Flags paid an annual premium of $5,716,927 for this coverage. Id. at 951. 

The excess policies provided Six Flags with all-risks coverage, subject to certain limits and deductibles. One such sublimit was a flood sublimit “applicable to all loss or damage per occurrence and in the term aggregate as respects Flood in any location in Flood Zone A or B, as designated by the Federal Emergency Management Agency.” The excess policies also contained deductibles, including separate deductibles for the perils of flood and a Named Storm. The excess policies defined flood to include “the overflow of inland tidal waters.” Commonwealth’s second excess-layer policy contained a broad definition of the term “flood” to encompass “loss or damage caused by waves, tidal water, or tidal wave . . . all whether driven by wind or not.” All of the excess policies contained a “Weather Cat Occurrence” that provided that “all loss or damage occurring during a period of 72 hours which is caused by or results from a storm or weather disturbance which is named by the National Weather Service” constituted a single occurrence for purposes of adjusting claims. Id. at 951-52. 

Six Flags submitted losses to its insurers totaling $150 million.  Six Flags’ primary layer insurers paid $25 million, exhausting that layer of coverage. The excess insurers — affording coverage in the $25 million to $200 million range — sought to limit their coverage. The excess insurers sought to cap their liability at $2.5 million pursuant to the Flood sublimit, which limited the liability of the first-layer excess policies to $2.5 million per occurrence.

Applying Louisiana law, the court held that “the contract provisions in the non-Commonwealth Excess Policies have only one reasonable meaning: 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.” Id. at 955. The court rejected Six Flags’ argument that the Weather Cat Occurrence excluded the applicability of the Flood sublimit. Rather, “the Excess Policies define ‘occurrence’ in order to explain when sublimits with a deductible apply—not to exclude the applicability of a particular sublimit.” Id. “Because ‘flood’ is a weather phenomenon within the Weather Cat Occurrence, the Flood sublimit applies one time per such occurrence to limit loss and damages with respect to that Flood.” Id. at 956. As it was undisputed that the Six Flags New Orleans theme park located in an area designated Flood Zone A and that Hurricane Katrina was a named storm, “the Flood sublimit applies to limit the non-Commonwealth excess insurers’ liability at $2.5 million over the primary layer of insurers’ $25 million policy limit for loss or damages resulting from flooding caused by, associated with, or occurring in conjunction with Hurricane Katrina.” Id.

The court also rejected Six Flags’ argument that the Flood sublimit did not apply to flood loss in a Weather Cat Occurrence because a named storm is a distinct peril not subject to the Flood sublimit. The dictionary definition of the term “peril” is “the 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.” Id. at 956. The court characterized Six Flags’ argument as being tantamount to a “‘one-stop shop’ for insuring all loss resulting from a hurricane—in other words, the Weather Cat Occurrence subsumes all the other perils defined therein and is subject only to sublimits and deductibles expressly addressed to it.” Id. “We cannot reasonably interpret the Weather Cat Occurrence definition to have this meaning.”

The court determined that Six Flags’ proposed construction “ignores the language of Excess Policies and disregards the express purpose of defining an occurrence.” Id. The court determined that Six Flags’ 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.’” Id. at 956-57. “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.” Id. at 957. 

The court remarked that “Six Flags’ reading avoids recognizing that the definition of an occurrence, which groups certain losses for adjustment purposes, is distinct from the concept of peril, which is the cause of loss.” Id.  This “construction would transform the definition of a Weather Cat Occurrence into the definition of a Named Storm peril by cross-referencing the nondefinitional mention of that peril into deductible that applies to a Weather Cat Occurrence.” Id. In the court’s view, “such a result would conflate the two distinct terms and is too tenuous to provide a reasonable alternative meaning to the Excess Policies.” Id.

The court also rejected Six Flags’ invocation of the presumption in favor of coverage. First, the language of the Excess Policy admitted of only one reasonable construction. Second, under Louisiana law, “the presumption does not apply where the insured is a sophisticated commercial entity that itself drafts or utilizes the agent to secure desired policy provisions.” Id. at 958. “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.” Id. at 959.

The court held that the Commonwealth Flood definition endorsement “creates an ambiguity in the Commonwealth policy.” Id. First, one reasonable interpretation of the endorsement is that loss resulting from a flood caused by a peril (such as a Named Storm) is not subject to the Flood sublimit.” The other interpretation is 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.” Id. That is, under the first interpretation, the phrase “caused by peril” modifies “flood,” whereas in the alternative interpretation, the phrase “caused by peril” modifies “loss.” Id. The court thus remanded to the district court the interpretation of whether Excess Insurers’ proposed alternative interpretation of the endorsement was reasonable. Id. at 960.

Finally, the court rejected Six Flags’ attempt to extend this result to the non-Commonwealth Excess Policies because the non-Commonwealth Excess Policies contained no words of incorporation. Id. at 961.

