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When a term in an insurance policy is not defined, the word should be given its plain, ordinary and generally prevailing meaning. La. Civ. Code Ann. art. 2047.
On August 29, 2005, Hurricane Katrina struck New Orleans and the surrounding area with devastating results. As a result of the storm, extremely high water attacked the levee system protecting the city, causing some of the levees to fail and inundating the majority of the city with water. Joseph Sher, the plaintiff, owned and lived in a five-unit apartment building in New Orleans at 1410 Broadway Street. Mr. Sher did not evacuate prior to the storm and was subsequently trapped by the flood waters, which reached a level of four feet in the lower level of the building. After his evacuation, plaintiff traveled to Baton Rouge and resided with one of his children. Sher had obtained a commercial all-risk insurance policy covering the building from Lafayette Insurance Company in 1989, which coverage was in effect throughout the time period in question. After the hurricane, Sher inspected his property and informed Lafayette of his claim. Lafayette assigned the claim to Property Loss Consulting, Inc. (PLC), on October 5, 2005, and Robert Jones conducted an inspection of the building on November 1, 2005. Following the inspection, Lafayette determined that most of the building's damage was due to poor maintenance, disrepair, and flooding, and estimated Sher’s damages as $ 3,307.09. After subtracting a hurricane deductible of $ 1,000 and a premium charge of $ 2,037, Lafayette issued Sher a check in the amount of $ 270.09. After a second inspection of the premises by Fred Vanderbrook, a consulting engineer hired by Lafayette, Lafayette issued Sher another check in the amount of $ 2,484.99. Sher did not negotiate either check.
After continuously disputing Lafayette's damage estimate and sending Lafayette additional estimates and repair invoices, Sher filed suit on August 28, 2006. Sher’s petition included claims for insurance coverage, bad faith penalties, attorney's fees and costs, and bad faith breach of insurance contract. Sher filed a motion for partial summary judgment, asking that the flood exclusion in Lafayette's policy be declared ambiguous. The trial court granted the motion for partial summary judgment, ruling that the flood exclusion was ambiguous, and that the policy covered man-made events. The trial was conducted in two phases over five days, the first phase concerning liability and damages, and the second concerning only Lafayette's alleged arbitrary and capricious behavior. The jury returned a verdict against Lafayette and awarded damages and costs totaling $870,652.34. On appeal, the appellate court affirmed and amended the total award to $514,655.09.
Did the court of appeal err in affirming the trial court's granting of Sher’s partial motion for summary judgment by determining that the meaning of the word "flood," as used in the policy, was ambiguous?
Both the trial court and the court of appeal found that the word "flood" in the water exclusion of the policy was susceptible to multiple definitions and therefore ambiguous. As a result, both courts construed the policy against Lafayette, finding coverage for damages caused by the four feet of water which inundated the lower floor of Sher’s property. The exclusion at issue reads in pertinent part as follows:
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
* * *
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not; x x x
The term "flood" is not defined in the policy. Although the court of appeal recognized this rule of construction, it found that because there were varying causes of floods, the word "flood," itself, was ambiguous. The court of appeal then proceeded to construe the exception against Lafayette and in favor of plaintiff, finding that the policy did, indeed, provide flood coverage for the plaintiff. In support of its reasoning, the court of appeal pointed out that the "exclusion includes 'flood,' but then continued to list specific natural disasters that cause inundations of water, commonly labeled as 'floods,'" such as waves, tides, tidal waves and the overflow of water, whether driven by wind or not. The plain, ordinary and generally prevailing meaning of the word "flood" is the overflow of a body of water causing a large amount of water to cover an area that is usually dry. This definition does not depend on locality, culture, or even national origin - the entire English speaking world recognizes that a flood is the overflow of a body of water causing a large amount of water to cover an area that is usually dry land. Contrary to the court of appeal's reasoning, this definition does not change or depend on whether the event is a natural disaster or a man-made one - in either case, a large amount of water covers an area that is usually dry. The plain, ordinary and generally prevailing meaning is all-inclusive. Far from supporting the court of appeal's conclusion that the term "flood" is ambiguous because it does not distinguish between man-made and natural flood, this tends to show that the parties intended the word "flood," to have its plain, ordinary and generally prevailing meaning - the overflow of a body of water causing a large amount of water to cover an area that is usually dry - regardless of its cause.
The court of appeal's reasoning was likewise flawed when, because it had found the word "flood" ambiguous, it construed the policy against the insurer, finding coverage for the flood damage to the basement of plaintiff's building. As stated above, when there is an ambiguity in a policy of insurance, coverage should be construed in favor of coverage, but only if the ambiguous policy provision is susceptible to two or more reasonable interpretations. The court of appeal did not definitively state what were the two or more reasonable interpretations it found of the word "flood." It is assumed that one "reasonable interpretation" of the word would be its plain, ordinary and generally prevailing meaning - the overflow of a body of water causing a large amount of water to cover an area that is usually dry, including both man-made and natural disasters. Applying this meaning to the word "flood" in the exclusion would be entirely reasonable, as "flood" is used in the exclusion without modifier and along with other terms which are likewise susceptible to being caused by man or nature. We further assume that the other interpretation of the word "flood" found "reasonable" by the court of appeal would be a flood which is entirely natural. Because there is no indication within the four corners of the insurance contract that the parties intended to use such a restrictive definition of the word "flood," and because such a definition is not the plain, ordinary and generally prevailing meaning of the word, the use of that definition is per se unreasonable. In other words, to fail to give the generally prevailing common meaning to a term in an insurance contract, when the use of that meaning would be perfectly reasonable, in favor of a more restrictive meaning, is without justification, and appears to be more result determinative than legally warranted. Furthermore, use of the restrictive definition would lead to absurd results. Using the court of appeal's definition, a homeowner whose house is located outside a protective levee would be excluded from recovering flood damages to his property, while a homeowner whose house is located inside the levee system would be able to recover under the same policy for the same flood water simply because it flowed through a breach in the levee.
Finally, even if the exclusion only referred to natural, rather than man-made, floods, the flood at issue was not caused by man. The flood was caused by Hurricane Katrina, not by man. The levees did not cause the flood, they, whether through faulty design, faulty construction, or some other reason, failed to prevent the flood.