The Commercial court of appeals sentenced an insurance company to pay up by making a broad interpretation of the hurricanes, cyclones or twisters coverage

On December 29, 2012 the roof of the building of Indumentaria Patagónica S.R.L. collapsed due to a strong storm, causing damages to the building, various goods and merchandise. After receiving the report from the loss adjuster indicating that such collapse was caused by accumulated water in the roof, which was caused in turn because of the drainage grids were blocked by hailstones, Berkley International Seguros S.A. rejected the claim.

Indumentaria Patagónica then filed a lawsuit arguing that there was no such hail and that the policy’s coverage had been extended to damages caused by hurricanes, cyclones and twisters, which mean that the policy should have covered any meteorological phenomenon that might occur in the area, similar to the ones mentioned above. Indumentaria Patagónica also mentioned that the policy did not precisely define the concept of hurricane, cyclone and twister, and that damages arising from heavy winds and rains were not excluded.

Berkley answered the complaint ratifying that the collapse had been produced by the accumulation of hailstones on the roof, which blocked the storm drains, and that the weight of the accumulated water, the hailstones and the roof itself made the structure collapse. Berkley also stated that the policy did not cover damages arising from hail, rain, flood or water coming from outside, and that the structure of the building was different from what it was described in the policy.

The judgement of the Lower Court No. 23 Secretary No. 45 partially upheld the claim, condemning the insurer to pay AR$ 11,400 (plus interest) due to the damages caused to certain assets which were covered by section called "Technical insurance-office equipment” of the policy, and declaring the claim to be well rejected by the insurer stating that the policy coverage regarding damages caused by hurricanes, cyclones and twisters did not apply to this case.

For the Lower Court to rule in that sense it: (i) rejected the argument of the insurer stating that the characteristics of the building were different from those mentioned in the insurance policy. Those differences were known by the insurer, who had inspected the property before on several occasions without making any observation; (ii) explained that as the policy was a listed risk one, only risks expressly mentioned were covered, and every section had to be interpreted literally. Consequently, the Lower Court stated that the wind gusts that produced the incident could not be considered to be  a hurricane, a cyclone or a twister and therefore were excluded from the risks covered by the policy; and (iii) stated that the extension of the coverage mentioned was intended only for cases of fire unleashed as a result of a hurricane, a cyclone or a twister.

On March 7, 2017 the National Commercial Court of Appeals (Panel “D”) granted the appeal filed by the plaintiff and sentenced Berkley to pay Industria Patagónica S.R.L. the amount of AR$ 584,226.34 (plus interest). The amount mentioned was calculated by applying the active rate of “Banco de la Nación Argentina” in 30-day ordinary discount operations, since November 30, 2012 (the date on which the claim was rejected) up to the actual payment, and imposed the legal costs of first instance trial to Berkley.

First of all, the Court stated that the extension of the coverage was applicable to damages directly caused by a hurricane, cyclone or tornado, without the need for a fire to occur.

Furthermore, after analyzing the evidence produced, the Court concluded that although it was not proven that the winds which caused damages to the property could be considered to be a hurricane, a cyclone or a twister, the principle of contractual good faith, the lack of a clear definition of the concepts of hurricane, cyclone and twister, and also the lack of an express exclusion of damages caused by rain and wind, were reasons enough to declare the loss covered by the policy.

Especially if it is taken into account that: (i) "if the policy is interpreted correctly, it is noticed that the additional section was intended to cover extraordinary meteorological events that could cause great damages similar to a hurricane, a cyclone or twister, and that could occur in the factory location area”; (ii) "if we did a literal interpretation, we would face an impossible occurring risk, since, as it is known, hurricanes and cyclones occur in tropical areas, which is not the case of ‘La Matanza’, Province of Buenos Aires. So the insurer would never have had to face any loss derived from damages caused by these phenomena"; and (iii) since it is a comprehensive insurance policy, it is clear that the insured's intention was to protect the assets of the company against certain risks that could cause both material damages and the possible suspension of their activities.

In conclusion, given that the coverage taken out by Indumentaria Patagónica S.R.L. was a comprehensive insurance, it might be understood in the first place that the insured's intention was to cover their assets from a wide range of risks. Furthermore, added to the absence of clarity in the risk limits (either by the lack of definitions of the concepts of hurricane, cyclone and twister, as well as by the lack of adequate coverage exclusions), plus the rule due to which in case of lack of clarity in the predisposed clauses it must be always interpreted against the insurer, and that the exclusions of coverage must be interpreted in a restrictive way; and fundamentally, that the interpretation that the coverage only includes damages caused by hurricanes, cyclones or twisters in the strict sense is unacceptable, when the coverage is provided in a geographical area where such phenomena never occur, led the National Commercial Court of Appeals (Panel “D”) to declare that  damages caused by rain and wind were included in the hurricane, cyclone and twister coverage.