Insurance Services Office is keeping mum on what action it will take after a federal judge in New Orleans labeled its homeowners policies "vague'' and "ambiguous."

The setback for the giant provider of policy templates and other products and services for the insurance industry came last week in a decision by U.S. District Court Judge Stanwood R. Duvall. Jr. in New Orleans, who ruled that ISO flood damage exclusion language was faulty.

His decision scoring the policies dealt with suits brought by homeowners after 2005 New Orleans levee breaks during Hurricane Katrina inundated their properties. They are claiming third-party negligence in the building of the levees.

ISO was asked if any action it has been taken to amend its policy language in the wake of Judge Duval's decision and if any changes are contemplated.

The Jersey City-N.J.-based firm's e-mailed response was that it "has no comment on this pending litigation. Adequate and appropriate comments have been made by members of the industry."

ISO's lid of silence also covered questions about how many companies use the policy and details concerning the last time language was altered for the ISO all-perils policy.

Judge Duval's decision, which he sent to the U.S. 5th Circuit Court of Appeals in New Orleans for review is being appealed by Allstate and other insurers who say there is plenty of court precedent to uphold their policies. Were the judge's decision to stand, by some estimates insurers would have to pay more than $2 billion in claims.

The ISO policy excludes losses caused directly or indirectly by "Water Damage: meaning Flood, surface water, waves, tidal water, overflow of a body of water or spray from any of these, whether or not driven by wind."

According to the judge ISO did not adequately define the word flood and its language concerning flood referred to natural flooding not water damage from inadequate levee construction.

"To find that the ISO language clearly excludes negligent acts would be to reward and encourage the use of vague language," Judge Duvall wrote.

The judge noted "some insurers made efforts to be clear in their intentions and found that State Farm and Hartford had language that adequately protected them against water damage claims.

In the opinion of Robert Hartwig, chief economist and executive vice president at Insurance Information Institute, even if ISO wanted to rewrite the policy, the judge's decision "isn't clear [as to] how they should rewrite them." The opinion will provoke head scratching, he said.

John Ellison, a plaintiffs' attorney on the case, said he believed ISO would be going to work soon. Because state regulatory approval for policies "takes usually a year or two to complete," he speculated that "they would not want to wait."

At Allstate, a spokesperson said, "As far as the policy language in question, Allstate is always reviewing its policy language and makes changes when necessary." The 50 states have differing policy language requirements, he noted.

Special Reports /

Will ISO Rewrite Policy Language Slammed By Judge?

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