The Ninth Circuit recently reversed the California district court’s decision in the case of Northrop Grumman Corp. v. Factory Mutual Ins. Co. (click here to read our blog post about the district court’s decision and click here to read the Ninth Circuit’s opinion). The Ninth Circuit held that Factory Mutual’s excess all risk policy’s flood exclusion was not ambiguous and served to exclude coverage for damage caused by Hurricane Katrina’s storm surge to the insured’s shipyards.
The issue before the Ninth Circuit was whether the district court correctly determined that flood damage arising out of storm surge did not fall under the scope of the excess policy’s flood exclusion, which incorporated the following definition of “flood”:
Flood; surface waters, rising waters; waves; tide or tidal water; the release of water, the rising, overflowing or breaking of boundaries of natural or man-made bodies of water; or the spray therefrom; or sewer back-up resulting from any of the foregoing; regardless of any other cause or event contributing concurrently or in any other sequence of loss.
The district court had held that the flood exclusion was ambiguous because it did not “plainly and clearly reference hurricanes or damage caused by wind” and then it determined that a reasonable interpretation of the flood exclusion was that it was limited to floods not caused by wind. The Ninth Circuit disagreed.
The Ninth Circuit held that the plain language of the flood exclusion unambiguously bars coverage for the water damage to the insured’s shipyards caused by the storm surge. It determined that the presence of the phrase “whether driven by wind or not” in the primary policy’s definition of flood is irrelevant for purposes of interpreting the excess policy and stated that the primary and excess policies should not be treated as one contract. Further, the court rejected the insured’s argument that the excess policy’s failure to include the phrase “whether driven by wind or not” made the flood exclusion ambiguous and also rejected the insured’s argument that the absence of definitions of the terms “Wind” and “Named Windstorm” made the policy ambiguous.
The Ninth Circuit remanded the case back to the district court for a determination of whether California’s efficient proximate cause doctrine mandates a finding of coverage.
We will continue to provide updates on Katrina and other hurricane-related coverage litigation on InsureReinsure.com.