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By: William Gildea
The importance of clear and unambiguous language in insurance policies recently came to light in the United States District Court, Southern District of Texas. The Court recently granted Lexington Insurance Company (“Lexington”) summary judgment after an insured filed a lawsuit seeking coverage for losses to the insured’s properties caused by flooding from Hurricane Harvey in 2017. Lexington issued a Commercial Property Policy (the “Policy”) covering the insured’s commercial properties, including an apartment building, a commercial parking garage, and a retail building. The insured suffered $6,700,000.00 in flood damage from Hurricane Harvey and subsequently filed a timely claim under the Policy with Lexington.
The insurable value for the properties were $190,500,000.00 and $182,565.86 respectively. Lexington notified the insured the Named Storm Deductible applied, and the deductible surpassed the claim for damages.
An exception to the general deductible under the Policy was for “any adjusted loss due to Flood.” The Flood Deductible contained a $1,000,000.00 per location deductible for locations within Special Flood Hazard Areas. The Policy also contained a Windstorm Deductible ($100,00 per occurrence) that contained an exception titled “Named Storm Deductible” that provided:
5% of the total insurable values at the time of loss at each location involved in the loss or damage arising out of a Named Storm (a storm that has been declared by the National Weather Service to be a Hurricane, Typhoon, Tropical Cyclone, Tropical Storm or Tropical Depression), in Tier 1 Counties including Florida, regardless of the number of coverages, locations or perils involved (including but not limited to all Flood, wind, wind gusts, storm surges, tornados, cyclones, hail or rain) and subject to a minimum deductible of $250,000 any one occurrence.
The insured argued the Named Storm Deductible did not apply because the language was found in the Windstorm Deductible portion, and the insured did not suffer any wind damage.
The Court disagreed with the insured, analyzing that the Named Storm Deductible did not only apply to claims for wind damage. The Court looked to the clear and unambiguous language of the Named Storm Deductible, which applied “regardless of the number of coverages, locations or perils involved (including but not limited to all Flood, wind, wind gusts, storm surges, tornados, cyclones, hail or rain).” The Court held the clear and unambiguous language of the Named Storm Deductible applied to any loss caused by a Named Storm, including a loss resulting from heavy rains “associated with a Named Storm.” The Court concluded the insured’s damages were thus lower than the applicable deductible.
This decision shows that some courts will enforce clear and unambiguous policy provisions as they are written without regard to any perceived inequities in the resolution. Drafters of policies should remain vigilant that terms are generally construed against the interests of insurers and in favor of coverage and the need to use precise language in coverage agreements.
If you have any questions or would like more information, please contact William Gildea at [email protected].