Publications

(Article from Insurance Law Alert, July/August 2019)

For more information, please visit the Insurance Law Alert Resource Center.

The Sixth Circuit ruled that a flood-specific coverage limitation is not limited to property damage but rather applies to all loss or damage arising out of a flood.  Federal-Mogul LLC v. Ins. Co. of Pa., 2019 WL 2928961 (6th Cir. July 8, 2019).

Federal-Mogul’s factory was damaged in a flood, resulting in $39 million in property damage and $25 million in economic losses.  The company’s insurer refused to pay more than $30 million on the basis of a Flood for High Hazard Zone limitation (the “Flood Sublimit”).  Although the policy provided up to $200 million for all covered loss or damage, the Flood Sublimit capped coverage at $30 million if the flooding occurred in a “high hazard zone.”  The parties disputed whether the Flood Sublimit applied only to physical property damage caused by the flood, or to all loss, including economic loss, that resulted from the flood.

A Michigan district court concluded that the Flood Sublimit applied only to property damage and did not limit coverage for “Time Element” losses, defined by the policy as various economic losses resulting directly from a flood.  The Sixth Circuit reversed, finding that there was no policy provision limiting the Flood Sublimit to property damage.  The court explained that “when the policy limits the Insurance Company’s liability for ‘Flood,’ it limits the insurer’s liability for losses from a particular type of peril rather than a particular type of coverage.”