First Circuit holds that dec page cannot create ambiguity in flood policy terms

In McGair v. Am. Bankers Ins. Co., __ F.3d __, 2012 WL 3793130 (1st Cir. 2012), the First Circuit Court of Appeals held that the terms of a declarations page do not create an ambiguity in a flood insurance policy.

The McGairs purchased a flood insurance policy from American Bankers Insurance Company. The policy was part of the federal flood insurance program about which I've written previously. Under the program, private insurers issue and administer flood policies and claim payments are reimbursed by the Federal Emergency Management Agency (FEMA). FEMA provides a standard text for the policies, which are called Standard Flood Insurance Policies, or SFIPs.

The policy stated that it is provided "under the terms of the National Flood Insurance Act," and that it "cannot be changed nor can any of it provisions be waived without the express written consent of the Federal Insurance Administrator."

SFIPs limit coverage for personal property in basements. (According to the court in McGair, the limitation "serves to encourage construction that minimizes the risk of flooding (e.g., elevated foundations and buildings without basements.)" I'll have to suspend my disbelief on that one.)

In 2010 a flood damaged the McGairs' house and personal property in their basement. They sought compensation from American Bankers. American Bankers denied the claim, asserting the basement contents were not covered.

The McGairs sued, arguing that the Declarations Page created an ambiguity as to the scope of their policy. The Declarations Page indicated that the McGairs have a finished basement and that the contents of their home are located in the "basement and above." It provides that the contents of the home are covered by the policy up to $100,000 and identifies none of the SFIP limitations. The parties agreed that the information was used by American Bankers for the purpose of calculating premiums.

The court held, "there can be no ambiguity between the SFIP and the McGair's Declaration page because the terms of the SFIP control . . . Thus, as a matter of law, any discrepancy between the SFIP and an accompanying Declarations Page must be resolved in favor of SFIP."