5th Circuit: Insurer Liable for Harvey Damage Despite ‘Creative’ Policy Language and ‘Legal Gotcha’

While Hurricane Harvey dumped 60 inches of rain on the Houston area in August 2017, the authority that operates the Lake Conroe Dam opened the floodgates to release water at a rate almost equal to the flow over Niagara Falls.

Water in the lake flowed counterclockwise as if draining from a sink, causing fallen trees, unmoored boats and other debris to slam into 22 boat dock slips owned by the Playa Vista Conroe condominium association. The association filed a claim seeking $208,177.44 to repair hurricane damage to the complex, including replacement of the boat docks. Insurance Co. of the West denied the claim, saying hurricane damage was excluded by the association’s policy.

A panel of the 5th Circuit Court of Appeals on Friday affirmed a trial court ruling that requires ICW to pay $190,827.50 for the damage to the boat docks plus $50,000 for the association’s legal fees. In an opinion written by Circuit Judge Andrew S. Oldham, the court chided ICW’s lawyers for making an “absurd” argument in an effort to undo its “litigation mistakes.”

“ICW first argues that it creatively drafted its insurance contracts to avoid any burden to prove anything,” the court said. “…Texas law establishes a burden-shifting framework under which the insured must establish coverage, but then the insurer must prove an applicable exception.”

The opinion says ICW sold Playa Vista a policy that excludes flood damages arising out of a hurricane or tropical storm, but also defines “flood” as an inundation of normally dry land. ICW paid extra for an endorsement to cover flood damage, but the policy included a separate exclusion for any flood damage to the “boat slip/docks” (BSE) on the property.

“It is unclear why ICW drafted its BSE to exclude ‘flood’ damage to property that normally appears on water rather than dry land,” the panel said. “But it was ICW’s policy to draft, so ICW must assume the perils of its chosen language.”

After Playa Vista filed suit in state court, ICW removed the case to the U.S. District Court for Southern Texas in Houston. The condo association’s president, Robert G. Copes, testified in an affidavit that the boat slips survived the rainfall from Hurricane Harvey, but when the San Jacinto River Authority released water from Lake Conroe “a super-powerful suction effect” pulled debris from all around the lake and destroyed the boat slips.

ICW did not challenge Copes’ testimony. Instead, it entered into a stipulation with the condo association stating the loss was caused by the release of water from the lake.

After the district court granted summary judgment in favor of the condominium association, ICW filed a new motion for summary judgment. The insurer argued that the case should be dismissed because the association had admitted that the damage was caused by the actions of a governmental body, which was excluded from coverage.

The 5th Circuit panel refused to accept that ICW had “snatched victory from the jaws of defeat” through a “legal gotcha.”

“That is far too little too late,” the opinion says. “If ICW wanted to rely on the governmental-body exclusion, it was obligated to raise it (at the latest) at summary judgment.”

About the photo: Water is released from Lake Conroe Tuesday, Aug. 29, 2017, in Conroe, Texas. (AP Photo/David J. Phillip)