General Accident Ins. Co. v. Unity/Waterford-Fair Oaks, Ltd.: Fifth Circuit Adheres to Plain Language of Complex Commercial Property Insurance Policy in Determining Coverage Does Not Exist
September, 2002
Affirming the lower court’s grant of summary judgment in favor of the insurer, the Fifth Circuit rejects an insured’s attempt to interpret its commercial insurance policy contrary to the policy’s plain language to effectuate coverage in General Accident Ins. Co. v. Unity/Waterford-Fair Oaks, 288 F.3d 651 (5th Cir. 2002).
Facts
In Unity/Waterford-Fair Oaks, the plaintiff, an owner of apartment buildings, sued its insurer under a commercial property insurance policy to recover for a building’s foundation damages “resulting from seepage or leakage from underground pipes and drains and for the cost of accessing and repairing that underground plumbing.”
The commercial property policy in question was complicated in its language and construction. Like many commercial property policies, a number of the policy’s provisions excluded coverage for some causes of loss, but provided ensuing loss coverage in certain instances. The insured attempted to manipulate the policy’s construction and ensuing loss provisions in its favor, but to no avail.
Analysis
The Fifth Circuit refused to read ambiguities into the policy that did not exist. The court adhered to standard principles of contract interpretation in determining that coverage was not afforded by the commercial policy: “[o]ur primary goal ... is to give effect to the written expression of the parties’ intent. We must read all parts of the contract together, striving to give meaning to every sentence, clause, and word to avoid rendering any portion inoperative ...” Employing these principles of contract interpretation, the Fifth Circuit held that coverage was not provided for the damages in question for three reasons:
First, the policy excludes coverage of ‘loss or damage caused by or resulting from... continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more.’... Second, the policy also explicitly provides that ‘covered property does not include...underground pipes, flues or drains.’ ... Third, ‘if loss or damage caused by or resulting from covered water ...damage loss occurs,’ the policy provides for an additional coverage extension to ‘pay the cost to tear out and replace any part of the building ... to repair damage to the system or appliance from which water ... escapes.’ But because there was no loss or damage caused by or resulting from covered water damage and because the underground pipes were not covered property, the insurer is not obligated to pay the cost to tear out and replace any part of the building or structure to repair damage to the underground pipes.
Learning Point:
Commercial all risk policies are complicated–many provisions both exclude and provide coverage in the very same sentence. Nevertheless, courts should (and usually do) interpret complex commercial policies according to standard contract interpretation principles, often refusing to manipulate clear language to provide coverage when none was intended to exist.
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