When Houston, Texas, received over five feet of rain from Hurricane Harvey in August 2017, authorities at the nearby Lake Conroe dam decided to open the spillways and release a massive amount of water. The release rate was extremely powerful and similar to that of Niagara Falls.
This action resulted in the water moving counterclockwise, much like a drain in a sink or bathtub, which loosened and pushed boats, uprooted trees and various other debris into the Playa Vista Conroe Condominiums boat dock slips. Twenty-two slips were damaged overall, leading the condominium association to make a $208,177.44 claim against its insurance company. The claim was denied by Insurance Company of the West, which stated that damage from a hurricane was not included in the policy.
On March 5, 2021, the 5th Circuit Court of Appeals ruled that Insurance Company of the West must pay the Playa Vista Conroe condominium association $190,827.50 for the boat dock damage caused by the hurricane. In addition, the insurer was ordered to pay the $50,000 in legal fees incurred by the condo association. Judge Andrew Oldham openly criticized the insurance company's legal team, stating its argument was "absurd" and created simply to deflect mistakes it had made during the litigation process.
The court statement revealed that Insurance Company of the West wrote its insurance contracts in such a way to avoid any burden of proof. Under Texas law, there exists a framework of "burden shifting" where the insured party is obligated to establish coverage, but the insurance company itself is obligated to prove there is any applicable exception.
The court also established that the insurance company sold a policy that excluded damage from flooding due to tropical storms and hurricanes to Playa Vista Condominiums. In the policy, "flood" was defined as "inundation of water on typically dry land." While the insurer paid an extra endorsement fee for damage from flooding, it also had an exclusion for flood damage to the docks and boat slips.
It was not clear why Insurance Company of the West had created the policy in such a way to exclude damage claims to property that is situated on water and not on land. The court determined that since the insurer was responsible for the way the policy was written, it would have to suffer the consequences of the language it chose.
When the Playa Vista condominium association filed its lawsuit, Insurance Company of the West had the case moved to the US District Court for Southern Texas, located in Houston. In an affidavit, Robert Copes, the president of the condo association, said the boats weathered the direct rainfall from Hurricane Harvey but were later damaged by the suction effect created when the San Jacinto Water Authority ordered the water release from Lake Conroe. The suction resulted in mass amounts of debris being pulled in from every part of the lake, which caused the boat slips to be destroyed.
The insurance company decided not to challenge the testimony from Robert Copes but instead enter into a stipulation with Playa Vista Condominiums that stated the damage was directly caused by the water release instead of the hurricane.
After the condominium association received a summary judgment in its favor, the insurance company filed its own motion for a summary judgment. It presented an argument for dismissal of the case because Playa Vista admitted that the boat slip destruction was caused by a body of government, which was not covered by the insurance policy.
Despite this argument, the 5th Circuit Court did not accept that Insurance Company of the West had established a victory by way of a legal loophole. The court said the effort was "too little, too late," and if the insurer wanted to win the case through "exclusion of a governmental body," it had the obligation to raise the issue during the summary judgment phase of the trial.
Hurricane Harvey caused more than $125 billion in damage during its life cycle, the majority of which was caused by torrential rains in the greater Houston area and along the southeast coast of Texas. A total of 106 people lost their lives, and the name "Harvey" was retired from the list of storm names in 2018.