Appeals Court Sides With Insurers

A federal appeals court ruled insurers are not liable to pay claims resulting from flooding when the levees broke in New Orleans in the aftermath of Hurricane Katrina.

“We are bound to enforce the unambiguous terms of their insurance contracts as written,” Judge Carolyn King wrote for a three-judge panel for the U.S. Court of Appeal for the 5th Circuit in New Orleans.

The decision could affect the claims filed by thousands of residents and businesses that suffered damages in the wake of the 2005 hurricane.

Robert Hartwig, president and chief economist for the Insurance Information Institute in New York, said in June that a ruling against the industry could cost insurers $1 billion.

The opinion reverses several lower court decisions against the industry that found insurers were liable, but reaffirms one in favor of State Farm.

Among the major insurers who were defendants in the case were Allstate, Travelers, Liberty Mutual and Hanover.

The decision by Judge Carolyn King for the court said, “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.”

The decision added, “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,”she concluded.

With the exception of State Farm, the decision overturns a ruling by U.S. District Judge Stanwood Duval Jr. He said in a November opinion that the language excluding water damage from some of their insurance policies was ambiguous.

In his decision, Judge Duval said the policies did not distinguish between floods caused by an act of God–such as excessive rainfall–and floods caused by an act of man, which would include the levee breaches following Katrina's landfall.

Allstate spokesman Mike Siemienas said the company “is pleased that the 5th circuit concluded that the policy exclusions for flood damage are unambiguous and enforceable and apply to damage resulting from the flooding of New Orleans.”

Phil Supple, a public relations spokesman for State Farm, said the company was pleased that the lower court decision reaffirming its contract language had been upheld.