Six Flags bears a similarity to the Ninth Circuit’s decision in Northrop Grumman Corp. v. Factory Mut. Ins. Co., 563 F.3d 777 (9th Cir. 2009). There, Northrop sought coverage for severe damage to its Pascagoula, Mississippi, shipyard, which sustained $1,257,100,000 damages in the wake of the hurricane. As with Six Flags, Northrop negotiated manuscript insurance coverage through its broker, Aon Risk Services. Northrop obtained $19.8 billion dollars in all-risk primary and excess property insurance from Factory Mutual. The primary layer provided comprehensive property insurance with a general limit of $500 million and certain sublimits, such as a $400 million sublimit per flood occurrence. The excess layer covered additional losses up to the $19.8 billion total value of Northrop’s property but excluded flood coverage.

The primary policy insured against “all risk of physical loss or damage to property,” defining the term “flood” as “all physical loss or damage caused by or resulting from floodwaters . . . tide or tidal water . . . .” The policy defined “wind” as “direct action of wind, including substance driven by wind.” Finally, the policy defined “Named Windstorm” as the “direct action of wind, including any substance driven by wind and/or flood when such wind or flood is associated with or occurs in conjunction with a storm or weather disturbance . . . .” 

The excess policy included a flood exclusion. Flood was defined as “flood . . . waves; tide or tidal water . . . regardless of any other cause or event contributing concurrently or at any sequence of loss.” The excess policy did not define “named windstorm” or “wind damage.”

Hurricane Katrina severely damaged Pascagoula shipyard, causing a staggering $1,257,100,000.00 in damage.  Factory Mutual paid Northrop $15 million under the primary policy but excluded coverage under the excess policy, but Factory Mutual informed Northrop that its coverage under the excess policy was caused by two separate perils: a loss caused by wind, which has no limitation on the amount of coverage, and a loss caused by flood, which was not covered at all, due to the flood exclusion. Id. at 782. 

The court held that “understood in the ordinary and popular sense . . . the Flood Exclusion encompasses the water damage to Northrop’s shipyards.” Id. at 783.  Both “lay and legal dictionaries as an overflowing or inundation of water over usually dry land.” Id. at 783-84.

 The court rejected Northrop’s argument that the excess policy should be read in light of the primary policy.  Northrop fastened on the fact that the phrase “whether driven by wind or not” was used in the primary policy’s definition of Flood but was omitted from the excess policy’s definition of flood. Northrop also made much of the fact that the terms “wind” and “named windstorm” were not defined in the excess policy.  The court declined to treat the two documents as one contract. Id. at 785. There was no support for the argument “that an ambiguity must exist because of the different definitions of Flood in the primary and excess policies.” Id.   

What is more, the court determined that “under either definition of flood, Northrop’s limited interpretation of a broad term, ‘flood,’ as excluding wind-driven flooding is not reasonable.” Id. The court rejected Northrop’s argument that “the absence of the phrase ‘whether driven by wind or not’ in the Flood Exclusion evidenced an intent on Factory Mutual’s part to expand coverage to include wind-driven flood. Rather, the court concluded that “because the other terms used to describe flood were merely descriptive of floods, or synonymous for flood, rather than separate exclusions, the absence of ‘whether driven by wind or not’ is not rendered surplusage in the primary definition, nor is it necessary to the excess policy’s definition, where the term ‘flood’ is sufficiently broad to encompass the damage Northrop suffered.” Id. at 786-87.

 The court further rejected Northrop’s argument that it was material that the term “Named Windstorm” and “Wind” were not referenced in the excess policy. “The primary policy was an all-risk policy covering all acts unless specifically excluded.” Id. at 787. The primary policy thus “did not create coverage that the excess policy failed to exclude,” but rather included these terms “to explain when the special Named Windstorm deductible would apply.” Id. 

On these conclusions, the court held that “the Flood Exclusion unambiguously barred coverage for the water damage to Northrop’s shipyard under the excess policy.” Id. at 788. The court nonetheless remanded the case to the district court to determine whether coverage obtained under California’s efficient-proximate-cause doctrine. Id. 

Six Flags and Northrop Grumman are yet two more victories in a series of victories by insurers in Katrina insurance coverage litigation. The Fifth Circuit has repeatedly held that coverage for such claims is excluded by the flood — or water — damages exclusions. See Kodrin v. State Farm Fire & Cas. Co., Nos. 08-30092, 08-30169, 2009 WL 614521 (5th Cir. March 11, 2009); BLBE v. Belsom, 530 F.3d 314 (5th Cir. 2008); Broussard v. State Farm Fire & Cas. Co., 523 F.3d 618 (5th Cir. 2008); Smith v. Allstate Indemn. Co., No. 08-60013, 2007 WL 4259194 (5th Cir. December 4, 2007); Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346 (5th Cir. 2007); Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007); In re Katrina Canal Breaches Litig., 495 F.3d 191 (5th Cir. 2007). What is more, these decisions are uniform in enforcing anti-concurrent causation clauses, which exclude losses that are concurrently caused by covered and excluded events and in rejecting  the doctrine of efficient proximate clause. Kodrin, 2009 WL 614521 at *2 n.11; Tuepker, 507 F.3d at 356; Leonard, 499 F.3d at 431-433; In re Katrina Canal Breaches Litig., 495 F.3d at 221-23. The sole decision in which an insured prevailed in demonstrating that wind rather than water caused the loss turned on a dispute among competing experts as to the cause of the home’s damage. Dickerson v. Lexington Ins. Co., 556 F.3d 290 (5th Cir. 2009).