Six Flags Inc v. Westchester Surplus

REVISED MAY 22, 2009
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 08-30476 April 21, 2009
Charles R. Fulbruge III
Clerk
SIX FLAGS INC
Plaintiff - Appellant
v.
WESTCHESTER SURPLUS LINES INSURANCE COMPANY, a corporation;
ARCH SPECIALTY INSURANCE COMPANY, a corporation; GREAT LAKES
REINSURANCE (UK) PLC, a public limited company; COMMONWEALTH
INSURANCE COMPANY, a corporation; AXIS SPECIALTY INSURANCE
COMPANY, a corporation; CONTINENTAL CASUALTY COMPANY, a
corporation; LIBERTY CORPORATE CAPITAL LTD
Defendants - Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
Before KING, STEWART, and SOUTHWICK, Circuit Judges.
KING, Circuit Judge:
Six Flags, Inc. appeals the district court’s order granting summary
judgment in favor of seven of its property insurers. The parties primarily
contest whether a sublimit in the relevant insurance policies that applies “as
respects Flood” limits the insurers’ liability for loss and damage at Six Flags’s
New Orleans theme park that resulted from flooding associated with Hurricane
No. 08-30476
Katrina. The district court held that the sublimit applies to the flood loss and
granted partial summary judgment for the insurers. We affirm in part, reverse
in part, and remand.
I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff-appellant Six Flags, Inc. brings this suit against defendants-
appellees Westchester Surplus Lines Insurance Co. (“Westchester”); Arch
Specialty Insurance Co. (“Arch”); Great Lakes Reinsurance (UK) PLC (“Great
Lakes”); Commonwealth Insurance Co. (“Commonwealth”); Axis Specialty
Insurance Co. (“Axis”); Continental Casualty Co. (“Continental”); and Liberty
Corporate Capital, Ltd. (“Liberty”)1 (collectively, the “Excess Insurers”). Six
Flags asserts that the Excess Insurers insured it against loss that Hurricane
Katrina-related flooding caused to its New Orleans theme park.
Six Flags obtained multi-layered, all-risk, first-party property insurance
for its domestic theme parks for the period of June 15, 2004, to November 1,
2005. Six Flags’s agent, Marsh, Inc., generated and submitted broker
manuscript forms requesting specific types of coverage, clauses, and terms to
various insurers. Marsh placed insurance contracts with the Excess Insurers
and other insurance companies that resulted in policies totaling $450 million in
combined limits for all insured losses. The policies provided four distinct layers
of coverage: (1) a primary layer with $25 million in limits; (2) a first excess layer
with $50 million in limits; (3) a second excess layer with $125 million in limits;
and (4) a third excess layer with $250 million in limits.2 Six Flags paid an
annual premium of $5,716,927 for this coverage.
1
Liberty is the lead underwriter of Syndicate 190 at Lloyd’s of London and the named
defendant for that syndicate. See Corfield v. Dallas Glen Hills, LP, 355 F.3d 853, 863–66 (5th
Cir. 2003).
2
Industrial Risk Insurers (“IRI”) was the principal insurer in the primary layer.
Although it is not a party in this case, Six Flags presents evidence and argument regarding
IRI’s role in drafting clauses at issue here.
2
No. 08-30476
The Excess Insurers sold policies to Six Flags (the “Excess Policies”)
covering all risks within the first and second excess layers—the $25 million to
$200 million range—the only layers at issue in this case.3 The Excess Policies
contain a number of clauses that are relevant to this appeal. They insure
against all risks,4 subject to certain limits and deductibles. One such sublimit
is “applicable to all loss or damage . . . per occurrence and in the term aggregate
as respects Flood at any location in a Flood Zone A or V as designated by . . . the
Federal Emergency Management Agency” (the “Flood sublimit”).5 The Excess
Policies also contain deductibles, including separate deductibles for the perils of
Flood and of a Named Storm.6
3
The insurers in the first excess layer were Westchester, Arch, and Great Lakes. Those
in the second excess layer were Commonwealth, Axis, Continental, and Liberty.
4
Each of the Excess Policies provides that “[t]his policy insures against all risk of direct
physical loss of or damage to covered property while on a described premises herein.”
5
The full text of the Flood sublimit provides:
3) LIMITS OF LIABILITY
***
B) Sublimits (applicable to all loss or damage):
The liability of [the Excess Insurer] resulting from loss or damage
insured against herein shall not exceed:
***
4) [$2,500,000 for first-layer excess policies; $27,500,000 for
second-layer excess policies] per occurrence and in the
term aggregate as respects Flood at any location in a
Flood Zone A or V as designated by the Army Corp of
Engineers or the Federal Emergency Management Agency
(FEMA).
According to FEMA, lands located in Flood Zone A are at high risk of flooding due to
their proximity to bodies of water such as lakes and rivers, and lands located in Flood Zone V
are at high risk for coastal flooding from tides and waves. Other sublimits apply per
occurrence for Debris Removal and Expediting Expenses and per occurrence as respects Civil
or Military Authority, Ingress/Egress, Leader Property, Leasehold Interest, Rental Value,
Royalties, Service Interruption, and Valuable Papers & Records.
6
The Excess Policies state, in relevant part:
5) PRIMARY POLICY DEDUCTIBLES
All losses, damages or expenses arising out of any one occurrence shall
be adjusted as one loss, and from the amount of such adjusted loss shall
3
No. 08-30476
Most of the Excess Policies define “Flood” as:
1) A general and temporary condition of partial or complete
inundation of normally dry land areas from:
(a) the overflow of inland or tidal waters;
(b) the unusual and rapid accumulation or runoff of surface
waters from any source; or
***
2) the release of water impounded by a dam;
3) water that backs up or flows from a sewer, drain or sump;
Loss or damage caused by flood shall include all covered loss or
damage to covered property resulting directly or indirectly from
flood, except loss or damage from resulting Fire, Explosion and
Sprinkler Leakage or loss or damage otherwise excluded by this
policy.
