Printed from

AIG unit off the hook for nonproperty damage arising from flood

Posted On: Jul. 9, 2019 12:27 PM CST

Thailand floods

A flood sublimit in a property policy applied to all losses arising out of a flood, not just property damage, a federal appeals court ruled, reversing a lower court’s ruling against an American International Group Inc. unit.

Southfield Michigan-based Federal-Mogul LLC, which was acquired by Tenneco Inc. in 2018, operates an automobile parts factory in the Rojana Industrial Park in Thailand, according to Monday’s ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Federal-Mogul LLC v. Insurance Company of Pennsylvania.

Federal-Mogul bought an insurance policy from AIG unit Insurance Company of the State of Pennsylvania in 2010 that provided property damage coverage, which covered direct physical loss or damage to insured property, and “time element” coverage, which covered economic losses directly resulting from property damage, according to the ruling. The policy limited liability for losses for “flood for high hazard zones” to $30 million.

A year later, the factory was damaged in a flood, which caused about $39 million in property damage and $25 million in time-element loses. Federal-Mogul filed a claim with AIG, which refused to pay more than $30 million because, in its view, the flood had occurred in a high hazard zone, according to the ruling.

Federal-Mogul filed suit against AIG in U.S. District Court in Detroit, arguing the $30 million limit for “flood for high hazard zones” applied only to property damage, and that AIG remained liable for the full amount of the time-element loss.

The District Court granted Federal-Mogul summary judgment in the case, which was overturned by a unanimous three-judge appeals court panel.

“The question here is whether the $30-million sublimit for ‘Flood for High Hazard Zones’ applies only to the policy’s ‘Flood’ coverage for property damage or rather to all loss or damage arising out of a flood,” said the ruling.

The latter is the case, concluded the ruling. The sublimit “does not expressly say what losses it limits. But in the absence of language restricting the sublimit only to property damage, we read the sublimit — like the general limit — to apply to all losses or damage” arising out of a flood, “regardless of the number of ‘locations’ or coverages involved,” said the ruling, in quoting the general limit description in the policy and reversing the lower court’s ruling.

Federal-Mogul’s attorney had no comment, while AIG’s attorney could not immediately be reached for comment.

Earlier this year, an FM Global unit prevailed in litigation in which it was sued by New York University for $1.47 billion in coverage the school claimed it was denied in connection with property and business interruption losses sustained from 2012’s Superstorm Sandy.