Orleans Parish Sch. Bd. v. Lexington Ins. Co.

• Decision Date: 05 June 2013
• Docket Number: No. 2012–CA–1686.,2012–CA–1686.
• Parties: ORLEANS PARISH SCHOOL BOARD v. LEXINGTON INSURANCE COMPANY, et al.
• Court: Court of Appeal of Louisiana — District of US

118 So.3d 1203

ORLEANS PARISH SCHOOL BOARD
v.
LEXINGTON INSURANCE COMPANY, et al.

No. 2012–CA–1686.

Court of Appeal of Louisiana,
Fourth Circuit.

June 5, 2013.

[118 So.3d 1206]

Terrill Wayne Boykin, Kriste Talton Utley, Shaundra M. Westerhoff, Boykin Ehret & Utley, Trevor George Bryan, Bryan & Jupiter, New Orleans, LA, Robert A. Kutcher, Nicole Sophia Tygier, Chopin Wagar Richard & Kutcher, LLP, Metairie, LA, for Plaintiff/Appellant, Orleans Parish School Board.

James M. Garner, Debra J. Fischman, Sher, Garner, Cahill, Richter, Klein & Hilbert, LLC, New Orleans, LA, for Intervenors/Appellants, Recovery School District, The Louisiana Department of Education and the Board of Elementary and Secondary Education.

Robert Irwin Siegel, Gieger Laborde & Laperouse, LLC, Michael R. Fontham, Anne–Marie J. Mitchell, Stone Pigman Walther Wittmann, L.L.C., New Orleans, LA, Courtney E. Murphy, Clausen Miller PC, New York, NY, for Defendant/Appellee, RSUI Indemnity Co.

(Court composed of Chief Judge JAMES F. McKAY, III, Judge ROLAND L. BELSOME, Judge ROSEMARY LEDET).

ROSEMARY LEDET, Judge.

[4 Cir. 1]This is a Hurricane Katrina, commercial property insurance coverage dispute. The sole issue presented is whether the trial court erred in granting a partial motion

[118 So.3d 1207]

for summary judgment, finding no coverage for increased construction costs under the “Ordinance or Law” endorsement of the policies at issue. For the reasons that follow, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

When Hurricane Katrina struck the New Orleans area, the Orleans Parish School Board (“OPSB”) was responsible for overseeing the operations of approximately 126 public schools in the area. Hurricane Katrina significantly damaged the OPSB's properties. “This litigation began when OPSB filed a lawsuit against its commercial property insurer [Lexington Insurance Company] on August 9, 2006, seeking recovery for damages sustained to certain insured properties as a result of Hurricane Katrina's August 29, 2005 landfall and its aftermath.” Orleans Parish School Bd. v. Lexington Ins. Co., 11–0009, pp. 1–2 (La.App. 4 Cir. 10/5/11), 76 So.3d 592, 593–94.¹ “As of the time of filing of the original petition, [4 Cir. 2]OPSB claimed to have received only half of the policy limits on its primary commercial property policy [$25 million].” Id. The OPSB subsequently amended its petition to join as defendants its four excess commercial property insurers—Essex Insurance Company, Clarendon Insurance Company, Westchester Surplus Lines Insurance Company, and RSUI Indemnity Company.² The terms of the Lexington policy apply to the Excess Insurers' policies because the Excess Insurers' policies are all following-form policies.³ The coverage the Defendant Insurers provided to the OPSB was structured on the following four levels: ⁴

+-----------------------------------------------------------------------------+
                ¦Primary: ¦$50 million per occurrence—Lexington; ¦
                +-------------------+---------------------------------------------------------¦
                ¦ ¦$25 million per occurrence (from $50 million to $75 ¦
                ¦First Excess Layer:¦million)—shared between Clarendon (60% of up to $25 ¦
                ¦ ¦million or $15 million) and Essex (40% of up to $25 ¦
                ¦ ¦million or $10 million) per occurrence; ¦
                +-------------------+---------------------------------------------------------¦
                ¦Second Excess ¦$25 million per occurrence (from $75 million to $100 ¦
                ¦Layer: ¦million)—Westchester; and ¦
                +-------------------+---------------------------------------------------------¦
                ¦Third Layer: ¦$ 100 million per occurrence (from $ 100 million to $200 ¦
                ¦ ¦million)—RSUI. ¦
                +-----------------------------------------------------------------------------+
                

On November 30, 2011, the Excess Insurers filed motions for partial summary

[118 So.3d 1208]

judgment on the issue of increased construction cost under the “Ordinance or Law” Endorsement.⁵ The motions sought the dismissal of any [4 Cir. 3]claim for ordinance or law coverage for the cost of code upgrades not actually incurred by the OPSB before August 29, 2007—two years after Hurricane Katrina. The Excess Insurers pointed out that coverage for code upgrades, if any, would arise under the increased cost to repair provision (Section A(2)) of the Ordinance or Law endorsement in Lexington's policy, quoted below. The endorsement, however, includes a two-year limitation for such coverage, which the Excess Insurers contended expired on August 29, 2007. The Excess Insurers further contended that to the extent any code upgrades were not actually performed by the OPSB by August 29, 2007, there was a failure to satisfy a condition precedent to recovering under the policies.

