Refusing to give the sublimit in a flood policy an expansive reading, the court found that the sublimit did not apply to business interruption loss. Federal-Mogul Corp. v. Ins. Co. of Pa., 2015 U.S. Dist. LEXIS 137394 (E.D. Mich. Oct. 8, 2015).
The insured's facility in Thailand was damaged by flood. The parties stipulated that the insured suffered a loss of $64,500,000, which included $39,406,467 in property damage and $25,093,533 in time element loss (i.e., economic loss due to an inability to operate normally). The insurer paid $30 million, stating that the High Hazard flood zone provision in the policy limited the amount owed under the policy.
The insured argued the High Hazard sublimit applied only to physical loss or damage caused by the flood, and not to time element loss. Therefore, the insured was entitled to judgment on its time element loss claim for $29,093,533. The insurer argued it was entitled to judgment as a matter of law because the High Hazard sublimit applied to all loss caused by flood, including time element loss.
Both property damage and time element loss caused by flood were covered by the policy. The "Flood Aggregate Limit of Liability" provided a general $200 million limit per policy year. This $200 million limit was subject to four sublimit amounts, including the High Hazard Zone sublimit of $30 million.
Further, the Flood Aggregate Limit of Liability set forth a $200 million limit "for all locations combined in any one policy year, except . . . Flood for High Hazard Zones" for which there was the $30 million annual aggregate limit. The provision did not specify the types of loss included. Specifically, "Flood for High Hazard Zones" made no mention of time element loss.
The flood coverage provision defined the term "flood" as including only physical loss or damage. The policy also insured time element loss such as gross earnings "directly resulting from direct physical loss or damage of the type insured by this policy." Time element loss directly resulting from flood was covered by this section. But there was no indication that sublimits applying to "physical loss or damage" caused by flood also applied to time element loss "directly resulting from" such physical loss or damage.
Looking at the sublimits in the policy, the sublimit immediately following the High Hazard sublimit expressly included two time element loss extensions: contingent time element and service interruption time element. These provisions demonstrated that the parties understood how to set limits of liability and sublimits that combined or included time element loss. The inclusion of certain types of time element loss in a flood-related sublimit supported a finding that the High Hazard sublimit did not implicitly include time element loss.
Therefore, the court found the High Hazard sublimit applied only to physical loss or damage caused by flood and did not apply to time element loss. The insured's motion for partial summary judgment on the time element loss of $25,093,533 was granted.