The Commonwealth policy, however, contains an endorsement (the
“Commonwealth Flood definition endorsement”) that replaces the definition of
Flood with the following statement:
The term “flood” is defined as loss or damage caused by waves, tidal
water or tidal wave, overflow of streams or other bodies of water, or
spray from any of the foregoing, all whether driven by wind or not.
Loss resulting from, contributed to or aggravated by a “flood” caused
by a peril not otherwise excluded under this policy shall not be
considered in application of the policy “flood” limit or deductible
provisions.
Finally, the policies lump together loss within a 72-hour window resulting
from a single event into an occurrence for adjusting claims—i.e., for application
be deducted:
***
E) 5% of the combined Property Damage and Time Element Value
at all or part of locations situated within the 100 year recurrence
interval for the peril of Flood (with the exception of Six Flags
Fiesta Texas), subject to a minimum deductible of $1,000,000 of
the deductible in Section A, whichever the greater.
***
H) 3% of the combined Property Damage and Time Element Values
at all locations for the peril of a Named Storm, subject to a
Minimum deductible no less than the deductible in Section A.
4
No. 08-30476
of sublimits and deductibles. Relevant to this appeal, the policies define a
Weather Cat Occurrence as follows:
All loss or damage occurring during a period of 72 hours which is
caused by or results from a storm or weather disturbance which is
named by the National Weather Service or any other recognized
meteorological authority.
Storm or weather disturbance includes all weather phenomenon
associated with or occurring in conjunction with the storm or
weather disturbance, including, but not limited to Flood, wind, hail,
sleet, tornadoes, hurricane or lightning.
The Excess Policies were effective on August 29, 2005, when Hurricane
Katrina, a storm named by the National Weather Service, struck the Gulf Coast.
Hurricane Katrina caused heavy damage to and interrupted the operations of
the Six Flags New Orleans theme park located at 12301 Lake Forest Boulevard,
New Orleans, Louisiana. Flooding lasting several weeks caused much of the
damage to the theme park, although high winds also contributed. Six Flags New
Orleans sits within a Federal Emergency Management Agency designated Flood
Zone A.
Six Flags submitted losses totaling $150 million to its insurers. Six Flags’s
primary-layer insurers, including IRI, paid $25 million, exhausting that layer
of coverage. The Excess Insurers’ adjustor, however, capped their liability at
$2.5 million pursuant to the Flood sublimit. The second-layer Excess Insurers
paid Six Flags that $2.5 million plus compensation for certain losses resulting
from wind damage.
After unsuccessfully protesting the applicability of the Flood sublimit, Six
Flags filed the present lawsuit in the district court. It sought a declaratory
judgment that the Flood sublimit did not apply to its Hurricane Katrina-related
losses and claimed that the Excess Insurers breached the Excess Policies by
applying the Flood sublimit to damage covered by the separate peril of a Named
Storm. The Excess Insurers filed motions for partial summary judgment
5
No. 08-30476
pursuant to Rule 56 of the Federal Rules of Civil Procedure, which Six Flags
opposed. Six Flags also requested the opportunity to engage in additional
discovery pursuant to Rule 56(f) of the Federal Rules of Civil Procedure.
The district court granted the Excess Insurers’ motions for partial
summary judgment and denied Six Flags’s discovery request. The district court
concluded that the Flood sublimit is unambiguous: it “specifically limit[s]
recovery for Flood in Zone A or V to its respective dollar value per occurrence.”
Six Flags Inc. v. Westchester Surplus Lines Ins. Co., 535 F. Supp. 2d 744, 755
(E.D. La. 2008). The court emphasized that Flood includes “all loss of damage
resulting from flood, and makes only very limited exceptions to this definition
. . . . Nowhere in the term Flood or its exceptions is a Named Storm or waters
resulting from a Named Storm specifically excluded.” Id. at 754. Moreover, the
district court determined that the Weather Cat Occurrence provision does not,
as Six Flags argued, exclude the applicability of the Flood sublimit. It instead
“defines what that ‘occurrence’ is” and “lumps all losses or damages occurring
within a 72-hour period of time into one covered loss for adjustment purposes.”
Id. at 754–55. The district court thus held that losses from Flood that are part
of a Weather Cat Occurrence remain subject to the Flood sublimit.
Because the Excess Policies were unambiguous, the district court declined
to review extrinsic evidence that Six Flags presented showing that the insurers
did not intend the Flood sublimit to apply to storm loss and therefore denied Six
Flags’s Rule 56(f) motion. On April 7, 2008, the court entered final judgment for
the Excess Insurers.7 Six Flags now appeals.
II. DISCUSSION
7
After the district court entered partial summary judgment, Six Flags filed an
unopposed motion under Rule 54(b) of the Federal Rules of Civil Procedure for entry of final
judgment or, in the alternative, under 28 U.S.C. § 1292(b) for certification of interlocutory
appeal. The district court granted Six Flags’s Rule 54(b) motion and ordered the remaining
coverage disputes to be resolved by an appraiser in private settlement.
6
No. 08-30476
A. Jurisdiction and Standard of Review
We have jurisdiction under 28 U.S.C. § 1291. The court reviews de novo
the district court’s award of summary judgment. See In re Katrina Canal
Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). “The judgment sought should
be rendered if the pleadings, the discovery and disclosure materials on file, and
any affidavits show that there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c).
