Does Accepting Flood Policy Limits Amount to an “Admission” that Hurricane Damage was Solely Caused by Water?

My past few hurricane blog posts have been discussions of the issues raised in the recent Florida state court case of Citizens Property Ins. Corp. v. Ashe, No. 1D09-1546, 2010 WL 4628915 (Fla. 1st DCA Nov. 17, 2010). To refresh your recollection, Ashe was a case in which a homeowner’s property was damaged by a hurricane, the homeowner was paid policy limits by his flood insurer, and a dispute arose as to entitlement to benefits under his wind policy. Another case in that same vein was recently before a Mississippi federal court in Penthouse Owners Assoc., Inc. v. Certain Underwriters at Lloyd’s, London, No. 1:07CV568-HSO-RHW, 2011 WL 96514 (S.D. Miss. Jan. 11, 2011).

In Penthouse Owners, the plaintiff suffered damage to its commercial property from Hurricane Katrina, and made claims with both its flood and its all-risk insurers. The flood insurer paid $3,610,000, which was the policy limit for the flood policy. The all-risk insurer, Lloyd’s, denied the plaintiff’s claim, “citing a water exclusion in its Policy and taking the position that the complex was destroyed by flooding.” Lloyd’s went so far as to argue that the plaintiff’s flood claim and subsequent acceptance of flood policy limits amounted to an admission that the property damage was entirely flood related, and there was no wind damage from Hurricane Katrina on which to implicate its policy. The plaintiff responded with an affidavit that stated, “After Katrina destroyed Penthouse’s property, I made a claim for benefits under Penthouse’s flood and Lloyd’s policies. When I made those claims, I did not admit that flood caused damage to the property. I merely made a claim for benefits under each of the policies.”

The court noted that under the Federal Rules of Evidence, admissions of a party opponent are not hearsay, and can be offered into evidence if otherwise admissible. The court could not find any direct evidence of an admission by the plaintiff that the property damage was entirely caused by water, and also found that an application for flood policy limits and subsequent acceptance of payment did not amount to an “admission” that the sole cause of damage to the property was water.

Both the plaintiff’s expert and Lloyd’s expert found that there was a possibility that wind had damaged the property. The court cited to Corban v. United Services Auto. Ass’n, 20 So. 3d 601, 613 (Miss. 2009) for the holding that, “’loss occurs at that point in time when the insured suffers deprivation of, physical damage to, or destruction of the property insured,’ and that, once a loss occurs, that particular loss is not changed by any subsequent cause or event.” In the end, there was a sufficient question of fact to deny Lloyd’s motion for summary judgment on the wind coverage. Lloyd’s also sought summary judgment on the plaintiff’s extra-contractual and bad faith claims, but was denied summary judgment on those counts as well.