Tuesday's Louisiana Supreme Court decision may have cast a cloud over many homeowners' Hurricane Katrina claims, but it opened the door for flooded businesses to recover additional millions, according to one attorney.

Gary Thompson, a partner in the Washington office of the Reed Smith law firm, said a portion of the high court ruling dealing with bad faith will allow companies to double their recoveries.

The ruling by the state's highest court found that insurers' flood damage exclusion language in policies could not be voided on the grounds that it was ambiguous because anyone who speaks English knows what the word "flood" means.

Mr. Thompson, who represents commercial policyholders, said the flood exclusion is almost entirely for the homeowner's sector of insurance, where policyholders are dependent on the National Flood Insurance Program, which allows a maximum $500,000 recovery.

Commercial policies typically include flood coverage, said Mr. Thompson, because the protection provided by the NFIP would not be enough for a multi-million dollar hotel for example. For commercial businesses, "the part [of the decision] that is relevant is the section that addresses bad faith," he explained.

What the court looked at was the effect of action by the Louisiana Legislature, which on Aug. 15, 2006 increased the penalty for bad faith activity by an insurer from 25 percent to 50 percent.

Mr. Thompson said most commercial lawsuits were filed after Aug. 15, on the Aug. 29 anniversary date of the 2005 hurricane, noting that "the Supreme Court says if you filed suit then, you get 50 percent."

In the case of Joseph Sher, a small apartment house owner who brought the case before the Supreme Court, "they said it was 25 percent because he filed before Aug. 15. For the rest who filed after Aug. 15, which most of us did, then your penalty is going to be 50 percent if you prove bad faith."

As Mr. Thompson sees it, when it comes to proving bad faith, "that's the easy part."

He noted that in the case of Mr. Sher, the insurer was found to have delayed payment, which the high court found to be "vexatious" bad faith conduct.

In addition to disputes over amounts of damage, Mr. Thompson said most commercial suits involve dilatory conduct and delays in payment. "Absolutely--that's why they [insurers] are getting sued," he said.

For businesses, he said the decision is huge because "there are hundreds of millions of dollars that swing on this issue."

If you are a commercial plaintiff's attorney, he said, "you are emboldened by this ruling."

Special Reports /

Flooded Businesses Will Profit From La. High Court Ruling

Related Stories

Recommended For You