The Fifth Circuit considered whether the district court properly determined that an excess policy covered flood, but that coverage was limited under the policy's anti-concurrent causation clause (post on district court's prior decision here).  The appellate court reversed in part and remanded.  Stewart Enter., Inc. v. RSUI Indem. Co., Inc., 2010 U.S. App. LEXIS 16555(5th Cir. Aug. 4, 2010).

   The insured's properties suffered heavy damage from wind and flood created by Hurricane Katrina.  The insured had three layers of insurance.  Lexington issued the primary lawyer, providing all risk coverage for up to $10 million, including $10 million in flood coverage.  Lloyd's had the first excess layer, $15 million of all risk coverage,  including $15 million in flood coverage, excess to the first $10 million provided by Lexington.  Finally, RSUI issued the second excess layer, providing a coverage limit of $225 million, excess to the $25 million provided by the first two layers.  Both Lloyd's and RSUI's policies were  "following form," adopting the terms and conditions of the Lexington primary policy.

   After Katrina, both Lexington and Lloyd's paid the full amounts of their policies.  RSUI resisted, however. RSUI contended it was not obligated to cover flood damage.  Even if flood damage was covered, it was limited by the anti-concurrent causation clause to damage caused exclusively by flood and not in conjunction with wind.  The insured argued the RSUI policy adopted the limits set forth in the Lexington and Lloyd's policies, and covered any of the $25 million in flood coverage unpaid by these policies.  Further, the anti-concurrent causation clause only operated above that $25 million limit.

   The district court found that the RSUI policy covered up to $25 million in flood damage, but that the anti-concurrent causation clause barred any recovery for damage jointly caused by wind and flood.  Damage caused by wind or flood exclusively, however, would be covered.

   Devoting extensive effort to untangle various provisions in the three policies, the Fifth Circuit first determined that RSUI's following form policy provided flood coverage.  The court then turned to whether the anti-concurrent causation clause under Lexington's policy barred recovery for damage caused concurrently by wind and flood within the $25 million limit.

   The relevant provision in Lexington's policy read:

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 . . . .

Section 3, Paragraph J set forth a $10,000,000 sublimit of liability to cover Flood.  Therefore, the Lexington policy excluded flood, but in the same sentence created an exception to the exclusion by providing flood coverage up to $10,000,000.

   The Fifth Circuit found there was coverage for damage caused by wind and flood regardless of the two anti-concurrent causation clauses.  RSUI's interpretation would force the insured to demonstrate that damage was caused exclusively by one of two included perils.  This reading could only assume a full exclusion of flood damage, ignoring that the Lexington policy, which the RSUI policy followed, did cover flood.  Accordingly, the anti-concurrent causation clause applied only to damage in excess of the $25 million aggregate limit.

   Thanks to new Damon Key colleague, Rebecca Copeland, for flagging this case.