The pertinent policy provisions regarding Ordinance or Law coverage (also referred to as “Code Upgrade” coverage) are set forth in the Lexington primary policy, which includes both an exclusion of such coverage and an endorsement adding back limited coverage. As noted, the excess policies follow the terms of the primary policy for purposes relevant to the issue presented in this case.

The exclusion is set forth in a “CAUSES OF LOSS—SPECIAL FORM” of Lexington's policy, which provides:

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.

a. Ordinance or Law

[4 Cir. 4]The enforcement of any ordinance or law:

1) Regulating the construction, use or repair of any property; or

2) Requiring the tearing down of any property, including the cost of removing its debris.⁶

The endorsement adding back limited coverage is entitled an “Ordinance or Law” endorsement, numbered as “ENDORSEMENT # 002,” and labeled as CP0405 (ed. 07/88); it provides:

A. If a Covered Cause of Loss occurs to covered Building property, we will pay:

* * *

2. The increased cost to repair, rebuild or construct the property caused by enforcement of building, zoning or land use ordinance or law. If the property is repaired or rebuilt, it must be intended for similar occupancy as the current property, unless otherwise required by zoning or land use ordinance law.

* * *

[118 So.3d 1209]

C. We will not pay for increased construction costs under this endorsement:

1. Until the property is actually repaired or replaced at the same premises or elsewhere; and

2. Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage, not to exceed 2 years. We may extend this period in writing during the 2 years.⁷

In support of their respective motions, the Excess Insurers introduced evidence of the Lexington policy and their respective policies. They also [4 Cir. 5]introduced affidavits of representatives of the Defendant Insurers attesting that at no time within the two-year period after Hurricane Katrina (August 29, 2005 to August 29, 2007) did any of the Defendant Insurers extend in writing the two-year limitation period set forth in the Ordinance or Law Endorsement. Illustrative, RSUI's representative, Michael Koski, Vice President Commercial Property Claims, attested:

6. In the event of a covered loss to covered building property, the Ordinance or Law Coverage endorsement [Endorsement # 002, CP0405] expressly states that we will not pay for increased construction costs under the endorsement until the property is actually repaired or replaced at the same premises or elsewhere, and, unless the repairs or replacement are made as soon as reasonably possible after the loss or damage, not to exceed two years. The endorsement also states that RSUI may extend this period in writing during the two year period;

7. At no time within the two year period after Hurricane Katrina occurred (August 29, 2005), did RSUI extend, in writing, the period of time within which the coverage for increased construction costs may be incurred as described in Section C(2) of the Ordinance or Law Coverage endorsement.

In opposing the motions for summary judgment, the OPSB contended that there were at least four genuine issues of material fact, which it enumerated as follows: (i) whether the Defendant Insurers' repeated extensions granted to the OPSB during the claims process included the two-year limitation period; (ii) whether the Defendant Insurers' actions constituted a waiver of the two-year limitation period; (iii) whether the Excess Insurers should be estopped from raising the two-year limitation period; and (iv) whether the two-year limitation period was an impossible condition that should not be enforced. The OPSB further contended that summary judgment was premature since discovery was incomplete.

In support of its impossible condition argument, the OPSB introduced an affidavit of its Chief Financial Officer, Stanley C. Smith, who attested:

[4 Cir. 6]• I have personal knowledge of the financial status of the School Board before and after Hurricane Katrina.

• I have personal knowledge of the efforts of the Orleans Parish School Board to get schools up and running after Hurricane Katrina and have knowledge of the financial and non financial challenges which needed to be overcome to get schools open within

[118 So.3d 1210]

the first two years after Hurricane Katrina and to the present.

• The Orleans Parish School Board was unable to get 100% of its properties repaired or rebuilt within the two years after Hurricane Katrina. Principally, among the reasons for our inability to repair or rebuild all the properties was its lack of finances to repair such a large number of properties. It also took substantial time and effort to access all of the properties after Hurricane Katrina and then determine which properties had to be rebuilt or repaired, and where the needs of the children would be post Katrina.

• The time for obtaining necessary funds, complying with Louisiana administrative law to get approval to rebuild or repair schools, perform due diligence with construction companies, issue...