Darren A. Lossia and Charles W. Browning on Flood Exclusion Upheld in La. "Hurricane Katrina" Claims
Darren A. Lossia and Charles W. Browning of the law firm of Plunkett Clooney here analyze a key decision among the many insurance coverage cases that have followed in the wake of hurricane Katrina. A recent unanimous decision by the Fifth Circuit interpreted the application of flood exclusion language contained in various homeowner’s, renter’s and commercial property insurance policies as unambiguously excluding flood damage, regardless of whether the levee system in New Orleans was negligently designed, constructed or maintained. Aside from being a unanimous decision of the Fifth Circuit, In Re: Katrina Canal Breaches Litigation, 2007 U.S. Dist. LEXIS 94211 is also very significant as nearly every major insurance carrier in Louisiana was involved in this consolidated case, including 13 carriers who used the standard Insurance Services Office (ISO) policy form.
The Hurricane Katrina coverage litigation cases had been consolidated for pre-trial purposes in the U.S. District Court for the Eastern District of Louisiana. Judge Duval of the district court ruled in favor of some of the policyholders, finding the flood exclusions were too vague a basis in which to deny insurance coverage. He held that the flood exclusion language in the ISO was ambiguous as the word “flood” has been subject to different interpretations. He noted that most definitions of “flood” implied that it was caused by an act of nature and not human error ─ here, allegedly by negligence in the design, construction or maintenance of New Orleans’ levees. (In contrast, the judge found that additional language in the flood exclusions of the State Farm and Hartford policies made them unambiguous.)
But the Fifth Circuit reversed the finding of ambiguity, rejecting the district court’s distinction between natural flood and floods caused by human error as being legally significant. The appellate court reasoned in part, that just because a term is not expressly defined within the policy does not make it legally ambiguous. The Fifth Circuit also rejected the characterization of the flood as non-natural, in part because a focus on the possible levee defects “ignores the sizable natural component to the disaster.” The Fifth Circuit also refused to rule that a policyholder was entitled to coverage here on the basis of “the reasonable expectations of the insured.”
Commentators Lossia and Browning conclude: “This decision is significant for all carriers utilizing the same or similar flood exclusions in that it undercuts efforts to create coverage for flood-related events by highlighting the role of other events or actions that took place in the chain of events during the flood, such as the failure of man-made structures. It is also significant in that it reflected a willingness, at least by this particular court, to uphold policy language in the face of strong policy concerns arising from the plight of thousands of homeowners affected by Hurricane Katrina.”