A 5th U.S. Circuit Court of Appeals panel in New Orleans has ruled that standard insurance policy exclusions for water and flood damage prevent Hurricane Katrina victims from recovering damages from their insurers.
“This event was excluded from coverage under the plaintiffs’ insurance policies, and under Louisiana law, we are bound to enforce the unambiguous terms of their insurance contracts as written,” Judge Carolyn King wrote for a three-judge panel on Aug. 2.
In a controversial lower court decision last November, New Orleans U.S. District Court Judge Stanwood Duval had ruled that policies with standard language from the Insurance Services Office issued by Allstate and other carriers were ambiguous and did not exclude water damage caused by negligent and intentional acts.
Judge Duval’s ruling, however, did not extend to more detailed exclusionary language in policies issued by State Farm, which excluded water damage coverage regardless of cause.
In last week’s Appeals Court decision, Judge King said: “We conclude…that even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs’ policies unambiguously preclude their recovery.”
She added, “Regardless of what caused the failure of the flood-control structures that were put in place to prevent such a catastrophe, their failure resulted in a widespread flood that damaged the plaintiffs’ property.”
The decision potentially reverses claims filed by thousands of homeowners against Unitrin, Hanover, Encompass and Travelers insurance companies.
The language of the Appeals Court decision last week stands in stark contrast to Judge Duval’s decision last year.
Judge Duval had said that many of the insurance policies in question were ambiguous in that they did not distinguish between floods caused by an act of God (such as excessive rainfall) and floods caused by acts of man (which would include the levee breaches following Katrina’s landfall).
He pointed to the existence of clearer language in State Farm’s policy to find coverage for policyholders with other policies. “The State Farm policy does precisely what the ISO Water Exclusion Policy fails to do. It makes it clear that…there is no coverage provided for any flooding ‘regardless of the cause,’” he wrote.
Judge King, writing for the Appeals Court, saw no need to draw distinctions between natural and man-made causes of flooding in policy language.