A federal appeals court overturned a lower court ruling and held a RSUI Group Inc. unit is not obligated to pay for water damage caused by 2017’s Hurricane Harvey under its policy’s terms.

In 2016, Houston-based SCD Memorial Place II LLC bought a “deductible buyback policy,” that covers large deductibles from RSUI unit Landmark Insurance Co., according to Thursday’s ruling by the 5th U.S. Circuit Court of Apparels in New Orleans in Landmark American Insurance Co. v. SCD Memorial Place II, LLC.

Its primary policy was with American International Group Inc. unit Lexington Insurance Co., which is not a party to the litigation.

Landmark’s policy insuring clause said, “Perils covered: Windstorm or Hail associated with a Named Storm.”

In August 2017, Hurricane Harvey made landfall and caused tremendous damage to one of SCD’s insured properties when Buffalo Bayou overflowed its banks and water flowed onto the property. There was no damage from either wind or hail.

The insurers and SCD disagreed as to whether the policy covered the water damage. Landmark filed suit in U.S. District Court in Houston seeking a declaration that SCD’s policy did not apply to the loss sustained.

The district court ruled in SCD’s favor, but was overturned by a unanimous three-judge appeals court panel.

“Landmark argues that the policy covers the specified perils of ‘Windstorm or Hail’ that are ‘associated with a Named Storm (here, Hurricane Harvey)’ but not all perils associated with a Named Storm,” the ruling said.

SCD cites an earlier ruling in contending that under 5th Circuit law, “Hurricane Harvey was a ‘Windstorm’ and therefore the policy covers all perils associated with it,” it said.

“We agree with Landmark because its interpretation aligns with the plain meaning of the text of the policy,” the ruling said. “Landmark’s interpretation, unlike SCD’s, makes sense of the framing phrase ‘Perils Covered.’”

“This framing sets up ‘Windstorm’ and ‘Hail’ as specific perils that may be associated with a number of weather events rather than as weather events that encompass any number of perils,” the ruling said, in reversing the lower court ruling and issuing a judgment in Landmark’s favor.

Landmark attorney Jay W. Brown, a partner with Shackelford Brown McKinley & Norton LLP in Houston, said while wind is the most likely peril to cause damage associated with a hurricane in the area, this was not the case with Hurricane Harvey.

“It looked like the insured was very sophisticated in the coverage it bought, but at the end of the day, it wanted some coverage that it didn’t pay for,” Mr. Brown said

SCD’s attorneys did not respond to a request for comment.  

In March 2021, the 5th Circuit affirmed a lower court ruling in favor of a Texas condominium association, holding it was entitled to damages for boat slips destroyed during Hurricane Harvey.