NEW ORLEANS—A federal appeals court has overturned a lower court's summary judgment favoring the insurer in a claims dispute over damages from Hurricane Katrina at the Ritz Carlton Hotel complex in New Orleans.

Ruling Wednesday in the case of WH Holdings L.L.C. et al. vs. ACE American Insurance Co., a U.S. Court of Appeals for the Fifth Circuit panel overturned a 2010 summary judgment from the U.S. District Court for the Eastern District of Louisiana.

The appeals court ordered the district court to reconsider whether damages to the hotel should be covered under the builders risk policy of a construction company doing renovations to the hotel when the hurricane made landfall in 2005. The hurricane caused damages to the hotel's exterior insulation finishing system and terra cotta façade.

In 2007 Dallas-based WH Holdings, the hotel's owner, sued ACE in Louisiana state court seeking nearly $3.3 million, less a $7,500 deductible, to cover damages to the exterior of the Ritz. ACE, which provided the builders risk policy to Gootee Construction Co., the company hired to do the renovation work on the hotel, subsequently had the case moved to federal court.

At issue was whether WH Holdings qualified as an insured on the builders risk policy and whether Gootee Construction was contractually obligated to include the hotel owner as a named insured on the policy. In its summary judgment for the insurer, the district court concluded that WH Holdings was not covered under the policy because Gootee was not contractually responsible for purchasing property insurance for the renovation work.

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But, in overturning the previous ruling, the appeals court held that the district court erred in finding that the contract between WH Holdings and Gootee Construction was unambiguous in obligating the hotel owner to purchase property insurance. Instead, the appeals court found, “Given the difficulties with each party's contention that the contract unambiguously supports its position, we conclude that the contract is ambiguous as to whether WH Holdings or Gootee bore the obligation to purchase property insurance to cover the renovation work.”

Consequently, the appeals court sent the case back to the district court for further consideration, which now also might include ACE's alternative argument that its policy is excess to coverage WH Holdings has through other insurers.