The court “view[s] all evidence in the light most favorable to the nonmoving
party and draw[s] all reasonable inferences in that party’s favor.” In re Katrina
Canal Breaches Litig., 495 F.3d at 205–06. “A genuine issue of material fact
exists ‘if the evidence is such that a reasonable jury could return a verdict for the
non-moving party.’” Id. at 206 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986)).
B. Contract Interpretation
The parties agree that Louisiana law governs their dispute. To determine
Louisiana law, we look to “the final decisions of the Louisiana Supreme Court.”
Id. In the absence of such a decision, “we must make an Erie guess and
determine, in our best judgment, how that court would resolve the issue if
presented with the same case.” Id. “In making an Erie guess, we must employ
Louisiana’s civilian methodology, whereby we first examine primary sources of
law: the constitution, codes, and statutes.” Id. “‘Jurisprudence, even when it
rises to the level of jurisprudence constante, is a secondary law source in
Louisiana.’” Id. (quoting Prytania Park Hotel, Ltd. v. Gen. Star Indem. Co., 179
F.3d 169, 169 (5th Cir. 1999) (footnote omitted)).
Under Louisiana law, “[t]he written instrument, in which a contract of
insurance is set forth, is the policy.” LA. REV. STAT. ANN. § 22:864. “An
insurance policy is a contract between the parties and should be construed by
using the general rules of interpretation of contracts set forth in the Louisiana
7
No. 08-30476
Civil Code.” Cadwallader v. Allstate Ins. Co., 848 So. 2d 577, 580 (La. 2003).
The Louisiana Civil Code provides that “[i]nterpretation of a contract is the
determination of the common intent of the parties.” LA. CIV. CODE ANN.
art. 2045. The language of the policy is the starting point for determining that
common intent. Elliott v. Cont’l Cas. Co., 949 So. 2d 1247, 1254 (La. 2007);
Doerr v. Mobil Oil Corp., 774 So. 2d 119, 124 (La. 2000). “The words of a
contract must be given their generally prevailing meaning,” and “[w]hen the
words of a contract are clear and explicit and lead to no absurd consequences, no
further interpretation may be made in search of the parties’ intent.” LA. CIV.
CODE ANN. arts. 2046–47. The words, however, are not read in isolation: “[e]very
insurance contract shall be construed according to the entirety of its terms and
conditions as set forth in the policy, and as amplified, extended, or modified by
any rider, endorsement, or application attached to or made a part of the policy.”
LA. REV. STAT. ANN. § 22:881.
A provision in an insurance contract is ambiguous if it is susceptible to two
or more reasonable interpretations or if the intent of the parties cannot be
ascertained from the language employed. Bonin v. Westport Ins. Corp., 930
So. 2d 906, 911 (La. 2006). However, the fact that a term “is not defined in the
policy itself, . . . does not make the [term] ambiguous.” Am. Deposit Ins. Co. v.
Myles, 783 So. 2d 1282, 1287 (La. 2001); accord In re Katrina Canal Breaches
Litig., 495 F.3d at 207. “Words susceptible of different meanings must be
interpreted as having the meaning that best conforms to the object of the
contract.” LA. CIV. CODE ANN. art. 2048. Where an insurance policy includes
ambiguous provisions, the “[a]mbiguity . . . must be resolved by construing the
policy as a whole; one policy provision is not to be construed separately at the
expense of disregarding other policy provisions.” La. Ins. Guar. Ass’n v.
Interstate Fire & Cas. Co., 630 So. 2d 759, 763 (La. 1994) (citing LA. CIV. CODE
ANN. art. 2050); Peterson v. Schimek, 729 So. 2d 1024, 1029 (La. 1999).
8
No. 08-30476
Relatedly, “[a] provision susceptible of different meanings must be interpreted
with a meaning that renders it effective and not with one that renders it
ineffective.” LA. CIV. CODE ANN. art. 2049. Finally, in cases of ambiguity, “[t]he
court should construe the policy ‘to fulfill the reasonable expectations of the
parties in the light of the customs and usages of the industry.’” La. Ins. Guar.
Ass’n, 630 So. 2d at 764 (quoting Trinity Indus., Inc. v. Ins. Co. of N. Am., 916
F.2d 267, 269 (5th Cir. 1990)). Thus, “[a] doubtful provision must be interpreted
in light of the nature of the contract, equity, usages, the conduct of the parties
before and after the formation of the contract, and of other contracts of a like
nature between the same parties.” LA. CIV. CODE ANN. art. 2053. We apply
these principles to the Excess Policies.
C. The Excess Policies
1. Excess Policies Other Than the Commonwealth Policy
The contract provisions in the non-Commonwealth Excess Policies have
only one reasonable meaning: the Flood sublimit caps the liability of the Excess
Insurers at $2.5 million for all loss or damage per occurrence, including a
Weather Cat Occurrence, as respects Flood. The Excess Policies insure against
“all risks of direct physical loss of or damage to covered property” subject to
specific exclusions not applicable in this case. Within that all-risks coverage,
certain limits and sublimits set the Excess Insurers’ maximum liability,
generally on a per occurrence basis. The Flood sublimit applies “per occurrence
in the term aggregate as respects Flood at any location in Flood Zone A or V.”
The non-Commonwealth Excess Policies define loss from Flood to “include all
covered loss or damage to covered property resulting directly or indirectly
from . . . inundation of normally dry land areas.” The Excess Policies also
contain deductibles that apply on a per occurrence basis. The relevant
deductible in this case is 3% of the damage for “the peril of a Named Storm.”
9
No. 08-30476
The parties agree that “Named Storm” and “Weather Cat” are interchangeable
terms.
The Excess Policies define “occurrence” in order to explain when sublimits
or the deductible apply8—not to exclude the applicability of a particular sublimit.
