A recent case in Louisiana 1 shows the difficulty of interpreting deductible when sub-limits for a hazard apply. The case is significant because many high-profile trade policies have similar deductible clauses, which the courts have found ambiguous and given the policyholder a much greater recovery.
The Federal Court noted the language of insurance and the question:
The insurance policy originally valued the project and insured it for $ 76,086,833. That amount was increased, through several recommendations, to $ 86,086,833. However, the deductible, the sub-limits and the total limits of the term remained unchanged from the original policy. As relevant here, the insurance included a limited liability limit, which limited the amount that the insured could claim from flood damage to $ 10,000,000. The policy also included a deduction for flood damage of "5% of the total insured values in the risk zone at the time and place of loss subject to a minimum deduction of $ 500,000 in respect of [sic] FLOOD *."
…  The correct deductible amount, and thus the millions of dollars at stake, depends on the correct interpretation of "5% of the total insured values in the risk zone." McDonnel claims that, due to the flood limit, "the maximum amount that an insured … could ever recover for a claim arising from flood damage is $ 10 million." Thus "the total insured amount" – "the total insured value at risk "- for flood damage was limited to $ 10,000,000. According to the plaintiffs' interpretation, the deductible is therefore $ 500,000.
The court then recited the Louisiana Insurance Act on ambiguity:
When an insurance is ambiguous, it is generally interpreted against the insurer and in favor of coverage. A policy provision is ambiguous only if it is "susceptible to two or more reasonable interpretations". intent of the parties. "…
If" a contract can be interpreted from the four corners of the instrument without looking at external evidence, the question of interpretation of the contract is answered as a legal question. "… Where there is ambiguity in the policy, but" the court may seek external evidence to determine the intention of the parties. " … 'Each provision … must be interpreted in the light of the other provisions so that each has the meaning proposed by the contract as a whole.' La. Civ. Kodart. 2050 (2021).
The policyholder invoked a federal case in Florida that the court agreed to:
The plaintiffs rely heavily on Terra-Adi International Dadeland, LLC v Zurich American Insurance Co. No. 06-22380-CIV-HUCK / SIMONTON, 2007 WL 675971 (SD Fla. 1 March 2007) In Terra-Adi the district court interpreted a policy provision similar to this one, which contained a sub-limit of $ 10,000,000 for damage from wind storms and stated the following deductible: "5% of the total insured values in the risk zone at the time and place of loss, subject to a minimum deduction of $ 250,000, taking into account WINDSTORM's hazard. & # 39; …
The court in Terra-Adi ruled that the insured's interpretation of the insurance was reasonable: Since the lower limit of $ 10,000,000 was the maximum total insurance value in the risk zone for windstorms, it was correct deductible calculation 5% of $ 10,000,000 instead of the insured value of the entire project. See id. The Court found that the insurer's claim that the term "total insured values in the risk zone" referred to "the total value of the physical property insured during [policy] – not just the value of the insured property against the risk of windstorm" – was a "different, but also reasonable" interpretation … Florida law, like Louisiana law, commands that where "more than one interpretation of an insurance provision is possible, [the court] must resolve the ambiguity against the insurer that developed the language of the insurance contract." Thus, the court granted the insured a summary judgment…. In interpreting an almost identical deductible, we decide that the language is ambiguous here as well.
But the case is not over. ambiguous, returned the case to the federal district court to consider whether external evidence would change the outcome.
The case is an important example on how wordings in a policy can be read in more than one way and give a policyholder greater recovery.
Thought For The Day
Life is full of confusion. Confusion of love, passion and romance. Confusion of family and friends. Confusion with life itself. What path we take, what turns we make. How we roll our dice.
1 McDonnel Group, LLC v. Starr Surplus Lines Ins. Co ., No. 20-30140, -F.4: e- (5th Cir. September 24, 2021).