Following the Fifth Circuit, the Ninth Circuit recently found a flood exclusion to be unambiguous. See Northrop Grumman Corp. v. Factor Mut. Ins. Co., No. 07-56760 (9th Cir. Aug. 14, 2008).
The insured, Northrop, owned a shipyard in Pascagoula, Mississippi. Northrop's primary policy, issued by Factory Mutual, was an "all risk" policy, insuring Northrop against "all risk of physical loss or damage to the property" unless otherwise excluded. The policy covered flood damage. Northrop also had an "all risk" excess policy issued by Factory Mutual. The excess policy, however, excluded loss or damage caused by flood. The excess policy defined flood as "surface waters, rising waters, waves, tide or tidal water . . . regardless of any other cause or event contributing concurrently or in any other sequence of loss."
Northrop's shipyard suffered severe damage when Hurricane Katrina hit. Preliminary estimates put the damage at $1.25 billion. Factory Mutual paid Northrop $15 million under the primary policy, but denied excess coverage because of the flood exclusion.
Northrop sued, demanding coverage for water damage under the excess policy. The district court granted Northrop's motion for partial summary judgment. The district court ruled the flood exclusion was ambiguous because it did not "plainly and clearly reference hurricanes or damage caused by wind." Instead, the exclusion was limited to floods not caused by wind.
The Ninth Circuit reversed. The excess policy's flood exclusion, understood it is ordinary and popular sense, encompassed the water damage to Northrop's shipyards. Both legal and lay dictionaries characterized flood as an overflowing or inundation of water over usually dry land. Northop's shipyards, covered in up to ten feet of water, unquestionably experienced a flood within the meaning of the excess policy. Thus, the plain language of the flood exclusion unambiguously barred coverage under the excess policy for the water damage to Northrop's shipyards.
The case was remanded, however, for consideration of Northrop's argument that California's efficient proximate cause doctrine demands coverage of the water damage notwithstanding the language of the contract. This will be an interesting issue to monitor as California has previously held that an anti-concurrent causation clause cannot override the proximate cause doctrine. See Julian v. Hartford Underwriters Ins. Co., 110 P.3d 903, 904 (Cal. 2005).
