Sonnenschein Nath & Rosenthal LLP on Sher v. Lafayette Ins. Co.: Lousiana Supreme Court Enforces Flood Exclusion in Flooding of New Orleans
The Louisiana Supreme Court has unanimously enforced the flood exclusion for Hurricane Katrina losses in New Orleans. Sher had a five-unit apartment building that suffered some wind damage to the upper stories and had flood waters reach a level of four feet deep in the first level. The trial court held the flood exclusion ambiguous and ineffective. A jury made separate awards for damage to the upper stories and damage to the first level and a lost rents award for both parts of the building. Penalties were awarded pursuant to a statute where the level of penalty had been increased (from 25% of the benefits due to 50%) after Hurricane Katrina, and the trial court awarded the higher level. The jury also awarded benefits for business personal property and the court awarded various costs and attorneys fees. Sher was not permitted to seek a verdict on emotional distress.
The court of appeals affirmed, except that it reduced the penalty rate to 25% and struck the attorneys fees. The supreme court affirmed in part and reversed in part. Congratulations are due to Wystan Ackerman of Robinson & Cole, LLP, who had the primary role in drafting the brief on the flood exclusion for Lafayette; Ralph Hubbard of Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, who argued the flood exclusion issue for Lafayette; and Howard Kaplan of Bernard, Cassisa, Elliott & Davis, who handled the case for Lafayette and briefed and argued the other issues. Various Sonnenschein lawyers (including me) assisted in that briefing and participated in the antecedent successful litigation of the issue in In re Katrina Canal Breaches, 495 F.3d 191 (5th Cir. 2007).
On the central issue of the flood exclusion, the supreme court opined:
The term “flood” is not defined in the policy. In such a case, the word should, as stated above, be given its plain, ordinary and generally prevailing meaning. Although the court of appeal recognized this rule of construction, it found that because there were varying causes of floods, the word “flood,” itself, was ambiguous. The court of appeal then proceeded to construe the exception against Lafayette and in favor of plaintiff, finding that the policy did, indeed, provide flood coverage for the plaintiff. In support of its reasoning, the court of appeal pointed out that the “exclusion includes ‘flood,’ but then continued to list specific natural disasters that cause inundations of water, commonly labeled as ‘floods,’ ” such as waves, tides, tidal waves and the overflow of water, whether driven by wind or not.
The plain, ordinary and generally prevailing meaning of the word “flood” is the overflow of a body of water causing a large amount of water to cover an area that is usually dry. This definition does not depend on locality, culture, or even national origin-the entire English speaking world recognizes that a flood is the overflow of a body of water causing a large amount of water to cover an area that is usually dry land. Contrary to the court of appeal's reasoning, this definition does not change or depend on whether the event is a natural disaster or a man-made one-in either case, a large amount of water covers an area that is usually dry. The plain, ordinary and generally prevailing meaning is all-inclusive. Further, of the examples of high water contained in the exclusion and described by the court of appeal as “natural disasters,”only one, tides, is exclusively natural-waves, tidal waves, and the overflow of water may be either natural or man-made, as may be “floods.” Far from supporting the court of appeal's conclusion that the term “flood” is ambiguous because it does not distinguish between man-made and natural flood, this tends to show that the parties intended the word “flood,” to have its plain, ordinary and generally prevailing meaning-the overflow of a body of water causing a large amount of water to cover an area that is usually dry-regardless of its cause. [Footnotes and citations omitted]
Moreover, even if the policy language were susceptible of two different interpretations, it would only be ambiguous if both interpretations were reasonable. Applying the restrictive meaning adopted by the court of appeal was not reasonable, because it was not the plain, ordinary and generally prevailing meaning, and there was no indication that the parties intended to use a specially restricted meaning. Moreover, it would lead to absurd results, in which a homeowner whose home was located outside a levee would receive no coverage, while those inside a failed levee would be covered.
Finally, the flood here “was not caused by man. The flood was caused by Hurricane Katrina, not by man. The levees did not cause the flood, they, whether through faulty design, faulty construction, or some other reason, failed to prevent the flood.”
Accordingly, none of the damage in the first level was covered, nor were lost rents from the basement.
The court of appeals properly reduced the penalty rate to 25%. The higher rate could only be applied to losses where the first satisfactory proof was submitted after the amendment took effect. The attorneys fee award was vacated: the applicable statute authorized award of damages caused by bad faith, but that does not include attorneys’ fees. Mental anguish damages were improper because there was no evidence that Lafayette intended to cause such damages. Interest on the penalties could only run from the date they were awarded, not the date they were demanded judicially.
Lafayette was precluded from offering various policy defenses because they had not been specifically pleaded. But pleading the entire policy sufficed to preserve those defenses. The declarations clearly included no coverage for business personal property, so that award was stricken. Sher had presented adequate evidence to support award of a bad faith penalty. And the judgment, as reduced, was not large enough to warrant an award for rejection of an offer of judgment.
William T. Barker
Sonnenschein Nath & Rosenthal, LLP