A federal judge has ruled that the policies issued by many insurers do not exclude claims for water damage caused when Hurricane Katrina breached the New Orleans levees.

U.S. District Court Judge Stanwood R. Duval in his ruling Monday noted that the impact of his decision "on individuals as well as the insurance industry might be considered overwhelming."

Allstate said it would appeal his finding.

The judge found that flood damage exclusion language in policies issued by Allstate and other carriers does not "exclude water damage caused by negligent or intentional acts of man. It does not address the ambiguity of the term 'flood' and the fact that all of the listed 'causes' appear to be the result of natural occurrences, not the monumental civil engineering debacle that is alleged by plaintiffs."

The judges ruling did not extend to more detailed exclusionary language in policies issued by State Farm, the largest writer in Louisiana in 2005 with a 35 percent share of the market (excluding Louisiana Citizens), or by The Hartford, which wrote only 1 percent of the premiums (according to information from Highline Data).

With respect to State Farm, the judge wrote, "The State Farm policy does precisely what the ISO Water Exclusion Policy fails to do," referring to language in Allstate and other policies.

The judge said State Farm's policy "makes it clear that regardless of the cause of the flooding, there is no coverage provided for any flooding 'regardless of the cause.' Such language is clear to the Court and as such, the Court must find that the State Farm policy as written excludes coverage for all flooding."

Plaintiffs in the consolidated case argued that the water damage was not the result of flood, but was water intrusion, caused simply from a broken levee wall and the result of third-party negligence.

Their suits, in addition to insurers, named the Board of Commissioners for the Orleans Levee District which was severed from case when no federal jurisdiction found.

Judge Duval, finding it was the judicial role to interpret the common intent of the parties to the contract, wrote that all risk "generally allows recovery for all fortuitous losses," not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage.

Under Louisiana law, according to Judge Duval, "unless there is a specific exclusion for the type of water damage that an insured has incurred, coverage is presumed under these policies."

The insurers, in an argument noted by the judge, maintained that "flood" is not limited to natural events.

Mike Siemienas an Allstate spokesman said the company "disagrees with the judge's conclusion that its policy exclusions do not apply to water damage resulting from the flooding in the New Orleans area. Allstate intends to appeal the decision in the United States 5th Circuit Court of Appeals."

Special Reports /

U.S. Judge: No Flood Exclusion For Levee Breaks

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