Cf. Northrop Grumman Corp. v. Factory Mut. Ins. Co., --- F.3d ----, No. 07-56760,
2009 WL 861475, *9 (9th Cir. Apr. 2, 2009) (holding that “a sensible reading of
the primary policy suggests that the terms [Named Windstorm and Wind] were
defined to explain when the special Named Windstorm deductible would apply”)
(citing with approval the district court case at issue here).9 The relevant
definition here is that of the Weather Cat Occurrence. A Weather Cat
Occurrence is all loss occurring during a 72-hour period caused by or resulting
from, inter alia, Flood, wind, hail, sleet, tornadoes, hurricane, or lightning,
associated with or occurring in conjunction with a storm or weather disturbance
named by the National Weather Service. Because “Flood” is a weather
phenomenon within the Weather Cat Occurrence, the Flood sublimit applies one
time per such occurrence to limit loss and damage as respects that Flood. It is
undisputed that the Six Flags New Orleans theme park is located in an area
designated as Flood Zone A and that Hurricane Katrina was a Named Storm.
8
The Excess Policies provide for the applicability of one deductible “[i]f loss arising out
of one Occurrence is subject to any combination of deductibles.” As the Excess Policies do not
similarly provide a rule for the applicability of a single sublimit but expressly state that each
is “applicable to all loss or damage,” multiple sublimits may apply to each occurrence. Thus,
the losses for, e.g., Debris Removal and Rental Value are separately limited.
9
Precedent applying Mississippi, Texas, and New York law shows that definitions of
occurrences are often used to define the applicability of a sublimit or deductible. See, e.g.,
Madison Materials Co. v. St. Paul Fire & Marine Ins. Co., 523 F.3d 541, 543 (5th Cir. 2008)
(applying Mississippi law to determine whether related acts of embezzlement constituted one
or more occurrences for purpose of applying applicable policy limit); U.E. Tex. One-Barrington,
Ltd. v. Gen. Star Indem. Co., 332 F.3d 274, 278 (5th Cir. 2003) (applying Texas law to
determine whether multiple fires at separate locations constituted one occurrence for purpose
of meeting threshold to recover); Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127,
135–37 (2d Cir. 1986) (applying New York law to damage at two different properties to
determine applicability of policy limit).
10
No. 08-30476
Thus, the Flood sublimit applies to limit the non-Commonwealth Excess
Insurers’ liability at $2.5 million over the primary-layer insurers’ $25 million
policy limit for loss or damage resulting from flooding caused by, associated with,
or occurring in conjunction with Hurricane Katrina.
Six Flags, however, argues that the Flood sublimit does not apply to Flood
loss in a Weather Cat Occurrence because a Named Storm is a distinct peril not
subject to the Flood sublimit.10 As noted above, the Excess Policies provide a
deductible that applies to “the peril of a Named Storm.” The term “peril” has an
industry usage. A “peril” is “[t]he cause of a risk of loss to person or property;
esp., the cause of a risk such as fire, accident, theft, forgery, earthquake, flood,
or illness.” BLACK’S LAW DICTIONARY 1174 (8th ed. 2004). To Six Flags, because
a Weather Cat Occurrence undisputedly corresponds to a Named Storm, it offers
a “one-stop shop” for insuring all loss resulting from a hurricane—in other
words, the Weather Cat Occurrence subsumes all of the other perils defined
therein and is subject only to sublimits and deductibles expressly addressed to
it. While we have no doubt that the parties could have agreed to such a
provision, we cannot reasonably interpret the Weather Cat Occurrence definition
to have this meaning.
Six Flags’s proposed construction ignores the language of the Excess
Policies and disregards the express purpose of defining an occurrence. To start,
Six Flags’s argument fails to acknowledge that the Flood sublimit applies to loss
or damage per occurrence as respects Flood, not “per Flood Occurrence” or “as
respects the peril of Flood.” Without reference to the terms of the Excess
Policies, Six Flags nonetheless asks us to inferentially foreclose the applicability
10
A brief reference in its Reply Brief to the doctrine of “efficient proximate cause” aside,
Six Flags does not argue that its loss was not caused by flood—nor can it in light of Tuepker
v. State Farm Fire & Casualty Co., 507 F.3d 346, 355 (5th Cir. 2007); Leonard v. Nationwide
Mutual Insurance Co., 499 F.3d 419, 437 (5th Cir. 2007); In re Katrina Canal Breaches
Litigation, 495 F.3d at 214; and Sher v. Lafayette Insurance Co., 988 So. 2d 186, 194 (La.
2008).
11
No. 08-30476
of the “applicable to all loss or damage” Flood sublimit to the “all loss or damage”
Weather Cat Occurrence. Reviewing the provisions of the Excess Policies, we
conclude that, to give meaning both to the definition of Flood and to “per
occurrence” in the Flood sublimit, the only reasonable interpretation is that the
Flood sublimit applies across different types of occurrences to loss or damage
that falls under the definition of Flood.11
In addition, Six Flags’s reading avoids recognizing that the definition of
an occurrence, which groups certain losses for adjustment purposes, is distinct
from the concept of a peril, which is the cause of the loss. Six Flags’s proposed
construction would transform the definition of a Weather Cat Occurrence into
the definition of a Named Storm peril by cross-referencing the non-definitional
mention of that peril in the deductible that applies to a Weather Cat Occurrence.
We conclude that such a result would conflate the two distinct terms—and is too
tenuous to provide a reasonable alternative meaning to the Excess Policies. See
Northrop Grumman Corp., 2009 WL 861475, *9; Premier Entm’t Biloxi, LLC v.
