Six Flags Inc. v. Westchester Surplus Lines Ins. Co., 042109 FED5, 08-30476

Docket Nº:08-30476
Party Name: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;
Case Date:April 21, 2009
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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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

No. 08-30476

United States Court of Appeals, Fifth Circuit

April 21, 2009

Appeal from the United States District Court for the Eastern District of Louisiana, New Orleans

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 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.

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

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 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 dam age 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 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

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." F ed. R. C iv. 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...

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