Flood sublimit applies to all losses, not just property, says court
The court's ruling states that a provision in a policy that limited the insurer’s liability for losses applied to all loss arising out of a flood.
A court recently ruled that a provision in an insurance policy that limited the insurer’s liability for losses from “flood for high hazard zones” applied not only to property damage but to all loss or damage arising out of a flood, reversing a previous court’s decision.
The case
Federal-Mogul LLC, the operator of an automobile parts factory in the Rojana Industrial Park in Thailand, purchased an insurance policy for its factory from the Insurance Company of the State of Pennsylvania. The policy provided property damage and time element coverage, and limited the insurer’s liability for losses from “flood for high hazard zones” to $30 million.
Thereafter, Federal-Mogul’s factory was damaged in a flood, which caused about $39 million in property damage and $25 million in time element loss.
Federal-Mogul filed a claim for those losses with the insurer, but the insurer refused to pay more than $30 million because, in its view, the flood had occurred in a high hazard zone.
Federal-Mogul sued the insurer, arguing, among other things, that the $30-million limitation for “flood for high hazard zones” applied only to property damage and, therefore, that the insurer remained liable for the full amount of its time element loss.
The U.S. District Court for the Eastern District of Michigan granted summary judgment to Federal-Mogul, and the insurer appealed to the Sixth Circuit.
The decision
The U.S. Court of Appeals for the Sixth Circuit court reversed, holding that the $30 million sublimit for “flood for high hazard zones” applied not only to the policy’s flood coverage for property damage but to all loss or damage arising out of a flood.
In its decision, the circuit court explained that the policy’s general limit of liability limited the insurer’s liability “for all loss or damage arising out of one ‘occurrence’” to $200 million and found that the general limit applied to “all loss or damage arising out of” a flood, because the policy excluded language restricting the sublimit only to property damage.
The court then pointed out that below the general limit, the policy “more specifically” limited the insurer’s liability for “flood for high hazard zones” to $30 million.
Furthermore, the policy used the term “flood” to refer more generally to a type of peril insured by the policy. Thus, the policy limits the insurer’s liability for losses “from a particular type of peril rather than a particular type of coverage.”
The case is Federal-Mogul LLC v. Ins. Co. of Pennsylvania, Nos. 17-1649/1716 (6th Cir. July 8, 2019).
This article first published at law.com.
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