Industry Scores Another Katrina Victory

The insurance industry won its second critical victory in three days on Hurricane Katrina-related issues when a federal Appeals Court panel accepted the industry's interpretation of its contract language on wind- vs. water-related claims.

The 5th U.S. Circuit Court of Appeals in New Orleans–the same circuit that has decided other Katrina-related claim cases–on Monday affirmed a lower court ruling in Chauvin v. State Farm Fire & Casualty, holding that Louisiana's valued policy law only applies if the total loss was caused by a covered peril.

In its decision, the panel rejected arguments that the valued policy law guiding homeowners policies has to pay the full value of the policy when the home was destroyed by a combination of flood and hurricane wind damage.

Responding to the decision in the Chauvin case, Phil Supple, a spokesman for State Farm, said, “We believe the appellate court correctly affirmed the ruling of the lower court.”

He added, “We think the court's decision respects the clear provisions of the insurance contracts signed by Louisiana homeowners.”

Jeff Albright, chief executive officer of the Independent Insurance Agents & Brokers of Louisiana, hailed it and other recent rulings as a major step in the recovery of Louisiana.

“These critical Appeals Court rulings reaffirm the clear policy exclusions for water damages and lift the cloud of uncertainty that has been hanging over the industry since the district court judges ruled that flood damages must be paid by insurers.”

“Insurers can now rest assured that flood exclusions will be held valid and that statutes such as the valued policy law will be interpreted fairly, and not used to find insurance coverage where none exists,” he noted.

Last Thursday, the 5th Circuit handed down a decision that held the flood exclusion applies to manmade as well as natural disasters

As the Chauvin decision was being handed down, another 5th Circuit panel held oral arguments in another Hurricane Katrina-related case where Nationwide Insurance Co. asked the panel to reverse a lower court in Mississippi and clarify that the anti-concurrent causation language in its Mississippi homeowner's policies is not ambiguous (see NU Online, Aug. 7).

According to the New Orleans Times-Picayune, the Chauvin decision by the federal court follows two similar cases in state court that found in favor of policyholders. The paper said the insurance companies involved filed appeals in those cases, Langston v. Louisiana Citizens Property Insurance Corp. and Landry v. Louisiana Citizens Property Insurance Corp., but settled with the policyholders before the state court rendered a decision.

The newspaper said that until other cases against locally domiciled insurance companies, such as Citizens or Lafayette Insurance Co., make their way through the state system to the Louisiana Supreme Court, the 5th Circuit decision will be the major ruling on whether the 107-year-old state law applies to the questions of wind vs. water damage in Louisiana that arose after Hurricanes Katrina and Rita.