A recent Louisiana decision poking a leak into the insurance industry's standard flood exclusion will not stand up on appeal, according to one attorney, citing recent opinions to back up his position.

While jurists might empathize with policyholders who lost their homes from floods triggered by the 2005 hurricane season, the weight of the law is against them, said Randy J. Maniloff, an attorney and partner in the law firm of White and Williams LLP in Philadelphia.

Referring to a recent decision by Louisiana State Judge Edward D. Rubin with the 15th Judicial Court in Lafayette, La., Mr. Maniloff called it “a classic example of the court trying to find cover for this horrific situation.”

Judge Rubin has yet to render a written decision in the case, but Paul J. Cox, the attorney who represented policyholders Mark and Barbara Landry against Citizens Property Insurance Corp., said the ruling was based on the state's valued policy law.

Mr. Cox said that under the law, in the event of a total loss, the insured is entitled to full insurance policy value on the structure without deduction or offset if the structure is partially damaged by a covered peril.

However, there have been many more decisions supporting the industry's stance on the flood exclusion, according to Mr. Maniloff, who represents carriers in civil disputes. He cited two recent federal court decisions–Chauvin vs. State Farm and Armand Richard vs. State Farm Fire and Casualty Co., (the latter decided on Dec. 1)–that rejected arguments extending the concept of valued policy law to excluded losses.

Valued policy law, he explained, is intended to prevent insurers from paying less for a property than what the policyholder insured the property for.

“Insurers can't change the value after the loss,” he said. “It was designed to prevent insurers from charging more [premium] than the property was worth.” He said the concept has been around for over 100 years and is well established in law.

He called Mr. Cox's argument applying the concept to an excluded loss–in this case flood–a “novel interpretation.”

In Florida, a court did rule that under valued policy law, a partial damage to a property meant the insurer was responsible for full coverage of the loss, but the legislature later stepped in and clarified the statute to its original concept.

While he said he is confident the Louisiana decision will be reversed on appeal, he does not believe it would go to the federal level since it does not entail federal questions.

However, he said he does believe recent federal decisions that support the industry's flood exclusion and valued policy law would guide the Louisiana appeals courts.

Special Reports /

La. Ruling Won't Survive Appeal, Insurer Attorney Predicts

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