James River Ins. Co., No. 1:06-CV-12, 2007 WL 2908791, *7 (S.D. Miss. Oct. 3,
2007) (holding that a Weather Cat Occurrence was not a separate peril because
“although the deductible refers to ‘each [Weather Cat Occurrence] as insured
against by this policy,’” the “[Weather Cat Occurrence] is never identified as a
separate peril”).12
11
Six Flags’s proposed interpretation would suggest implausible outcomes regarding
the applicability of other sublimits as well. Notably, the Excess Policies do not distinguish
between sublimits that apply to the causes of loss and those that apply to the types of loss.
Thus, construing the policies as Six Flags asks would suggest the remarkable result that the
sublimits for, e.g., Debris Removal and Service Interruption would not apply to a Weather Cat
Occurrence, despite being significant sources of loss in the aftermath of a hurricane.
12
We give no credence to Six Flags’s citation to Pinnacle Entertainment, Inc. v. Allianz
Global Risks US Insurance Co., No. 2:06-CV-935, slip op. (D. Nev. Mar. 26, 2008), an
unpublished district court decision provided in Six Flags’s Record Excerpts. That court in
Pinnacle concluded that Flood and Weather Cat Occurrence were distinct perils based on a
definitional section in the insurance contract in that case. The court expressly distinguished
the contract at issue here as described by the district court below.
12
No. 08-30476
Finally, Six Flags asks us to interpret the Excess Policies by applying a
presumption in favor of coverage. Article 2056 of the Louisiana Civil Code
provides: “In case of doubt that cannot be otherwise resolved, a provision in a
contract must be interpreted against the party who furnished its text. A
contract executed in a standard form of one party must be interpreted, in case
of doubt, in favor of the other party.” Because the insurer typically furnishes the
text of a policy to the insured, often on its standard form, the Louisiana courts
have repeatedly interpreted ambiguous provisions against the insurer and in
favor of the insured. See, e.g., Tunstall v. Stierwald, 809 So. 2d 916, 921 (La.
2002) (“The insurer . . . bears the burden of showing policy limits or exclusions.”
(emphasis added)) (citing Mass. Protective Ass’n v. Ferguson, 121 So. 863, 279–80
(La. 1929) (interpreting a standard form insurance contract)); La. Ins. Guar.
Ass’n, 630 So. 2d at 764 (“If after applying the other general rules of construction
an ambiguity remains, the ambiguous contractual provision is to be construed
against the drafter, or, as originating in the insurance context, in favor of the
insured.”); Garcia v. St. Bernard Parish Sch. Bd., 576 So. 2d 975, 976 (La. 1991)
(“Equivocal provisions seeking to narrow the insurer’s obligation are strictly
construed against the insurer, since these are prepared by the insurer and the
insured has no voice in the preparation.”).
These presumptions, however, do not apply to the Excess Policies in this
case. First, article 2056 and its derivative rules of construction are inapplicable
to an unambiguous insurance contract. Sharp v. Fed. Sav. & Loan Ins. Corp.,
858 F.2d 1042, 1046 (5th Cir. 1988) (“[W]e have already demonstrated that this
contract is not ambiguous, and therefore even giving the contract a strict
construction we would reach the same result.”); Calcasieu-Marine Nat’l Bank of
Lake Charles v. Am. Employer’s Ins. Co., 533 F.2d 290, 296 (5th Cir. 1976) (“The
special rules of interpretation do indeed apply only when there is an
ambiguity; . . . [t]his is so even when the result is an apparently harsh
13
No. 08-30476
consequence to the insured.”); Cadwallader, 848 So. 2d at 580 (“[F]or the rule of
strict construction to apply, the insurance policy must be not only susceptible to
two or more interpretations, but each of the alternative interpretations must be
reasonable.”). We will not apply a presumption in favor of Six Flags against the
clear terms in—and only reasonable construction of—the language of the Excess
Policies.
Second, the court has previously determined that, under Louisiana law,
the presumption does not apply where the insured is a sophisticated commercial
entity that itself drafts or utilizes its agent to secure desired policy provisions.
See McDermott Int’l, Inc. v. Lloyds Underwriters of London, 944 F.2d 1199, 1207
(5th Cir. 1991) (“By having its agent decide upon both the slip and the policy,
[the insured] forfeits any benefit from the policy drafter principle.”); Sharp, 858
F.2d at 1046 (holding that where the disputed insurance contract clause “was a
product of . . . a joint effort, . . . there would be no reason to weigh our
construction heavily in favor of coverage”); Calcasieu-Marine Nat’l Bank of Lake
Charles, 533 F.2d at 295 n.6, 296 (holding that the presumption “may not be
applicable here[,] . . . [where] each party was equally responsible for the policy
language”); see also Eagle Leasing Corp. v. Hartford Fire Ins. Co., 540 F.2d 1257,
1261 (5th Cir. 1976) (concluding under Missouri law, based on a manuscript
policy “attributable to both parties alike,” that “[w]e do not feel compelled to
apply, or, indeed, justified in applying the general rule that an insurance policy
is construed against the insurer in the commercial insurance field when the
insured is not an innocent but a corporation of immense size, carrying insurance
with annual premiums in six figures, managed by sophisticated business men,
and represented by counsel on the same professional level as the counsel for
insurers” (footnote omitted)). But cf. Lake Charles Harbor & Terminal Dist. v.
Imperial Cas. & Indem. Co., 857 F.2d 286, 288 (5th Cir. 1988) (refusing to alter
the presumption where the insurance broker chose the terms but received no
14
No. 08-30476
compensation from the insured and where there was no evidence of the insured’s
superior bargaining power). Here, the summary judgment evidence, construed
in favor of Six Flags, shows that IRI provided Six Flags with the Weather Cat
Occurrence definition for inclusion in its primary level policy. Marsh, Six Flags’s
agent, in turn directed the inclusion of identical language in the Excess Policies.
