978-1285770178 Case Printout Case CPC-30-05 Part 2

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Textbook Cengage Advantage Books: Business Law: Text & Cases - Commercial Law for Accountants 13th Edition

Authors Roger LeRoy Miller

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[1] Link to KeyCite Notes[2] Link to KeyCite Notes[3] Link to KeyCite Notes We

issues of material fact and the non-movant is entitled to judgment as a matter of law.” Id.

(citing Fed.R.Civ.P. 56(c)). “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.

78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Ashland Chem. Inc. v. Barco Inc., 123 F.3d 261,

265 (5th Cir.1997). In determining which state's substantive law controls, the court

applies the choice-of-law rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg.

Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The parties agree that in

these Louisiana actions involving the interpretation of insurance policies issued in

the same case. See 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. (quoting Lake Charles Diesel, Inc. v. Gen. Motors Corp., 328 F.3d 192,

197 (5th Cir.2003)); Prytania Park Hotel, Ltd. v. Gen. Star Indem. Co., 179 F.3d 169 (5th

Cir.1999). “Jurisprudence, even when it rises to the level of jurisprudence constante, is a

[12] Link to KeyCite Notes[13] Link to KeyCite Notes Under Louisiana law, “[a]n

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 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

question of law. Bonin v. Westport Ins. Corp., 930 So.2d 906, 910 (La.2006) (citing

Robinson v. Heard, 809 So.2d 943, 945 (La.2002)); see also La. Ins. Guar. Assoc., 630

So.2d at 764.

[14] Link to KeyCite Notes “The words of a contract must be given their generally

prevailing meaning.” La. Civ.Code Ann. art. 2047 (1987); see also Cadwallader, 848

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, 630 So.2d at 763 (citing La. Civ.Code Ann. art. 2050 (1987) (“Each

provision in a contract must be interpreted in light of the other provisions so that each is

given the meaning suggested by the contract as a whole.”)). “Words susceptible of

reasonable insurance policy purchaser would construe the clause at the time the insurance

contract was entered.” La. Ins. Guar. Ass'n, 630 So.2d at 764 (quoting Breland v.

Schilling, 550 So.2d 609, 610-11 (La.1989)). “The court should construe the policy ‘to

fulfill the reasonable expectations of the parties in light of the customs and usages of the

industry.’ ” Id. (quoting Trinity Indus., Inc. v. Ins. Co. of N. Am., 916 F.2d 267, 269 (5th

is to be construed against the drafter, or, as originating in the insurance context, in favor

of the insured.” La. Ins. Guar. Ass'n, 630 So.2d at 764. 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

interpretations must be reasonable.” Id. The fact that a term is not defined in the policy

itself does not alone make that term ambiguous. Am. Deposit Ins. Co. v. Myles, 783

So.2d 1282, 1287 (La.2001).

[19] Link to KeyCite Notes[20] Link to KeyCite Notes “An insurance contract, however,

should not be interpreted in an unreasonable or strained manner under the guise of

policies in this case-which are homeowners, renters, and commercial-property policies-

are all-risk policies. All-risk policies “create[ ] a special type of coverage that extends to

risks not usually covered under other insurance; recovery under an all-risk policy will be

allowed for all fortuitous losses not resulting from misconduct or fraud, unless the policy

contains a specific provision expressly excluding the loss from coverage.” Alton Ochsner

437, 440 (La.1998) (citing La. Ins. Guar. Assoc., 630 So.2d at 763); see also Bonin, 930

So.2d at 911. But “[e]xclusionary provisions in insurance contracts are strictly construed

against the insurer, and any ambiguity is construed in favor of the insured.” Ledbetter v.

Concord Gen. Corp., 665 So.2d 1166, 1169 (La.2006) (citing Garcia v. St. Bernard Parish

Sch. Bd., 576 So.2d 975, 976 (La.1991)).

By contrast, the insurers maintain that the policies unambiguously exclude coverage for

the inundation of water resulting from the breached levees.

[24] Link to KeyCite Notes The Louisiana Supreme Court has not interpreted a flood

exclusion in the context of breached levees. We must therefore make an Erie guess and

determine, in our best judgment, how that court would resolve the issue if presented with

Jefferson v. Lead Indus. Ass'n, Inc., 106 F.3d 1245, 1247 (5th Cir.1997) (per curiam)

(“Alone, the absence of a definitive answer from the state supreme court on a particular

question is not sufficient to warrant certification.”). Because the rules of contract

interpretation set forth in the Louisiana Civil Code provide us with an adequate basis to

decide this appeal, we decline the certification requests. Cf. Swearingen v. Owens-

policy itself ... alone does not make the exclusion ambiguous; instead, [the court] will

give the term its generally prevailing meaning.” Am. Deposit Ins. Co., 783 So.2d at 1287

(citing La. Civ.Code art. 2047); see also Hendricks v. Am. Employers Ins. Co., 176 So.2d

827, 830 (La.Ct.App.1965);FN12 accord Bay Cities Paving & Grading, Inc. v. Lawyers'

Mut. Ins. Co., 5 Cal.4th 854, 21 Cal.Rptr.2d 691, 855 P.2d 1263, 1270 (1993) (rejecting

as to create impenetrable ambiguity.”).

