Read The Policy!

Reading the life insurance policy all the way through is vital to understanding the coverage therein.  This is illustrated in a 2022 opinion from the U.S. 5th Circuit.  The style of the opinion is Landmark American Insurance Company v. SCE Memorial Place II, L.L.C.

This case is about whether an insurance policy covered flood-related damages sustained by a building during Hurricane Harvey.  The district court decided in favor of SEC on competing motions for summary judgment.  This appeal followed and this appeals court ruled in favor of Landmark.

The “Insuring Clause” of the Landmark policy outlines the type of damage for which it would cover the deductible of the primary insurance policy.  Specifically, Landmark agreed to indemnify the insured for damage “caused by any of such perils as are set forth in item 3 of the schedule, and which are also covered by . . . the ‘Primary Insurer(s).’”  It is an “All Risks” policy.

Item 3, in turn, states: “Perils Covered: Windstorm or Hail associated with a Named Storm.”  Beneath this, it states that it is “[e]xcluding Terrorism.”  Finally, it specifies that “Named Storm” is “[f]ollowing Named Storm definition in Lexington Insurance Company’s policy.”  The “Named Storm” definition from the Lexington policy that is expressly incorporated into Item 3 is “a storm that has been declared by the National Weather Service to be a Hurricane, Typhoon, Tropical Cyclone, Tropical Storm or Tropical Depression.”

In August 2017, Hurricane Harvey made landfall.  The parties agree that Hurricane Harvey was a “Named Storm,” as defined under Landmark policy and also that it caused tremendous damage to one of SCD’s insured properties.

The damage occurred when Buffalo Bayou overflowed its banks and water flowed onto SCD’s property.

Shortly after receiving a letter from SCD stating a claim for the damages, Landmark filed this lawsuit against SCD, seeking a declaration that the policy it issued to SCD did not apply to the loss sustained.

Both parties agree that the Landmarkpolicy is unambiguous. Namely, they contend that the phrase “Perils Covered: Windstorm or Hail associated with a Named Storm” has only one reasonable interpretation.  Naturally, both parties contend that the only reasonable interpretation cuts their way.

Landmark argues that the policy covers the specified perils of “Windstorm or Hail” that are “associated with a Named Storm [here, Hurricane Harvey]” but not all perils associated with a Named Storm.  In other words, it is a “named perils” rather than “all risks” policy—it covers only the perils specified in the policy and does not need to use additional exclusionary language.

The Court agreed with Landmark because it s interpretation aligns with the plain meaning of the text of the policy.  Landmark’s interpretation, unlike SCD’s, makes sense of the framing phrase “Perils Covered.”  This framing sets up “Windstorm” and “Hail” as specific perils that may be associated with a number of weather events rather than as weather events that may encompass any number of perils.  If SCD’s interpretation of the policy were correct, then the Landmark policy simply could have stated that all damage from a Named Storm is covered (regardless of the peril that caused the damage).  But the Landmark policy does not state this.  Instead, the policy frames its coverage as applying to specific “[c]overed perils.”

Furthermore, the listing of “Windstorm” and “Hail” separately supports Landmark’s interpretation that the policy covers specific perils but not others.  If “Windstorm” includes all that SCD says it does (again, “[f]lood, wind, wind gusts, storm surges, tornados, cyclones, hail or rain”), there would be no need to list “Hail” separately.  Texas law requires that the Court “give effect to all contract provisions so that none will be rendered meaningless.”  Land mark’s interpretation is the only one that accomplishes this.

This opinion is an example of how the Court interpreted the policy.

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