Texas Appeals Court Determines Flood Limit Does Not Cap Insured’s Claim For Loss Of Business Income

By Ramy P. Elmasri

A three-judge panel for the Texas Fourteenth Court of Appeals recently held that the $4.5 million dollar limit for flood damage in a commercial insurance policy did not limit the insured from seeking loss of business income. Hanover Casualty Co. v. Seven Acres Jewish Care Services Inc., No. 14-20-00736-CV, 2022 Tex. App. LEXIS 6288.  

Facts

Seven Acres Jewish Care Services (“Seven Acres”), an assisted living facility, made a claim for property damage resulting from Hurricane Harvey. Seven Acres sustained extensive flood damage and its insurer Hanover Casualty Company (“Hanover”) tendered limits pursuant to a special flood endorsement providing $4.5 million in coverage. Seven Acres also made a claim for loss of business income, which Hanover denied asserting that all claims arising from flood related damage were subject to the flood endorsement limit. 

Seven Acres filed suit seeking payment for damages related to loss of business income and the trial court granted summary judgment finding that the policy’s flood limit did not control the amount of coverage available for business income related losses. On appeal the Texas Fourteenth Court of Appeals upheld the ruling finding that the optional flood endorsement modified the policy to include flood, which is otherwise excluded, as a covered peril and contained a separate limit in addition to the business income endorsement. 

Analysis

Hanover argued that the flood endorsement modified the terms of the policy, including the business income coverage form, relying on the language in the flood endorsement which stated the policy will only cover $4.5 million for all loss and damage caused by flood. 

Seven Acres argued that the language of the policy was ambiguous, noting that the property coverage form covered direct physical loss to real and personal property and the business income form covered losses flowing from a suspension of operations due to a covered direct physical loss and had a separate premium and limit from the property coverage. Seven Acres also argued that if Hanover wanted to make the business income claims subject to the flood limit it could have added language as it did with the data breach coverage form, which was a part of and not in addition to the aggregate limit of insurance. 

Learning Point: Insurers should take extra precaution in including language in any endorsement offering additional coverage to clarify whether the limit is intended to apply to other covered losses or is in addition to other coverages.