FN12. The Chehardy plaintiffs cite Hendricks for the proposition that if an insurance

company fails to define a pertinent term of the policy or exclusionary provision, the court

must adopt the meaning of that term most favorable to the policyholders. But Hendricks

states: “Where ... a particular word or phrase is not defined [in the insurance policy], the

(La.Ct.App.2002). In that case the term being construed was “professional duty” in the

context of a professional-liability exclusion. The Arnette court did state: “Further,

because ‘professional duty’ is undefined in the First State policy, we conclude the

professional liability exclusion is ambiguous and must be construed in favor of NUS and

against First State.” Id. at 803. But the term “professional duty,” unlike “flood,” lacks any

The plaintiffs also maintain that because the insurers could have more explicitly excluded

floods that are caused in part by negligence, their failure to do so in these policies makes

the flood exclusions ambiguous. Specifically, the Chehardy plaintiffs point to evidence

that before Hurricane Katrina struck, the insurer defendants knew about the availability

of policy forms that more explicitly excluded floods caused in part by man but that they

insurers succeeded with little effort in clearly excluding water damage resulting from

negligent acts and that the other insurers could have done so as well.

FN13. Hartford Insurance Company of the Midwest (“Hartford”) was a defendant in the

Vanderbrook action. The district court granted Hartford's motion to dismiss for failure to

state a claim because its policy explicitly excluded coverage for loss caused by release of

ambiguous.’ ” (quoting Garmany v. Mission Ins. Co., 785 F.2d 941, 945-46 (11th

Cir.1986))). Nor does the fact that other policies have more explicitly defined the scope

of similar exclusions. As the Louisiana Supreme Court stated in Cadwallader when

interpreting the term “relative”:

The appellate court further erred in reaching a conclusion that because some insurance

insurance is the law between the parties. When we find the contract of insurance is clear

and unambiguous ... we must enforce the policy as written.

848 So.2d at 583. We therefore reject the plaintiffs' arguments that the flood exclusions

in the policies before us are ambiguous in light of more specific language used in other

policies.FN14

Instead, we first apply the general rules of contract construction set forth in the Civil

Code. La. Ins. Guar. Ass'n, 630 So.2d at 764. Under those rules, we give the words of a

contract their “generally prevailing meaning.” La. Civ.Code Ann. art. 2047. Dictionaries,

treatises, and jurisprudence are helpful resources in ascertaining a term's generally

prevailing meaning. See Gregor v. Argenot Great Cent. Ins. Co., 851 So.2d 959, 964

La. Civ.Code Ann. art. 2046.

[28] Link to KeyCite Notes[29] Link to KeyCite Notes To ascertain the generally

prevailing meaning of the term “flood,” we begin by considering dictionary definitions of

the term. Each of the dictionaries we have accessed lists more than one definition of

“flood,” but the existence of more than one definition of a term does not itself make the

Union Ins. Co. v. Advance Coating Co., 351 So.2d 1183, 1186 (La.1977); see also

Falgout v. Walter Jester, Hampton Inc., 883 So.2d 515, 520 (La.Ct.App.2004).

The Oxford English Dictionary has two pertinent definitions of “flood”: (1) “[a]n

overflowing or irruption[FN15] of a great body of water over land not usually

submerged; an inundation, a deluge” and (2) “[a] profuse and violent outpouring of

which inundates area of surface of earth where it ordinarily would not be expected to be.”

Black's Law Dictionary 640 (6th ed.1990). “Flood” itself is not defined in the current

(eighth) edition of Black's Law Dictionary, but “floodwater” is defined as “[w]ater that

escapes from a watercourse in large volumes and flows over adjoining property in no

regular channel.” Black's Law Dictionary 1622 (8th ed.2004). The most straightforward

incursion, or invasion, esp[ecially] of a hostile force or tribe.” 8 Oxford English

Dictionary 104 (2d ed.1989).

[I]nundation of land by the rise and overflow of a body of water. Floods occur most

commonly when water from heavy rainfall, from melting ice and snow, or from a

combination of these exceeds the carrying capacity of the river system, lake, or ocean

Columbia Encyclopedia 1002 (6th ed.2000) (emphasis added).

