Application of Named Storm / Flood Deductible
Pan Am Equities, Inc. v. Lexington Ins. Co., 959 F.3d 671 (5th Cir. 2020)
Lexington Insurance Company was involved in a $6.8 million Hurricane Harvey-related dispute regarding the application of a “Named Storm” deductible as opposed to a “Flood” deductible.
Pan Am sued Lexington in the United States District Court for the Southern District of Texas in connection with two buildings that suffered flood (but not wind) damage as a result of Hurricane Harvey. Pan Am contended that the “Flood” deductible applied to the loss because (i) the damage fell within the definition of “Flood” and (ii) the “Flood” definition included language stating that it applied “regardless of any other cause or event contributing concurrently or in any other sequence of loss.” According to Pan Am, the “Named Storm” deductible did not apply because it was contained in a deductible section labeled “Windstorm and Hail.” Since the policy did not define “Windstorm,” Pan Am claimed that the deductible was limited to damage from wind.
Successfully moving for summary judgment, Lexington argued that the higher “Named Storm” deductible (5% of Total Insured Value) applied because Harvey was a “Named Storm,” the flood damage arose directly out of Harvey, and the “Named Storm” deductible expressly encompassed “all perils,” including “Flood.”
On Pan Am’s appeal, the Fifth Circuit sided with Lexington. The court rejected Pan Am’s argument that the “Named Storm” deductible only applied to wind, finding that the express terms of the “Named Storm” provision enlarged what qualified as a “loss due to Windstorm” to “plainly encompass Harvey’s flood damage to Pan Am’s buildings.” In addition, the court held that applying only the “Flood” deductible would render the “Named Storm” deductible a nullity and, further, that the anti-concurrent causation language in the “Flood” definition was irrelevant because there was no causation issue in the case, as neither party disputed that Pan Am’s damage resulted from a flood cause by Harvey.
Finally, the court concluded that the “Named Storm” deductible encompassed “Flood” resulting from a “Named Storm,” and that even if both the “Named Storm” and “Flood” deductibles applied, the policy provided that the higher of the two would apply.