Under Louisiana law, there are tough proof requirements for an insurer seeking to use flood exclusion language in a homeowner's policy to avoid paying for a total loss, a state appeals court has ruled.

The 3rd Circuit Court of Appeals, in its 3-2 decision, while ostensibly finding in favor of the state-owned Citizens Insurance Company, sent the case back to the lower court for a trial, where it said the insurer will have to convince a jury that flooding–an excluded peril–was the total cause of loss.

Without making that case, the courts said Louisiana's valued-policy law comes into play. Under that statute, an insurer is normally required, when there is a complete loss, to pay the full face value of the policy. The law also precludes a carrier from accepting premiums for one face value and then claiming the loss is a lesser amount.

In the case at issue, Landry vs. Citizens, the 15th Judicial District Court in Lake Charles, La., Vermillion Parish, issued a summary judgment against Citizens in favor of plaintiffs Mark and Barbara Landry, which the appeals court overturned.

Citizens had denied payment of the claim, contending the loss was caused by flooding–a non-covered peril. The Landrys sued Citizens, contending that because their home in Erath, La., suffered wind damage from Hurricane Katrina, the valued-policy law effectively covered their loss.

The lower court, in its summary judgment last December, found that Citizens should pay the policy limits.

While rendering the case back to the lower court for trial, the appeals court placed the onus on the carrier to prove the loss was the result of a non-covered peril, such as flood, to avoid indemnifying the risk.

“It is not sufficient to show that flood water contributed in part, as Citizens argues, to a building's destruction or constructive loss; the insurer must prove that the excluded peril caused the total loss to avoid fully indemnifying the insureds,” Judge Sylvia R. Cooks said, writing for the majority.

The court also said that when there is a mixture of perils resulting in the loss of a home, it is up to a jury to decide the cause of the total loss. “Each case must turn on its own facts, which are left for the trier, judge or jury, to resolve,” Judge Cooks said.

“The Landry decision represents a Louisiana Appellate Court's faithful adherence to insurance law principles that have long protected Louisiana homeowners,” according to a statement from John N. Ellison, an attorney with Anderson Kill & Olick, one of several counsel involved in the case for the Landrys.

“In the wake of other recent negative rulings in the federal system, it is critical for policyholders to continue to seek relief in the Louisiana court system…,” Mr. Ellison added.

The most recent federal ruling referenced by Mr. Ellison is Chauvin vs. State Farm Fire & Casualty, decided in August. The U.S. 5th Circuit Court of Appeals ruled in that case that Louisiana's valued-property law was designed to ensure carriers paid the face value of an insurance policy when there is a total loss, and not to force insurers to pay for an uncovered peril, as plaintiff Daryl Chauvin contended.

The court reasoned in that case that the law's intent is to make sure carriers value the property correctly under the policy and do not collect more premium than they should. It also was designed to prevent the insured from overinsuring their property and collecting more from insurers than the property was worth. (For more on the ethical questions arising from such laws, see page 20.)

John Wortman, executive director for Citizens, did not feel the latest decision by the state court was necessarily a negative one for the insurer. He believed it reaffirmed past decisions that insurers should be responsible for paying losses that were a covered peril. “We think this is obviously a better decision that moves in the right direction for us,” said Mr. Wortman.

However, he cautioned that he still needed to meet with attorneys to understand the full meaning of the court's decision.

If insurers thought they could take comfort from the dissenters on the ruling, however, they would be mistaken. Both dissenting judges–James T. Genovese and John D. Saunders–felt the lower court's ruling was correct and the summary judgment should stand.

Special Reports /

La. Appeals Court Leaves Fate Of Flood Exclusion To A Jury

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