Key Points

  • The 11th Circuit held that, under Georgia law, the deductible clause in Zurich's builders risk policy limits the amount Zurich must pay for a covered loss and does not limit the policy's coverage, so Zurich could waive it.
  • Zurich waived the $2.5 million flood deductible for First Solar's first three rain events as a matter of law by applying the $100,000 water damage deductible and making unconditional advance payments without reserving its rights.
  • Whether Zurich waived the flood deductible for the March 3 and April 18, 2020, rain events is a jury question, so the damages award for those events was vacated and the case remanded.
  • The policy's suit-against-the-company clause works as a delayed discovery rule for the insured, not as a suit-limitation provision, and the district court did not abuse its discretion in refusing to strike First Solar's damages witness.
  • Rejecting First Solar's cross-appeal, the court held that absent waiver the $2.5 million flood deductible applied under the project certificate and the policy's flood definition, and that the record showed no mutual mistake warranting reformation.

A federal appeals court held Thursday that Zurich American Insurance Co. gave up its right to apply a $2.5 million flood deductible to three rainstorms that damaged a solar power plant First Solar Electric LLC was building in Georgia. Zurich had first treated the losses as water damage, which was subject to a $100,000 deductible per event, and had paid First Solar on that basis without reserving any right to change its position.

"Golfers get mulligans. But in this case, the insurance company does not," Judge Kidd wrote for a panel of the U.S. Court of Appeals for the 11th Circuit that also included Judges Newsom and Abudu. The panel upheld the waiver ruling for the first three storms. It held, however, that a jury must decide whether Zurich also waived the flood deductible for two later storms, and it vacated the damages awarded for those two events.

The panel described the central issue as a question of first impression under Georgia law. The question was whether a deductible limits what a policy covers or only how much the insurer pays. Georgia courts allow an insurer to waive conditions written for its benefit, but they do not allow waiver to extend a policy to risks it does not cover. The court held that Zurich's deductible was a payment term, so Zurich's conduct could waive it.

First Solar insured the 1,038-acre project under a master builders risk policy from Zurich, according to the opinion. Five heavy rain events between December 2019 and April 2020 left rainwater accumulating on the ground, damaging solar arrays, access roads, fences and electrical works.

Zurich adjuster Scott Klaben recorded the losses as water damage after a February 2020 inspection, the court said. When the claim system asked whether the Feb. 5, 2020, event was "caused by a flood?" Klaben marked "No." He told a Zurich claims manager that each of the first three events "carrie[d] a $100K deductible," and in June 2020 he approved three $200,000 advance payments.

An Aug. 4, 2020, status report from Klaben first raised the possibility of floods. In March 2021, Zurich's outside counsel wrote that Zurich owed nothing, because each event's damages fell below the $2.5 million flood deductible. First Solar sued in the U.S. District Court for the Middle District of Georgia.

The district court ruled on summary judgment, a decision without trial on issues where the material facts are undisputed, that the flood deductible applied but that Zurich had waived it for all five storms. A jury then returned a verdict for First Solar after a five-day trial limited to damages.

On appeal, Zurich argued that its deductible limited coverage to losses above the deductible, so waiving it would create coverage the policy never provided. The panel read the clause, which says the deductible "shall be deducted from the amount of each claim," as "a method for calculating Zurich's liability to pay for an insured loss." Judge Kidd also noted that the clause appears in a section titled "Rates and Deductibles," apart from the policy's "Coverage and Exclusions" section.

"Read as a whole, the policy treats the deductible as a limitation on the amount Zurich pays for a covered loss, not as a limitation on coverage," he wrote. The panel relied on Sargent v. Allstate Insurance Co., a 1983 Georgia Court of Appeals decision holding that "[a]n insurer may waive any provision in an insurance policy inserted for its benefit." Because the policy covered floods, the court reasoned, waiving the deductible did not extend the policy to a new risk.

The court held that the undisputed record for the first three storms established waiver as a matter of law. "Klaben was never deposed, and Zurich did not present evidence identifying the basis for the change in coverage determination," the panel wrote. Zurich waived the deductible no later than June 11, 2020, when it issued the checks, the court said. Quoting Sargent, it held that the later status report "is wholly ineffective to prevent a waiver that has already occurred."

The March 3 and April 18, 2020, storms came out differently. Zurich made no advance payments for those events before the August report, and Klaben's conduct concerned the first three claims. The panel concluded that "a factual question remains for a jury to decide" whether Zurich's earlier conduct waived the deductible for the last two storms.

The court also rejected Zurich's argument that First Solar sued too late. The policy says a suit "will not be barred if" filed within 12 months after the insured learns of the occurrence. The panel held that the clause "acts as a delayed discovery rule for the benefit of the insured" and does not set a filing deadline.

The panel upheld the trial judge's refusal to strike the testimony of Ted Garrett, First Solar's damages witness, whose role and records Zurich said had not been disclosed. "Zurich has not identified any information that was not disclosed," the panel wrote.

First Solar's cross-appeal, which argued that the $100,000 deductible applied even without waiver, also failed. The panel held that the project certificate set the $2.5 million flood deductible and that the storms met the policy's definition of a flood. "The parties did not dispute that the project sat on normally dry land. Therefore, any rapid accumulation would be unusual," the court wrote.

The panel affirmed the damages and prejudgment interest awarded for the Dec. 13, 2019, Feb. 5, 2020, and Feb. 13, 2020, storms. It vacated the awards for the March 3 and April 18, 2020, storms and remanded the case to the district court, where a jury will decide whether Zurich waived the flood deductible for those two events.