La. State Appeals Court Nixes Flood Exclusion

A state appeals court ruling in Louisiana finding an insurer's policy language excluding flood damage to be ambiguous and unenforceable will be appealed to the Louisiana Supreme Court, an attorney for the carrier said today.

Howard Kaplan, an attorney representing Lafayette Insurance Company, said the decision by the 4th Circuit Court of Appeal in the case of a New Orleans apartment flooded during Hurricane Katrina could have "implications far beyond my client."

He said unless the plaintiff in the case files and obtains a rehearing by the 4th Circuit, he will seek a review from the Louisiana Supreme Court by Dec. 19.

Mr. Kaplan said it was unusual that the Circuit Court did not take into account key federal court rulings on the issue of flooding caused by New Orleans levee breaches during Hurricane Katrina.

Last year, New Orleans U.S. District Court Judge Stanwood Duval had ruled that policies with standard language from the Insurance Services Office issued by a variety of carriers were ambiguous and did not exclude water damage caused by negligent and intentional acts.

Judge Duval has yet to rule on whether the levee breaches that caused the flooding were the result of negligence, as is alleged in lawsuits.

Meanwhile, a 5th U.S. Circuit Court of Appeals panel in New Orleans ruled in August that the standard insurance policy exclusions for water and flood damage are "unambiguous."

The Louisiana 4th Circuit in its Monday ruling was split in its decision, voting 3-2 for the plaintiff.

In the key portion of the controlling majority opinion, the court found Lafayette failed to specifically exclude all floods because of the ambiguity contained within the water exclusion that did not refer to levee breeches.

"While the policy states that it does not cover damage caused by a 'flood,' it also states that it does not cover 'waves, tides, tidal waves,' and the 'overflow of any body of water...whether driven by the wind or not.'"

This exclusion, said the court, "includes 'flood,' but then continues to list specific natural disasters that cause inundations of water, commonly labeled as 'floods.'"

The policy with Lafayette, the court found, "is ambiguous as it relates to the water exclusion because it is unclear what types of floods are excluded."

Earlier it noted prior court rulings that "if doubt exists, provisions in a contract must be interpreted against the party who furnished its text."

Before the case went up on appeal, a trial court judge had ruled out the flood exclusion defense for Lafayette in granting a partial summary judgment to the apartment owner, Joseph Sher. A jury awarded Mr. Sher $870,652, but the high court ruled out attorneys fees, reducing the award by $317,036.

The company had offered $2,754 to Mr. Sher, which he rejected.

Mr. Kaplan, who is with the firm of Bernard, Cassisa, Elliott & Davis in Metairie, La., said the 4th Circuit ruling would affect most insurers with the possible exception of State Farm, whose policy exclusion language for flood was upheld by Judge Duval.

"This case impacts every ISO [policy language] carrier, he said.

James Garner, of Sher Garner law firm in New Orleans which represented the plaintiff, said they would appeal to the State Supreme Court as well over the issue of attorneys' fees.

Asked whether he thought the State Supreme Court would be impacted by the U.S. 5th Circuit and Duval opinions, he commented that "the federal cases made a guess at Louisiana law and this [appeal to the Supreme Court] will settle what Louisiana law is."

Asked if the Louisiana high court my be influenced by the federal appeals court, he said he thought the Louisiana justices "will make up their own mind.

This article updated Nov. 29, 1:20 p.m.