The Fifth Circuit considered whether the second-layer excess policy incorporated the anti-concurrent causation clause and water exclusion from the primary policy. See ARM Properties Management Group v. RSUI Indemn. Co., 2010 U.S. App. LEXIS 23174 (5th Cir. Nov. 5, 2010).
ARM purchased property insurance for hundreds of apartment complexes. By grouping separate properties together under a single policy, ARM was able to obtain better insurance rates for property owners. When Hurricane Katrina struck in August 2005, nine of ARM's covered properties sustained damage. Each of the properties had three layers of coverage. The primary policy had a $20 million coverage limit. A first-layer excess had a $10 million limit for damage amounts exceeding the primary policy limits. Finally, RSUI issued a second-layer excess policy with a $470 million coverage limit for damage amounts exceeding the combined primary and first-layer excess coverage limit of $30 million.
The primary policy and first-layer excess paid the combind liability limit of $30 million. ARM sought $5.5 million in combined wind and water damage from RSUI's policy. RSUI responded that no payment was due because the wind-water damage was excluded under the primary policy's anti-concurrent causation clause:
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
The primary policy also excluded water damage.
The parties stipulated that if the RSUI policy incorporated the anti-concurrent causation clause and water exclusion, the total losses would not reach RSUI's coverage layer. The district court awarded ARM its full claim of $5.5 million.
Two provisions of the RSUI policy directly referenced the primary policy and expressly incorporated the primary polices coverage parameters. First, under the "Insuring Clause," RSUI agreed to "indemnify in respect of direct physical loss or damage to the property . . . which are also covered by and defined in the [primary policy]." Second, the "Maintenance of Primary Insurance Clause" provided, "this policy is subject to the same warranties, terms and conditions . . . as are contained in or as may be added to the primary policy."
The Fifth Circuit held that taken together, these two clauses meant the RSUI policy only covered damage that was also covered by the primary policy and excluded any damage excluded by that policy. The plain language of the anti-concurrent causation clause and water exclusion, read together, excluded from coverage any damage caused by a combination of wind and water. Thus, the combined wind-water damage at issue here was a peril expressly excluded from coverage by the primary policy. The anti-concurrent causation clause and water exclusion were therefore expressly incorporated by the RSUI policy pursuant to the Insuring Clause and the Maintenance of Primary Insurance Clause. Accordingly, the district court was reversed.
