A state court judge in Louisiana has handed the insurance industry another setback in its efforts to invoke flood exclusion policy language to avoid paying hurricane damage claims.
Judge Edward D. Rubin with the 15th Judicial District Court in Lafayette, La., made his ruling last month in a case that pitted a Vermillion Parish couple, Mark and Barbara Landry, against the state's insurer of last resort, Citizens Property Insurance Corp.
The Landry's claim for $52,000 was denied by the insurer after their home was wiped out by Hurricane Rita in 2005.
However, Judge Rubin issued a summary judgment for the couple in a ruling that their attorney–Paul J. Cox in Lake Charles, La.–said would only apply to homes that were completely destroyed.
Citizens plans an appeal, and a top insurance industry representative said he was confident the ruling would be overturned–while warning that if it isn't, Citizens could be bankrupted.
Theodore M. Haik III, an attorney for Citizens, said that before appealing, the company will ask the judge to grant a new trial. He said the judge, in making his ruling, gave no reasons for his finding. "All he said was, 'I grant the plaintiff's motion.'" He said he did not know at this point whether all or part of the argument put forward by Mr. Cox was accepted by the judge.
Mr. Cox, who said his client's home was obliterated by both wind and flood damage, called the ruling "a victory for the victims of Hurricanes Rita and Katrina."
The judge's ruling, he said, was based on the state's Valued Policy Law–which, according to Mr. Cox, states that in the event of a total loss, the insured is entitled to the full value of the policy on the structure without deduction or offset if their structure is partially damaged by a covered peril.
The full value would apply, he said, unless a different method of computing the loss "was listed in both the policy and the policy application."
"The covered peril in this case was wind," said Mr. Cox. "My clients' policy had the water damage exclusion, but the application does not."
The insurance company "had an opportunity to exclude the water damage coverage in their coverage, but it wasn't in their application," he added.
Mr. Haik conceded that the application did not have the exclusion, but said under the law, "it's just not required whatsoever."
Mr. Cox estimated that if appeals took the case to the Louisiana Supreme Court, the legal process could take another year.
Robert P. Hartwig, who takes over this week as president of the Insurance Information Institute (see page 12), said the judge's interpretation of the law was faulty and predicted the ruling would be overturned.
Insurers that never collected a penny for flood insurance, he said, could not legally be forced to pay for a noncovered peril. State insurers, he noted, are not allowed to collect premiums for flood insurance.
The Landry's attorney, he said, was making "a very long stretch to try to find a way for a policy that clearly excludes water damage" to provide coverage.
Judge Rubin's decision, according to Mr. Hartwig, "could force the state to assess billions more dollars" to fund Citizens. "It would be a Pyrrhic victory, and the vast majority of citizens would pay through the nose."
If by some chance the decision is not overturned on appeal, he added, it will "bankrupt the state-run insurer."
In November, in another case that is on appeal, a federal judge in New Orleans ruled that the flood exclusion language in many insurer policies was too vague to cover water damage resulting from levee breaks.
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