Skip to Content

“Ambiguous” flood deductible language may result in payday for New Orleans hotel

Written by: Dustin Wadsworth

“Ambiguous” flood deductible language may result in payday for New Orleans hotel

Flood insurance claims can be tricky because they require additional coverage beyond a typical policy. A hotel claim in Louisiana has turned into a court battle over some uniquely ambiguous language in the policy. This is something Sill public adjusters and attorneys can help with when it comes to claims management.

A recent article published by Insurance Journal outlines the case involving Jung Hotel and Residences in downtown New Orleans. The hotel was under renovation when heavy rains flooded the construction site four times in 2017.

The McDonnel Construction Group purchased a builder's risk policy from Starr Surplus Lines Company and Lexington Insurance Company on the property. Following the damage, McDonnel filed a damage claim in excess of $3 million, but the insurance companies denied it, arguing that the damages did not exceed the deductible.

In denying the claim, the insurers cited language in the policy that said flood coverage was only required when the damage exceeded 5% of the total insured value. This is where interpretation of the language in the policy led to the dispute at issue in this case. And this is where this loss claim gets really interesting.

The policy valued the development project at just over $86 million. Since the project was 80% completed at the time of the damage, the insurance provider considered the value to be just shy of $69 million.

As such, the insurers argued that the deductible was 5% of that amount, or approximately $3.4MM, so the damages of $3MM were not enough to trigger coverage.

Conversely, McDonnel, Jung (the hotel owner), Mechanical Construction Co., and All Star Electric-each of which were insured by the policy, filed separate lawsuits, each arguing that the deductible was $500,000 and moving for payment of their losses under the policy, plus bad faith damages. They argued that the deductible should be calculated at 5% of the flood insurance obtained, remarking that the insurers should have paid $2,726,264.30-the amount of damages less 5% of the amount insured.

Originally, the district court ruled in favor of the insurers on summary judgment. On appeal, however, the 5th Circuit Appeals Court agreed with the plaintiffs, commenting that insurable values are different from insured values. Insurance policies often limit risk according to insurable values (or the amount that could be insured). The policy in this matter based the deductible on the insured value, which means the total value for which the insured actually purchased coverage. Based on that, the court concluded that the damages incurred clearly exceeded the deductible and remanded the case back to the trial court for further review.

This case serves as an example of why property owners should turn to a public adjuster which employs in-house attorneys to help resolve insurance claims. Commercial property claims like this one mean millions of dollars are at stake.

Sill is the leading public adjusting firm in North America. We specialize in extensive commercial or residential insurance claims management. A property owner has the right to hire a public adjuster for professional claims support.

We have a team made up of former insurance company adjusters and former trial attorneys, both with expertise in managing insurance claims, resulting in faster claims settlements for more significant amounts.

We have successfully negotiated insurance claims disputes with almost every insurance provider in the industry. If you own a commercial property anywhere in North America and you experience some type of damage, you should contact Sill for expert guidance throughout your claim.

We have offices throughout North America, which means we can respond to any location within hours. Contact Sill today by calling 844-650-SILL.

SOURCE: Insurance Journal