Reversing an earlier U.S. District Court judgment from last November, the U.S. Fifth Circuit Court of Appeals has ruled that Louisiana homeowners affected solely by flood waters that resulted from multiple levee breaches following Hurricane Katrina won't be able to recover damages from their insurance companies.

The decision is a major victory for insurance companies, who could have been forced to pay billions of dollars in claims. The ruling puts to rest many cases bolstered by Judge Stanwood Duvall, Jr.'s ruling last year that concluded the term “flood” used in ISO's water damage exclusion, which is found in most homeowners' policies, was ambiguous and therefore inapplicable. This ruling opened the door for plaintiffs to recover, but that door now seems firmly shut.

“Despite exclusions in their policies providing that damage caused by 'flood' is not covered, the plaintiffs seek recovery of their losses from their insurers,” wrote Carolyn King, one of three circuit judges who ruled on the cases. “Their primary contention is that the massive inundation of water into the city was the result of the negligent design, construction, and maintenance of the levees, and that the policies' flood exclusions in this context are ambiguous because they do not clearly exclude coverage for an inundation of water induced by negligence. The plaintiffs maintain that because their policies are ambiguous, we must construe them in their favor to affect coverage for their losses.

“We conclude, however, 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,” continued King. “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. 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. Accordingly, we conclude that the plaintiffs are not entitled to recover under their policies.”

Duval had previously dismissed all of the cases against both State Farm and The Hartford because the two companies had specific language in their homeowners' policies that went beyond ISO's typical exclusion language. Allstate, Travelers, Unitrin, Liberty Mutual, Louisiana Citizens Property Insurance, American Insurance, Aegis Security Insurance, Lafayette Insurance, AAA Homeowners, Lexington Insurance, Encompass Insurance, Great Northern Insurance, Hanover Insurance, and Standard Fire Insurance can now be added to that list.

To read the entire 52-page judgment, click here.

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