A mixed result for the insured and excess insurers was reached in Six Flags Inc. v. Westchester Surplus Lines Ins. Co., No. 08-30476, 2009 U.S. App. LEXIS 8273 (5th Cir. April 21, 2009)[here]. Although the Fifth Circuit determined most insurers had no further coverage obligation, the flood exclusion in one excess policy was found ambiguous.
Six Flags operated a theme park in New Orleans. Six Flags had multi-layers, all-risk first-party coverage arranged as follows: (1) a primary layer with $25 million in limits; (2) a first excess layer with $125 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 $5.7 million for this coverage.
The Excess Insurers covered all risks, subject to certain limits. The policies' Flood sublimit was "applicable to all loss or damage . . . per occurrence and in the term aggregate as respects Flood at any location in a Flood Zone A or V" as designated by FEMA. The provision limited coverage for the first-layer excess policies to $2,500,000. Six Flags' theme park was located in a Flood Zone A.
Finally, the polices lumped together all loss within a 72-hour window within a Weather Cat Occurrence which was defined as "All loss or damage occurring during a period of 72 hours which is caused by . . . [a storm named by the National Weather Service]." Further, "storm" included all "weather phenomenon, . . . including, but not limited to Flood, wind, hail, sleet, tornadoes, hurricane or lightning."
One excess policy issued by Commonwealth Insurance replaced the definition of Flood with an endorsement defining Flood as "loss or damage caused by waves, tidal water or tidal wave, overflow of . . . bodies of water. . . all whether driven by wind or not."
After Hurricane Katrina caused extensive damage to its park, Six Flags submitted losses totaling $150 million to its insurers. The primary-layer insurers paid $25 million, exhausting this level of coverage. The Excess Insurers then capped their coverage at $2.5 million pursuant to the Flood sublimit.
Six Flags sued, arguing the Flood sublimit did not apply because of a separate peril of a Named Storm. The district court granted summary judgment to the insurers, concluding the Flood sublimit was unambiguous and excluded excess coverage.
On appeal, the Fifth Circuit first analyzed the non-Commonwealth Excess policies. Six Flags argued the Flood sublimit did not apply to Flood loss in a Weather Cat Occurrence because a Named Storm was a distinct peril not subject to the Flood sublimit. In other words, the Weather Cat Occurrence subsumed all of the other perils defined and was subject only to sublimits expressly addressed to it. The Fifth Circuit disagreed. The Flood sublimit clearly capped the liability of the Excess Insurers at $2.5 million for all loss or damage per occurrence, including a Weather Cat Occurrence, as respected Flood.
Turning to the Commonweatlh Policy, Six Flags argued the "Flood" definition endorsement clarified for the Commonwealth Policy and the other Excess Policies that Flood caused by the peril of a Named Storm was not considered in the application of the Flood sublimit. The Fifth Circuit determined the Flood definition endorsement ambiguous. A reasonable reading of the Commonwealth endorsement meant it excluded the applicability of the Flood sublimit to Flood that was caused by the peril of a Named Storm. Therefore, the district court's order granting summary judgment to Commonwealth was reversed.
Finally, Six Flags argued the definition of Flood in the non-Commonwealth policies should be read in light of the definition contained in the Commonwealth Flood definition endorsement. The Fifth Circuit declined to modify the non-Commonwealth Policies to find an ambiguity. Under Louisiana law, the policies had to be reviewed as independent units.
