By: Stearns, Roberts & Guttentag, L.L.C.

The National Flood Insurance Act of 1968 authorized the Administrator of the Federal Emergency Management Agency (“FEMA”) to create a national flood insurance program. The Act authorized private insurers to offer a standard flood insurance policy (“SFIP”). Although these policies are written by private firms, the federal government acts as the guarantor and reinsurer, and the claims are ultimately paid by the U.S. Treasury. The question arises to whether there is a gap in coverage between the SFIP and an all-risk policy for waters intruding above the surface.

In Flamingo South Beach I Condominium Association, Inc. (“Flamingo”) v. Selective Insurance Company of Southeast (“Selective”), 2012 WL 4839117 (11th Cir. Oct. 10. 2012), Flamingo, who owns a 562 unit high rise condominium building, alleged that Selective breached the contract for failing to pay Flamingo under the terms of an SFIP. There, the South Tower of Flamingo had an elevated lobby with an adjacent 30,000 square foot promenade deck. The deck had an upper area and contiguous sunken level down two steps from the upper area. The slope was such that water drains toward the sunken level, which was adjacent to the lobby.

In June 2009, a severe rainstorm struck Miami Beach, causing almost ten inches of rain to fall in two hours. The rain water entered into the condominium lobby from the adjacent deck, causing significant damage to Flamingo. Flamingo had coverage under an SFIP, for direct physical loss caused by “flood,” which was defined in the SFIP as:

1. A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (one of which is your property) from . . .

b. Unusual and rapid accumulation or runoff of surface waters from any source.

Selective filed a motion for summary judgment, which the district court granted, alleging that the SFIP did not provide coverage for Flamingo’s claim because the accumulated water on the deck did not constitute “surface waters.” On appeal, the Eleventh Circuit recognized that policies under the SFIP are contracts, which must be interpreted by first examining the natural and plain meaning of the policy’s language. The Eleventh Circuit denied coverage, relying on Cross Queen, Inc. v. Director, FEMA, 516 F.Supp. 806, 807-08 (D.V.I. 1980), which held that the collection of water on upper balconies that seeped into upper floor rooms could not be surface waters because it did not “emanate from the inundation of normally dry land areas.”

Flamingo also argued that “surface waters” was ambiguous, and policy ambiguities should be construed in favor of coverage. Although the term “surface waters” was not defined, the Court held that the term was unambiguous because it has a generally accepted meaning in legal treatises which uniformly define “surface waters” as waters that “fall on the land from the skies or arise in springs and diffuse themselves over the surface of the ground, following in no defined course or channel.” The Court stated that none of the common definitions of “surface waters” encompass water which pool on the surface of Flamingo’s deck. The Eleventh Circuit further rejected Flamingo’s argument that the district court’s interpretation of the policy would lead to an “absurd result” of a gap in coverage under which waters may be excluded from coverage under both the SFIP and all-risk policies. The Eleventh Circuit stated “[e]ven if that is so, the Court must enforce the terms of the policy.”

This case illustrates that courts will interpret the plain language of the policy even when a gap in coverage exists. Owners and contractors should carefully review the terms of their policies to ensure that they have sufficient coverage for potential risks, including but not limited to flooding.

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