Zurich American does not get to reclassify a loss as one with a much higher deductible after it had already paid part of the claim, a federal appeals court said in a case involving rain damage to a massive solar farm in Georgia.
“Golfers get mulligans. But in this case, the insurance company does not,” the U.S. 11th Circuit Court of Appeals wrote in its Oct. 22 opinion.
Zurich American had written a builder’s risk policy for First Solar, which was constructing a 200-megawatt solar plant near Warner Robins, in central Georgia, in 2018. Five heavy rain events in 2019 and 2020 left water standing in the former farm field, causing extensive damage to the solar components.
A Zurich adjuster determined that the loss was due to water damage, not flooding, and Zurich sent advance payments totaling $600,000 for the first three rainfall events. The policy allowed a $100,000 per-event deductible for water damage.
But Zurich then reversed course, arguing that the deluges in 2019 and 2020 were actually flood events. In the policy, flood damage carried a much higher deductible—$2.5 million per event. That meant that all of the claimed damage was below the First Solar policy deductible and no payout was due, Zurich argued, as the court explained.
Litigation ensued. After a jury in the U.S. District Court in the Middle District of Georgia found in favor of First Solar, the judge awarded $12.2 million, including prejudgment interest.
Both sides appealed parts of the decision.
A key question was the wording of the policy. Water damage was defined as “all damage caused by water, whatever the source, whether or not driven by wind, other than that otherwise defined as flood or that resulting from a named storm.”
Still, Zurich insisted that it was flooding that swamped the solar farm. First Solar’s team at one point argued that because the property was written as being on normally dry land and at least partly in a Level 3 flood area—with only moderate risk of flooding—it had to be considered water damage.
Even the solar firm’s insurance agent, John Shaw, got involved, urging Zurich and the adjuster to consider the claim to be caused by water, not flooding.
The 11th Circuit appellate court panel upheld the district court on the first three rain event claims, and remanded the case for more deliberations on the two later rainfalls. The appeals court opinion noted that its reading of the policy and the evidence showed that the higher flood deductible actually applied, in this case.
But Zurich had already waived that deductible by paying out on the first three claims as water damage, and by not reserving its rights to change coverage determination, the court decided.
“The central question in this appeal is whether Georgia law permits an insurer in Zurich’s situation to take a mulligan—to receive a do-over after messing up the first time,” 11th Circuit Judge Embry Kidd wrote in the opinion. “Or, under Georgia law, did Zurich’s conduct waive its right to apply the flood deductible after previously applying the water damage deductible?”
The answer is “yes:” Zurich waived its right and hooked its tee shot into the woods. No mulligan.
The court also found that an oddly worded clause in the policy did not require that legal action had to commence within 12 months of the events. “Accordingly, we conclude that the suit against the company provision is not a suit-limitation provision,” the judges wrote.
The full opinion can be seen here. The First Solar complaint is here.
Top photo: Stock image of solar farm. (DepositPhotos)
Topics Carriers Agribusiness Georgia
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