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Court decisions concerning flood zones designated by the Federal Emergency Management Agency (“FEMA”) often seem to be like someone is reciting the alphabet.  “A,” “AE,” “B,” “C,” “D,” “V,” “X,” to name a few.  (What happened to E through U are questions for a different article.)  Commercial property insurance policies often exclude flood in certain flood zones, including Flood Zone A.  The question is whether a loss in Flood Zone AE falls within the Flood Zone A exclusion.

FEMA developed a classification of properties within flood zones.  In order to provide a basis for government and private insurers’ risk calculations, the Flood Insurance Rate Maps (“FIRM”) classify land areas within 67 official flood zones.  Hartford Fire Ins. Co. v. WSR Corp., 2000 WL 974328, No. CIV A. 99-6120 (July 14, 2000 E.D. Pa.)  Zone A, Zone AE, and Zone V all are classified as areas of “special” flood hazards, as opposed to “moderate” or “minimal” flood hazards. Id.; see also 44 CFR 59.1[1]; Great Rivers Habitat Alliance v. Fed. Emergency Management Agency, 615 F.3d 985, 988-89 (8th Cir. 2010)(referring to flood zone “AE” as a 100-year flood zone and also stating that “Zone AE is an ‘area of special flood hazard,’ which is ‘land in the flood plain within a community subject to a 1 percent or greater chance of flooding in any given year’”).  Zone A is distinguishable from Zone AE in that Zone AE has water surface elevations determined whereas Zone A does not.  44 C.F.R. §59.1.

Courts construing the term “Flood Zone A,” where the term is undefined by the policy, have done so narrowly, concluding that an exclusion for “Flood Zone A” is ambiguous as to whether that term includes subzones such as Flood Zone AE or Flood Zone A1-A30. Heartland Brewery, Inc. v. Nova Cas. Co., 149 A.D.3d 522, 52 N.Y.S.3d 55 (1st Dept. 2017); Sylvania Gardens Apts. v. Legion Ins. Co., 2001 WL 1807780, No. 0734 Aug. Term 2000 (Pa. Ct. Comm. Pl. Feb. 14, 2001); Hartford Fire Ins. Co. v. WSR Corp., 2000 U.S. Dist. LEXIS 9870 (E.D. Pa. July 14, 2000).

In some instances, courts simply have concluded that an exclusion for “Flood Zone A” is ambiguous with respect to a loss in “Flood Zone AE.”  For instance, in Heartland Brewery, Nova Casualty Company provided property insurance coverage to Heartland Brewery for several premises throughout New York City.  The policy provided limited coverage for flooding, but excluded “loss or damage to property located in Flood Zones A or V as defined by the Federal Emergency Management Agency (FEMA).”  During Superstorm Sandy in 2012, the insured’s premises, which was situated in FEMA Zone AE, sustained substantial flood damage.  Nova Casualty denied coverage for the claim because the insured premises at issue was located in Flood Zone AE, which the insurer asserted was a “subzone” of Flood Zone A. The insured countered that Zone AE is not a subzone of Zone A but, rather, is separately defined under FEMA’s regulations (44 C.F.R. § 59.1.)  The court concluded that “the language of FEMA’s flood zone regulations raises an issue of fact rendering the insurance policy’s exclusion of flood coverage ambiguous” and denied both cross motions for summary judgment.  See also Sylvania Garden Apts., 2001 WL 1807780 at *2 (finding the Zone A exclusion to be ambiguous and construing it against the insurer).

Other courts looking at this issue, while similarly concluding that the “Flood Zone A” exclusion is ambiguous vis-à-vis a loss in Flood Zone AE, have ruled, after examining extrinsic evidence, that the parties intended to exclude flood losses in both Zones A and Zone AE.  For instance, in Hartford Fire v. WSR, the court determined that Zone A exclusion was ambiguous; but noted that the extrinsic evidence (i.e., the fact that the insured purchased flood coverage elsewhere for the premises located in Flood Zone AE), showed that both parties understood that Flood Zone AE was encompassed within Flood Zone A.  Accordingly, the court held that the policy was intended to exclude Flood Zone AE from coverage and that the parties understood flood in Zone AE would be excluded.

A recent New York decision echoed the holding of WSR.  In Nova Casualty Co. v. Peter Thomas Roth Labs, LLC, 61 Misc. 3d 1215(A)(NY County, October 9, 2018), as a result of Superstorm Sandy, the insured sustained serious flood damage at two locations in New Jersey.  These New Jersey locations both were situated in Flood Zone AE.  The insurer, Nova Casualty (yes, the same Nova Casualty involved in the Heartland decision), determined that the two locations were in sub-zones of Flood Zone A, and denied coverage for the properties under the Flood Zone A exclusion.

The New York Supreme Court noted that the ambiguity of the Flood Zone A exclusion already had been determined by the Appellate Division in the Heartland decision.  The court then examined Nova Casualty’s argument that the extrinsic evidence demonstrated that the parties agreed to exclude coverage for flood damage to the Zone AE properties.  The extrinsic evidence included the deposition testimony of the insured’s insurance broker as well as the deposition testimony of the insured’s chief financial officer, who had been responsible for purchasing insurance.  The broker testified that he had advised the CFO that at least one of the locations was in Flood Zone AE, which was considered “high hazard” and uninsurable under a standard property policy.  Nova Casualty also submitted a copy of the renewal proposal sent prior to Superstorm Sandy in which the insurer noted that flood coverage was “excluded for High-Hazard Flood Zones (A&V).  (Carlstadt, NJ: Located in an AE Flood Zone.  Flood policy in place for this location [through NFIP].  Moonachie, NJ:  Location is an AE Flood Zone.  This location does not currently have a Flood Coverage.)”  Based on this extrinsic evidence, the court concluded that both parties were aware that the subject properties were not covered for flood damage and granted summary judgment to the insurer.

These cases demonstrate that, in order to avoid a battle over extrinsic evidence, the better practice is to clarify the exclusionary language to perhaps exclude flood losses in “all high-hazard flood zones,” exclude flood losses in zones beginning with the letter “A,” or provide coverage only in certain flood zones.  See, e.g., Valet One Systems, Inc. v. Sentry Ins., 229 Wis. 2d 252 (1999)(policy provided flood coverage but only for property located in Flood Zones B, C, or X; therefore, a flood loss in Zone AE was not covered).  Without specifically excluding losses in Flood Zone AE, an insurer might be required to say “I owe you.”

[1] 44 CFR 59.1 defines “Special flood hazard area” as “an area having special flood, mudslide (i.e., mudflow), or flood-related erosion hazards, and shown on an FHBM or FIRM as Zone A, AO, A1-30, AE, AR, AR/A1-30, AR/AE, AR/AO, AR/AH, AR/A, A99, AH VO, V1-30, VE, V, M, or E.”