## Facts

- A New York City office building’s basement flooded in December 1992.
- Floodwater reached electrical switching panels, causing a short circuit and then an explosion that damaged the panels (about $580,000).
- Floodwater separately damaged other electrical equipment (about $445,000).
- Two primary “all-risk” insurers (Continental and Hartford) paid the loss and sought recovery from Arkwright, an excess/difference-in-conditions insurer.
- Arkwright’s policy provided flood coverage up to $100 million subject to a $75 million flood deductible, and also included a Special Deductible Endorsement covering losses from electrical breakdown of any equipment subject to a $50,000 deductible.
- The district court granted summary judgment for Arkwright, treating the switching-panel damage as flood loss subject to the $75 million flood deductible.

## Issues

1. Whether the switching-panel damage caused by a flood-triggered short circuit and explosion was subject to the flood coverage’s $75 million deductible or the electrical-breakdown endorsement’s $50,000 deductible.
2. How “cause of loss” should be characterized for deductible selection when flood initiates a sequence culminating in an electrical breakdown event.

## Decision

- The First Circuit reversed the summary judgment for Arkwright and remanded.
- The court held the switching-panel loss was properly characterized as resulting from electrical breakdown (short circuit/explosion) within the Special Deductible Endorsement.
- The applicable deductible was $50,000, not the $75 million flood deductible, making Arkwright liable above $50,000 under the endorsement.

## Legal Principles

- Insurance policies must be construed as a whole, giving effect to all provisions and avoiding readings that render endorsements superfluous.
- Where a specific endorsement addresses a particular type of loss, it governs over more general coverage/deductible provisions to the extent of overlap.
- For deductible selection, characterization of the cause of loss depends on the policy’s structure and the loss mechanism described by the relevant insuring language, not solely on the earliest event in the causal chain.
- Ambiguities in insurance contracts are construed against the insurer/drafter and in favor of coverage consistent with reasonable expectations.

## Conclusion

The court treated the immediate loss mechanism—electrical breakdown culminating in an explosion—as controlling under the policy’s special endorsement, so the switching-panel damage fell under the $50,000 deductible rather than the flood deductible, and the case was remanded for proceedings consistent with that interpretation.


Continental Ins. Co. v. Arkwright Mut. Ins. Co., 102 F.3d 30 (1st Cir. 1996)