15 F.4th 343
5th Cir.2021Background
- McDonnel Group was general contractor for renovation of the Jung Hotel; policy issued by Starr Surplus Lines and Lexington covered the project.
- Spring/summer 2017 water intrusions and a heavy rain caused $3,226,164.30 in flood damage; McDonnel submitted that claim.
- Policy contained a $10,000,000 term aggregate sub-limit for flood and a flood deductible reading: “5% of the total insured values at risk at the time and place of loss subject to a $500,000 minimum deduction as respects FLOOD.”
- Plaintiffs (McDonnel, subcontractors, Jung) argued “total insured values at risk … as respects FLOOD” refers to the $10,000,000 flood sub-limit (deductible = $500,000); insurers argued it refers to the project value (~$68.9M × 80% = ~$68.9M at risk) (deductible ≈ $3.44M), making the claim below deductible.
- District court granted summary judgment to insurers, finding the clause unambiguous; plaintiffs appealed. The Fifth Circuit held the provision ambiguous and reversed and remanded for consideration of extrinsic evidence and the insured-favoring presumption.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper construction of the flood deductible phrase "5% of the total insured values at risk ... as respects FLOOD" | "As respects FLOOD" modifies the phrase "total insured values at risk" so deductible = 5% of $10,000,000 sub-limit (i.e., $500,000) | "As respects FLOOD" only limits the $500,000 minimum; "total insured values at risk" means full project value at risk (so 5% of project value) | The phrase is susceptible to two reasonable readings and is therefore ambiguous |
| Whether summary judgment was proper without resolving ambiguity | Ambiguity present; facts/intent require extrinsic evidence before summary judgment | Policy is clear; no extrinsic evidence needed | Reversed summary judgment; remanded to consider extrinsic evidence |
| Whether ambiguity should be construed against insurer | Insureds rely on Louisiana rule favoring insured when contract ambiguous | Insurers note exception for sophisticated commercial insureds or where insured negotiated terms | Court instructed district court on remand to consider the insured-favoring presumption and whether the sophistication exception applies |
| Whether other policy language resolves meaning of "total insured values" | Plaintiffs: sub-limit language and context support flood-limited reading | Insurers: other uses of "total insured value" in policy refer to project value, supporting their reading | Court found the remaining policy language inconclusive and insufficient to eliminate ambiguity |
Key Cases Cited
- Cadwallader v. Allstate Ins. Co., 848 So.2d 577 (La. 2003) (under Louisiana law, ambiguous insurance provisions are construed against insurer)
- Six Flags, Inc. v. Westchester Surplus Lines Ins. Co., 565 F.3d 948 (5th Cir. 2009) (contract interpreted under Louisiana rules; ambiguity inquiry explained)
- Naquin v. Elevating Boats, L.L.C., 817 F.3d 235 (5th Cir. 2016) (insurance-policy interpretation is a legal question reviewed de novo)
- Doerr v. Mobil Oil Corp., 774 So.2d 119 (La. 2000) (insured bears burden to prove loss falls within policy terms; extrinsic evidence may resolve ambiguities)
- Sims v. Mulhearn Funeral Home, Inc., 956 So.2d 583 (La. 2007) (if contract can be interpreted from four corners, interpretation is a matter of law)
- Pioneer Expl., L.L.C. v. Steadfast Ins. Co., 767 F.3d 503 (5th Cir. 2014) (ambiguous insurance terms are construed in favor of coverage)
- Penthouse Owners Ass’n v. Certain Underwriters at Lloyds, London, 612 F.3d 383 (5th Cir. 2010) (discussion of deductible purpose and risk allocation)