IRI is not an Excess Insurer and not a party to this dispute. Under these
circumstances, we cannot apply the presumption against the Excess Insurers,
who did not draft the disputed provision, or in favor of Six Flags, which is
undisputedly a sophisticated commercial entity that utilized Marsh to secure an
insurance package suitable to its unique risks.
Overall, we conclude that the non-Commonwealth Excess Policies
unambiguously establish that the Flood sublimit applies to loss and damage as
respects Flood caused by, associated with, or occurring in conjunction with
Hurricane Katrina.
2. The Commonwealth Policy
Six Flags argues that the Commonwealth Flood definition endorsement
evidences the Excess Insurers’ intent to prevent the applicability of the Flood
sublimit to loss caused by a Named Storm. In its only relevant departure from
the other Excess Policies, the Commonwealth Flood definition endorsement
replaces the language to define the term “Flood.” It states that:
The term “flood” is defined as loss or damage caused by waves, tidal
water or tidal wave, overflow of streams or other bodies of water, or
spray from any of the foregoing, all whether driven by wind or not.
Loss resulting from, contributed to or aggravated by a “flood” caused
by a peril not otherwise excluded under this policy shall not be
considered in application of the policy “flood” limit or deductible
provisions.
Six Flags argues that this endorsement clarifies, for the Commonwealth
policy as well as for the non-Commonwealth Excess Policies, that Flood caused
by the peril of a Named Storm is not considered in the application of the Flood
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No. 08-30476
sublimit. The Excess Insurers counter that Commonwealth’s definition of Flood
means only that loss caused by other perils is not subject to the Flood sublimit
and the inclusion of the phrase “all whether driven by wind or not,” which has
been universally interpreted to include hurricane-related flooding, would be
rendered ineffective.
We conclude that the Commonwealth Flood definition endorsement creates
an ambiguity in the Commonwealth policy but not the non-Commonwealth
Excess Policies. One reasonable interpretation of the endorsement, when
considered with the entire Commonwealth policy, is that loss resulting from a
flood caused by a peril (such as a Named Storm) is not subject to the Flood
sublimit. The Excess Insurers do not dispute that Hurricane Katrina was a
Named Storm and cannot (at least at this time) dispute that Hurricane Katrina
caused the flooding at issue here. Thus, under this interpretation, the Flood
sublimit would not apply to loss resulting from the flood at the Six Flags New
Orleans theme park caused by Hurricane Katrina.
The Excess Insurers counter that Commonwealth’s re-wording was meant
only to clarify that loss caused by a separate peril is not subject to the Flood
sublimit when that loss also resulted from Flood.13 Thus, the Excess Insurers
13
The Excess Insurers also argue that the Flood sublimit applies to all flood loss,
whether hurricane-related or otherwise, citing Altru Health System v. American Protection
Insurance Co., 238 F.3d 961 (8th Cir. 2001); Arjen Motor Hotel Corp. v. General Accident Fire
& Life Assurance Corp., 379 F.2d 265 (5th Cir. 1967); and Gilbert/Robinson, Inc. v. Sequoia
Insurance Co., 655 S.W.2d 581 (Mo. App. 1983). These cases do not dictate the opposite
outcome here. In Arjen, this court considered the collapse of a shoreline building due to
hurricane-driven tidal waves. The policy expressly excluded from coverage “any loss” from
“tidal water or tidal wave.” 379 F.2d at 267. The court thus concluded that the exclusion
“serve[d] to restrict . . . the coverage of” the peril of collapse. Id. Here, of course, there is no
such clear exclusion or limitation on coverage as the Commonwealth Flood definition
endorsement arguably precludes the applicability of the Flood sublimit.
In Altru, the Eighth Circuit held that loss due to business interruption caused by a flood
that also resulted in a civil authority order closing the insured’s business was subject to the
flood sublimit. 238 F.3d at 964. The insured asserted that the civil authority order made a
separate, generic limit applicable to the exclusion of the flood sublimit. Id. The Eighth Circuit
rejected this argument because the policy expressly provided for the application of the lower
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No. 08-30476
argue that “caused by a peril” modifies “loss”—for Six Flags, “caused by a peril”
modifies “flood.” Even if this alternative interpretation is reasonable, which we
do not decide at this time, the existence of two reasonable alternative
interpretations would create an ambiguity in the Commonwealth policy. See
Bonin, 930 So. 2d at 911 (holding that a provision in an insurance contract is
ambiguous if it is susceptible to two or more reasonable interpretations). While
we do not conclude at this time that only one reasonable interpretation is
possible, we simply hold that at least one reasonable interpretation favors
coverage of the loss from Hurricane Katrina without application of the Flood
sublimit. The district court may decide in the first instance whether the Excess
Insurers’ proposed alternative interpretations are reasonable.14
limit where two or more limits were applicable and because the section describing civil
authority orders cross-referenced the flood coverage provision and its applicable limits. Id.
Thus, in Altru, unlike the Commonwealth policy, the policy expressly resolved how to apply
multiple applicable sublimits.
Similarly, in Gilbert/Robinson, the Missouri Court of Appeals held that an endorsement
that extended policy coverage to business interruption loss was subject to the limit defined in
an endorsement that provided protection against the peril of flood because business
interruption loss was expressly subject to the limit that controlled the applicable per premises
loss contained in the flood endorsement and without that endorsement, the premises would not
have been insured against the peril of flood. 655 S.W.2d at 583–84. Thus, unlike the all-risks
policy here, the specific provision extending coverage in Gilbert/Robinson provided the
applicable limit.
Overall, while Altru, Gilbert/Robinson, and Arjen reach outcomes that the Excess
Insurers desire to have replicated here, they stand for nothing more than the application of the
clear policy language of their respective contracts. See generally La. Ins. Guar. Ass’n, 630 So.
