A federal judge’s ruling last week that insurer flood exclusions do not apply to the 2005 levee breaks in New Orleans after they were ruptured by Hurricane Katrina could cost carriers more than $2 billion, according to some estimates. But to insurers, who are appealing the ruling, the legal precedent set if the decision is upheld would be more problematic than the immediate financial implications, observers warn.

The decision by U.S. District Court Judge Stanwood R. Duval Jr. in New Orleans is “inconsistent with many other rulings that held a flood is a flood, whether or not man-made factors are involved,” said Jennifer Wislocki, speaking for St. Paul-Travelers, which–along with Allstate and other carriers–is taking the case to the U.S 5th Circuit Court of Appeals.

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