Is it possible to have a basement in New Orleans, a city where some areas are actually below sea level? That was the question facing the Fifth Circuit Court of Appeals in King v. Casa Grande Condo. Assoc., Inc., 416 Fed. Appx. 363 (5th Cir. 2011).

The case involved a lawsuit brought by a condominium unit owner against the association for negligence in obtaining adequate insurance and for certain negligent actions in pursuit of a claim on the unit owner’s behalf under the association’s flood insurance policy. The association’s flood policy was primary to that of the unit owners, so that the unit owners were not entitled to any payment by their individual flood insurers unless and until the association’s flood policy limit was exhausted.

An insurance company adjuster determined that the association property suffered $46,414.37 in covered building damage, including $2,324.04 in damage to the plaintiff’s unit. It was discovered that there was a clerical error and, although the condominium was valued at $2,471,000, it obtained only $247,100 in building coverage. Because Casa Grande had underinsured the property, the flood insurer imposed an eighty-six percent co-insurance penalty and issued payment for $5,498.01 of the $46,414.37 in damages. The condominium association gave the plaintiff $275.29, representing the unit owner’s share of the damages.

The plaintiff filed the lawsuit against the association and there was a bench trial, in which plaintiff alleged the association acted negligently in failing to obtain adequate insurance for the property, accruing a co-insurance penalty that reduced the recovery for damage to the unit, and for failing to pursue additional damages from the association’s flood insurer and its insurance agent on the plaintiff’s behalf. The district court found for the plaintiff.

On appeal, the association argued the plaintiff’s unit was subject to the policy limitation for basement property. The flood policy limits coverage for basement property to clean-up costs and to certain enumerated items such as drywall and central air conditioners. Accordingly, the association claimed the district court erred in holding it liable for the full measure of the plaintiff’s flood-related repair costs.

The appellate court looked to the definition of basement within the Standard Flood Insurance Policy (“SFIP”). “Basement” was defined as “[a]ny area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.” The court noted the evidence suggested that the plaintiff’s unit is subgrade, and therefore in a basement for the purposes of the SFIP. An elevation certificate of the unit was introduced as an exhibit at trial indicating its elevation is 2.6 feet, while the lowest adjacent grade is 4.4 feet. The court reversed the district court and remanded the case to determine the damages subject to the basement limitation.

In law almost anything is possible, as long as it is defined in a contract. The ultimate conclusion in this case was that the condominium unit is a basement, even though its floor is just 1.8 feet below the ground level in a city where many areas are below sea level.