2d at 763 n.5 (“[I]n interpreting an insurance policy based on prior jurisprudence, the court
must carefully compare the language in the policy under scrutiny with that of the policies
construed in the prior cases because a difference in verbiage may dictate a difference in
outcome.”).
14
The Excess Insurers also argue that Hurricane Katrina was not a separate peril.
While they reiterate, as we have concluded above, that the Weather Cat Occurrence provision
defines an occurrence, not a peril, they do not dispute that a Named Storm is independently
and expressly labeled a peril. Thus, the question is not whether the Flood sublimit applies to
Flood aggregated within a Weather Cat Occurrence, which it undoubtedly does; instead, the
question is to what extent the peril of a Named Storm—here, Hurricane Katrina—caused the
flood that resulted in the loss claimed by Six Flags, thus rendering the Flood sublimit
inapplicable pursuant to the Commonwealth Flood definition endorsement. For the present
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No. 08-30476
The Excess Insurers also contend that our interpretation of the
Commonwealth policy would render ineffective the phrase “all whether driven
by wind or not.” We have interpreted similar language to exclude coverage for
hurricane-caused flooding where the policies at issue expressly deny coverage for
flooding caused or contributed to by other perils. See Tuepker, 507 F.3d at 352,
354; Leonard, 499 F.3d at 430, 437–38. The phrase, however, is not rendered
ineffective here because the Commonwealth policy does not comparably provide
for the applicability of the Flood sublimit if the flooding was caused by another
peril and because the endorsement arguably dictates the opposite result.15 As
noted above, a reasonable interpretation of the policy is that water driven by
wind is Flood—giving meaning to that provision; however, if that wind-driven
Flood is caused by another covered peril, such as a Named Storm, then the Flood
sublimit does not apply. Because a reasonable reading of the Commonwealth
Flood definition endorsement leads to the conclusion that it excludes the
applicability of the Flood sublimit to Flood that was caused by the peril of a
Named Storm—in this case, Hurricane Katrina—we therefore reverse the
district court’s order granting summary judgment to Commonwealth and
remand to the district court.16
appeal, the parties have not disputed that the flooding was caused by Hurricane Katrina.
15
The Excess Insurers have not briefed whether the phrase “all whether driven by wind
or not” is rendered ineffective for any other reason. During oral argument, they did contend
that all flooding is caused by other perils, thus an interpretation favoring Six Flags would
render the entire Flood sublimit ineffective. We do not subscribe to this proposition. The
Excess Policies label Flood as a peril, thus evidencing that Flood, in many circumstances, is
the independent cause of certain losses without causation by another peril.
16
We do not proceed to select between the competing interpretations at this time for
three reasons. First, Six Flags did not move for summary judgment in the district court.
Second, because the district court concluded the Excess Policies were unambiguous, it
terminated Six Flags’s discovery and, moreover, did not review the existing extrinsic summary
judgment evidence. Third, as noted above, we do not apply a presumption of coverage in favor
of a sophisticated corporation represented by an insurance broker and, in any case, it is first
appropriate to discern the intent of the parties through extrinsic evidence. See In re Katrina
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No. 08-30476
Six Flags asserts that this conclusion extends to the non-Commonwealth
Excess Policies. In particular, it argues that the definition of Flood in the non-
Commonwealth Excess Policies should be read in light of the definition
contained in the Commonwealth Flood definition endorsement.17 The non-
Commonwealth Excess Policies do not contain a provision that similarly
conditions the applicability of the Flood sublimit on the peril causing the flood.
Thus, to the extent that the Commonwealth policy differs from the non-
Commonwealth Excess Policies, Six Flags asks us to modify the non-
Commonwealth Excess Policies to find an ambiguity. We decline to interpret the
non-Commonwealth Excess Policies by reference to the Commonwealth Flood
definition endorsement. Louisiana statutory rules require that:
No agreement in conflict with, modifying, or extending the coverage
of any contract of insurance shall be valid unless it is in writing and
physically made a part of the policy or other written evidence of
insurance, or it is incorporated in the policy or other written
evidence of insurance by specific reference to another policy or
written evidence of insurance.
LA. REV. STAT. ANN. § 22:867. Thus, our inquiry focuses on whether the Excess
Policies incorporate the Commonwealth policy or Commonwealth Flood
definition endorsement by specific reference. See Ins. Co. of N. Am. v. Bd. of
Comm’rs of Port of New Orleans, 733 F.2d 1161, 1167 (5th Cir. 1984). Sufficient
specific references include such phrases as “as per primary policies,” id.; “as per
Underlying policy(ies) as far as applicable,” Heinhuis v. Venture Assocs., Inc.,
959 F.2d 551, 552–53 (5th Cir. 1992); or, “the provisions of the immediate
underlying policy are incorporated as a part of this policy,” Hunter v. Office of
Canal Breaches Litig., 495 F.3d at 207 (discussing the reasonable expectation doctrine and
article 2053’s reference to extrinsic evidence).
17
Outside of the use of extrinsic evidence related to IRI’s policy, the text of which is not
in the record, Six Flags has not briefed the relevance of the IRI policy or any difference in its
text.
19
No. 08-30476
Health Servs., 385 So. 2d 928, 937 (La. Ct. App. 1980). The non-Commonwealth
Excess Policies contain no such words of incorporation. The only discussion of
the other policies is the Excess Clause, which states that, inter alia, the primary
level insurance policies may insure different risks than the Excess Policies, and
the Participation Clause, which sets out the proportion of each layer of coverage
for which the particular insurer is liable. Like all sophisticated corporations
using an agent, Six Flags could have required that its insurers use identical
words in all of the applicable policies, but it did not do so in this case. Six Flags
has pointed us to no authority supporting the coextensive interpretation of
differing policies so long as the insured intended to obtain the same coverage
from each policy.18 At minimum, because it is the Commonwealth Flood
definition endorsement’s language and not the common provisions of the Excess
Policies that creates the ambiguity, we cannot impose that ambiguity on all of
the Excess Insurers, particularly here where other Excess Insurers did not
incorporate the Commonwealth Flood definition endorsement. We therefore hold
that we must review the Excess Policies as independent units.
