In a 2020 decision, Pam Am Equities vs. Lexington Insurance Co, the Fifth Circuit analyzed which deductible applied to an insurance policy that covered both flood damage and windstorm damage. The case stems from a claim brought by Pam Am Equities after Hurricane Harvey destroyed part of Pan Am’s properties. The decision affirms a 2019 ruling by a Southern District Court.
According to Insurance Journal, Pam Am Equities Inc. filed its claim in August 2018, a year after Hurricane Harvey made landfall.
Pan Am claimed that:
- The property damage was only due to flooding damage that Hurricane Harvey caused
- The flooding deductible should apply
The insurance carrier, Lexington, claimed that:
- The property damage was due to a windstorm and a named (Hurricane Harvey) peril
- The windstorm deductible should apply
The values of the properties and the applicable deductibles were as follows:
- One of Pam Am’s properties, which was insured for $190.5 million, suffered $6.6 million in damage. Another property had an insurable value of $182,565 and suffered more than that amount in damages.
- The flood insurance deductible is $100,000 – though in some cases it is $1 million per location.
- The wind and hail insurance deductible is 5% of the total insurance value. For property valued at $190.5 million, that 5% is approximately $9.5 million.
The wind and hail insurance deductible was part of the “named storm damage” provision in the property insurance policy. After Hurricane Katrina, which caused extensive damage, insurance carriers began to distinguish between regular deductibles and “named storm” deductibles. Regular deductibles usually have a specific dollar amount deductible and named storm deductibles usually have a much higher deductible based on a percentage.
The right to insurance payments thus hinged on whether the flood insurance deductible applied or the wind and hail insurance deductible (as part of the named storm) applied. If the flood insurance deductible applied, the insured (Pan Am) would be entitled to most of the combined losses (minus the $100,000 flood insurance deductible) – more than $6.7 million. If the wind and hail deductible applied, then Pam Am’s claim for any damages would be denied.
The reasoning of the lower court and appellate court
The Fifth Circuit determined that the windstorm and hail deductible (under the “named storm” provisions) applied. The court denied Pan Am’s claim. The court reasoned that:
- The placement of any deductible provisions or other insurance definitions didn’t matter as much as the actual wording of the provisions.
- An insurance contract must be read as a “cohesive, harmonious whole.”
- Both courts (the district court and the appellate court) specifically focused on the phrase “named storm deducible.” The courts reasoned that named storms apply to hurricanes, which are given names and other storms which are given names. The damage, even though it was in the nature of flooding damage, was due to a named storm – Hurricane Harvey. Therefore the higher named storm deductible applied. Named storm damage covers wind and hail and floods.
The higher court also wrote that even if both deductibles applied, “the insurance contract’s anti-stacking rule only allowed for the largest deductible — the ‘named storm deductible’ — to apply.”
At Warhurst Law, attorney Gene Warhurst has a keen understanding of insurance language in insurance policies. He also keeps current with relevant court decisions. His hands-on knowledge (through his extensive work as an insurance adjuster) and his legal knowledge (through a quarter century of work as an insurance lawyer) enables him to make the strongest arguments possible. He fights to show an insured is covered, that the lowest deductible applies, and that every item damaged is properly valued.
To speak with an experienced and distinguished insurance dispute lawyer, call Warhurst Law at 251.207.1296 or use our contact form to schedule an appointment. We represent businesses, homeowners, and renters throughout the Southeast, including Alabama, the Florida panhandle, and Louisiana.
* Warhurst Law cannot and does not guarantee an outcome to any case.