Two issues were presented in Stewart Enterprises, Inc. v. RSUI Indem. Co., Inc., 2009 U.S. Dist. LEXIS 50156 (E.D. La. June 15 2009). First, was the excess carrier's following form policy was bound by the primary carrier's exception to the flood exclusion? Second, was the primary policy's anti-concurrent causation clause applicable?
The insured owed various cemeteries, funeral homes, and other commercial properties that were damaged during Hurricane Katrina. The insured held a primary layer of property insurance from Lexington Insurance Company with a limit of $10,000,000. The first excess layer of coverage was provided by Lloyd's, with $15,000,000 in excess of the primary limit. Finally, RSUI provided a second excess layer of coverage for $225,000,000 in excess of the $25,000,000 primary and first excess limits.
Lexington and Lloyd's paid policy limits, but RSUI only made a "good faith" advance of a little over one million dollars. The insured sued.
Because RSUI's policy was following form, Lexington's flood exclusion was critical. Lexington's policy excluded, "Flood, unless specified in Section 3, Sublimits of Liability, Paragraph H., and then only for such specified amount." Section 3, paragraph J then set forth a $10,000,000 sublimit of liability "in the aggregate for any one policy year for the peril of Flood." The Lexington policy, therefore, excluded the peril of flood, but in the same sentence created an exception to that exclusion by providing flood coverage up to $10,000,000.
RSUI argued its policy simply adopted the flood exclusion as a traditional exclusion, i.e., without the $10,000,000 sublimit exception in the Lexington policy. The court disagreed. Had RSUI desired to exclude flood coverage, it could have done so by an exclusion in its own policy rather than by complex and indirect reliance on Lexington's exclusion with an exception.
Next, the court considered the insured's motion for summary judgment that the anti-concurrent causation clause was ambiguous. The policy provided,
This policy does not insure against loss or damage caused directly or indirectly by any of the following excluded perils. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss:
. . .
P. loss or damage cause by or resulting from:
. . .
(2) Flood, unless specified in Section 3, Sublimits of Liability, Paragraph J., and then only for such specified amount
(3) any and all loss from any other cause when occurring concurrently or sequentially with . . . Flood . . . .
Regarding Paragraph P(2), the Court declined to enforce the anti-concurrent causation clause to preclude recovery for flood damage when the RSUI policy afforded coverage for that same peril.
A different result was reached under paragraph P(3), however. This paragraph contained anti-concurrent language independent of paragraph P(2) and the prefatory anti-concurrent causation language of the policy. Paragraph P(3) excluded damage caused by wind only "when occurring concurrently or sequentially with . . . Flood." Accordingly, the insured could recover for damage caused by wind which did not occur concurrently or sequentially with flood.
Because the decision involved controlling questions of law, the Court granted the right to an immediate appeal under 28 USC 1292 (b).