New Hope for New Orleans Policyholders

Bumped up

In a monumental win for policyholders from New Orleans seeking insurance coverage for the destruction of their homes and businesses, the Honorable Stanwood R. Duval, Jr. provided a "glimmer of hope" yesterday, ruling that the insurance companies should pay for the widespread water damage. The Judge, in effect, has found coverage for the vast majority of the homeowners in the five parish area surrounding New Orleans, which is estimated to include approximately 250,000 homes. The policyholders are represented by my law firm, Anderson Kill & Olick, P.C.

At issue are so-called "flood exclusions" in all-risk insurance policies--which the insurance industry claims apply to the New Orleans devastation--despite the fact that it was admittedly caused by human negligence (such as the Army Corps of Engineers' negligent construction) leading to a breach of levees. "Flood" is a word with many different definitions. Several of those in Websters, for example, reference "overflowing" or "overtopping", clearly contemplating a natural event caused by rain or tide. A reasonable interpretation of the exclusion, therefore, is that it only refers to natural "acts of God." Water damage losses caused by the negligence of third parties, on the other hand, would be covered.

Indeed, as a key tenet of insurance law, exclusions in an insurance policy--which limit the coverage you would otherwise receive--must be read narrowly, and ambiguities must be resolved against the insurance company, which drafted the ambiguous language.

Accordingly, Judge Duval narrowly interpreted the flood exclusion against its drafters--the insurance companies. However, he did carve out exceptions for State Farm and the Hartford insurance companies, reasoning that their policies, unlike the other insurance companies', explicitly state that they do not provide coverage for flooding "regardless of cause."

From the Times:

Lawyers for more than a dozen homeowners and Xavier University, which had business insurance, hailed Judge Duval’s decision as a victory.

“This is a major breakthrough,” said John N. Ellison, a member of the team of lawyers representing storm victims and a partner at Anderson Kill & Olick in New York. “Our hope is that this ruling may help get the redevelopment of the houses and the city going so the city can come back to life.”

The ruling was the first by a court in Louisiana on damage from Hurricane Katrina. It ran counter to rulings by a federal judge in Mississippi that supported the industry’s contention that most property insurance policies do not provide coverage for flooding.

But the judge in Mississippi, L. T. Senter of Federal District Court, disagreed with the insurers’ contention that any damage due to flooding nullified the coverage. He cleared the way for trials early next year to determine how much damage to flooded homes and businesses resulted from high winds.

The rulings differ, in part, because the nature of the flooding was different. In Mississippi, the storm drove water from the Gulf of Mexico ashore and wiped out tens of thousands of homes unprotected by artificial barriers. In New Orleans, flood waters breached some levees and poured into the city as the storm was moving away. The water lingered in parts of the city for weeks.

Mr. Ellison, the lawyer for the homeowners, said he believed that the New Orleans case would go to the United States Court of Appeals for the Fifth Circuit “on an expedited basis” and that deliberations could begin in the spring.

More than 200,000 homes and thousands of businesses were damaged or destroyed by the flooding in New Orleans. The insurers have refused to pay claims for water damage and the relatively small amounts that homeowners and businesses received for wind damage have been far from enough for most people to rebuild. The federal government has stepped in with promises of several billion dollars in assistance, but little of the money has reached the people who need it.
. . .

Judge Duval, who was appointed to the federal court by President Bill Clinton in 1994, said in an 85-page decision that the insurers could have made clear “that ‘flood’ means water damage caused by negligent acts or omissions.” But, he said, they “chose not to do so.”

Nearly a dozen insurance companies had sought dismissal of the lawsuits over flood losses. But Judge Duval ruled in favor of only two, State Farm, the largest home insurer in Louisiana, with about 20 percent of the market; and Hartford, a unit of the Hartford Financial Services Group, which has a much smaller share.

Judge Duval said he cleared the way for an immediate appeal because “there is a substantial ground for a difference of opinion.”