D. Extrinsic Evidence And The Denial of Plaintiff’s Rule 56(f) Motion
Six Flags asks us to consider extrinsic evidence in order to discern the
intent of the parties. Extrinsic evidence includes “the nature of the contract,
equity, usages, the conduct of the parties before and after formation of the
contract, and of other contracts of a like nature between the same parties.” LA.
18
While some precedent suggests that the court may construe the Excess Policies
together, it ultimately cautions against doing so where we would need to treat the policies as
one contract. See, e.g., Northrop Grumman Corp., 2009 WL 861475, at *7 (applying California
law and concluding that “though the primary policy must be consulted in interpreting the
excess policy, we decline to treat the two documents as only one contract” (citations omitted));
see also, e.g., SR Int’l Bus. Ins. Co., Ltd. v. World Trade Ctr. Props., 467 F.3d 107, 114–15 (2d
Cir. 2006) (interpreting “the terms of more than thirty separate insurance contracts that
together provide the total coverage” as individual contracts with different definitions of
“occurrence” rather than as a single contract). More importantly, under Louisiana law, we
construct insurance contracts according to primary sources of law, and section 22:867 controls
this case.
20
No. 08-30476
CIV. CODE ANN. art. 2053. Extrinsic evidence may only be used to clarify
ambiguity, not to create an ambiguity in an otherwise clear contract. See
Campbell v. Melton, 817 So. 2d 69, 74–75 (La. 2002); see also Blackburn, 784 So.
2d at 641; Doerr, 774 So. 2d at 125.19 Because we conclude that the non-
Commonwealth Excess Policies are not ambiguous, we will not resort to extrinsic
evidence to interpret them. Having held that the Commonwealth policy is, at
minimum, ambiguous and that remand to the district court is the appropriate
outcome here, we conclude that the district court on remand will be in the best
position to determine, consistent with our holding today, if reference to extrinsic
evidence is necessary in the first instance.
Six Flags finally argues that the district court erred by denying its request
to conduct additional discovery pursuant to Rule 56(f).20 Six Flags seeks
additional extrinsic evidence regarding the Excess Insurers’ and IRI’s intentions
that the policies would provide full coverage for loss or damage from a hurricane.
The district court concluded that it did not need to grant Six Flags’s motion
because the Excess Policies were unambiguous; thus, the information Six Flags
sought to discover was not essential to deciding the partial motion for summary
judgment.
We affirm as to the non-Commonwealth Excess Insurers. “The trial
judge’s decision to curtail discovery is granted great deference and, thus, is
19
Six Flags did not file a cross-motion for summary judgment in the district court, and
the district court specifically refused to consider any of Six Flags’s extrinsic evidence after it
concluded that the Excess Policies are unambiguous.
20
Rule 56(f) provides:
If a party opposing the motion shows by affidavit that, for specified reasons, it
cannot present facts essential to justify its opposition, the court may:
(1) deny the motion;
(2) order a continuance to enable affidavits to be obtained, depositions to
be taken, or other discovery to be undertaken; or
(3) issue any other just order.
FED. R. CIV. P. 56(f).
21
No. 08-30476
reviewed under an abuse of discretion standard.” Wichita Falls Office Assocs.
v. Banc One Corp., 978 F.2d 915, 918 (5th Cir. 1992). “The purpose of Rule 56(f)
is to provide non-movants with a much needed tool to keep open the doors of
discovery in order to adequately combat a summary judgment motion.” Id. at
919. Although “a continuance of a motion for summary judgment for purposes
of discovery should be granted almost as a matter of course,” Int’l Shortstop, Inc.
v. Rally’s, Inc., 939 F.2d 1257, 1267 (5th Cir. 1991) (quotation marks and
citations omitted), the party seeking additional discovery must first demonstrate
“how that discovery will create a genuine issue of material fact,” Beattie v.
Madison County Sch. Dist., 254 F.3d 595, 606 (5th Cir. 2001). In this case, the
extrinsic evidence that Six Flags seeks to discover will not create a genuine issue
of material fact because, as noted above, such evidence may not be used to create
an ambiguity in otherwise unambiguous non-Commonwealth Excess Policies.
See LA. CIV. CODE ANN. art. 2046; Cadwallader, 848 So. 2d at 581 (“Courts lack
the authority to alter the terms of insurance contracts under the guise of
contractual interpretation when the policy’s provisions are couched in
unambiguous terms.”). Regarding the Commonwealth Policy, because we
conclude that an ambiguity exists, reverse summary judgment for
Commonwealth, and remand, Six Flags’s appeal is moot. Further discovery may
be helpful, and the district court will be in the best position to control that
discovery before entertaining any future motions.
III. CONCLUSION
For the foregoing reasons, we AFFIRM in part, REVERSE in part, and
REMAND. We AFFIRM the district court’s entry of judgment for Westchester
Surplus Lines Insurance Co.; Arch Specialty Insurance Co.; Great Lakes
Reinsurance (UK) PLC; Axis Specialty Insurance Co.; Continental Casualty Co.;
and Liberty Corporate Capital, Ltd. We REVERSE the district court’s entry of
judgment for Commonwealth Insurance Co. and REMAND for proceedings
22
No. 08-30476
between Six Flags and Commonwealth consistent with this opinion. Costs
incurred by the non-Commonwealth Excess Insurers shall be borne by Six Flags.
Six Flags and Commonwealth shall bear their own costs.
23