We also consider the definitions of “flood” in treatises. Appleman's Insurance Law and

Practice defines “flood waters” as “those waters above the highest line of the ordinary

flow of a stream, and generally speaking they have overflowed a river, stream, or natural

water course and have formed a continuous body with the water flowing in the ordinary

outside Louisiana. In Riche v. State Farm Fire & Casualty Co., an intermediate Louisiana

court interpreted a policy's exclusion for “flood, surface water, 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.” 356 So.2d 101, 103 (La.Ct.App.1978). The plaintiff in

Riche was fishing in a boat on a lake when a windstorm caused the boat to sink, id. at

reservoir.” Id. at 103-04. Riche, however, is of limited value in this case because its

determination was simply that a water-damage exclusion applied only to losses that

occurred on areas not normally covered by water (i.e., dry land) and not to a loss

occurring on a body of water. See id. at 103-04; see also Couch, supra, at § 153:54 (citing

Riche for the proposition that “[b]ecause a flood is generally understood to mean the

water falls within the language of the exclusion. Russell G. Donaldson, Annotation, What

is “ Flood” Within Exclusionary Clause of Property Damage Policy, 78 A.L.R.4th 817

(1990 & Supp.2007) (citing Kane v. Royal Ins. Co. of Am., 768 P.2d 678 (Colo.1989);

Bartlett v. Cont'l Divide Ins. Co., 697 P.2d 412 (Colo.Ct.App.1984); and E.B. Metal &

Rubber Indus., Inc. v. Fed. Ins. Co., 84 A.D.2d 662, 444 N.Y.S.2d 321

levees. We agree that E.B. Metal's rationale may not be fully applicable to this case on

this basis. Nevertheless, the plaintiffs have not directed us to any authority contradicting

the proposition that in the context of a broken dam, levee, or other similar structure,

courts have reached a consensus that the term “flood” is unambiguous and that flood

exclusions preclude recovery.

for damage resulting from floods, because the scope of the government's immunity may

be broader than the exclusions in the policies before us, which we must strictly construe.

See Ledbetter, 665 So.2d at 1169.

The most prominent such case is Kane, which arose in the context of the failure of the

Lawn Lake Dam in Colorado. See 768 P.2d at 679. As a result of the dam failure, water

that “[t]he inundation of insureds' normally dry land falls squarely within these generally

accepted definitions of the term ‘flood.’ ” Id. at 681. Concluding that the term was

unambiguous in light of its generally accepted meaning and in the context of the facts of

the case, the court declared that “there is no doubt that this large-scale inundation of

water was a ‘flood.’ ” Id.FN18

768 P.2d at 679-80 (omissions in original).

FN18. The district court attempted to distinguish Kane in three ways, none of which

withstands scrutiny. First, the district court opined that Kane “applied the broadest

possible definition” of the term “flood,” whereas Louisiana law requires exclusions to be

narrowly construed. It is not clear on what basis the district court believed Kane applied

Kane resulted from water overtopping the dam. The court opined that this factually

distinguished Kane from the case before us, where the allegations are not that the levees

were overtopped but that they collapsed when faced with conditions they should have

withstood. The district court relied on the following statement in Kane: “Although

leakage from a ruptured city water line does not fall within [Appleman's] definition [of

Third, the district court observed that it was unclear from Kane whether Colorado follows

the doctrine of efficient proximate cause, pointing to the clause: “the ‘efficient moving

cause’ rule, if it were to be adopted by this court.” Id. at 685. Assuming without deciding

that Louisiana does follow the efficient-proximate-cause doctrine, the doctrine has no

impact on how a term within a policy exclusion should be construed. The doctrine comes

area where it would not normally be expected.” 309 Ill.App.3d 566, 243 Ill.Dec. 344, 723

N.E.2d 376, 383 (2000). The court held that it was immaterial that a particular

watercourse was originally man-made as long as it had a defined bed, visible banks, and a

recurrent water flow. See id. Indeed, the court observed that a permanent watercourse

with these characteristics is considered a natural watercourse. See id. at 382; see also

In light of these definitions, we conclude that the flood exclusions are unambiguous in

the context of this case and that what occurred here fits squarely within the generally

prevailing meaning of the term “flood.” When a body of water overflowsFN19 its normal

boundaries and inundates an area of land that is normally dry, the event is a flood. This is

precisely what occurred in New Orleans in the aftermath of Hurricane Katrina. Three

though the term “overtopping” was nowhere to be found in the definitions), referring to

the definitions as “the ‘overtopping’ definitions.” Since the levees' failures here are not

alleged to have occurred due to water overtopping the levees, the court inferred that the

breaches did not result in a flood. But the court's substitution of “overtopping” for

“overflowing” was erroneous. “Overflow” means (1) “[t]o flow over; to overspread or

cover with water or other liquid; to flood, inundate”; (2) “[t]o pass or spread over like a

flood, so as to pervade, fill, cover, submerge, overwhelm, etc.”; and (3) “[t]o flow over