A federal appeals court revoked a lower court ruling in favor of American International Group Inc. and Starr Insurance Cos. Units on Friday and considered that the deductible provision in their coverage is ambiguous.
Metairie, Louisiana-based McDonnel Group LLC, which was the main contractor for the New Orleans-based Jung Hotel and Residence renovation project, purchased insurance from the AIG unit Lexington Insurance Co. and the Starr unit Starr Surplus Lines Insurance Co. in New Orleans and McDonnel Group, LLC, Jung LLC., v. Starr Surplus Lines Insurance Co .; Lexington Insurance Co.
In the spring and summer of 2017, the project was hit by water intrusion, which culminated in heavy rain that caused $ 3.2 million in damage, the ruling said.
A dispute arose between McDonnel and Jung and the insurers over the applicable deductible. McDonnel brought an action before the U.S. District Court in New Orleans, which granted the insurers a partial summary judgment, and considered the policy to be unambiguous.
The decision was overturned by a unanimous Board of Appeal with three judges. "The difference in interpretation greatly reduces to the interpretation of a key sentence in the flood deduction," the ruling said.
In essence, the judgment states, the plaintiff stated that the 5% deduction applies to the $ 10 million flood limit and is $ 500,000. They said they were therefore entitled to payment of $ 2.7 million, which was the flood damage, minus $ 500,000.
The insurance companies said that the deductible applied to the "total insured values in the risk zone", which is $ 68.9 million, which makes the deduction $ 3.4 million. The claim of $ 3.2 million then fell below the deductible.
"Both parties' interpretations are reasonable, so the policy is ambiguous," the court said when he turned the lower court and referred the case back for further proceedings.  In detention, it said, the district should determine "whether the presumption in favor of coverage in case of ambiguity applies here." It should also consider external evidence when interpreting the policy, it said.
Jung Attorney James M. Garner, co-trustee of Sher Garner Cahill Richter Klein & Hilbert LLC in New Orleans, said in a statement that he was satisfied with the ruling and the finding that the language of the policy was ambiguous. "We look forward to returning to the district court to try this issue," he said.
The insurance agent did not respond to a request for comment.