"It is curious that physical courage should be so common in the world and moral courage so rare." - Mark Twain

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In the December 20, 2006 issue of Mealey's Litigation Report: Insurance Bad Faith published was our commentary entitled "When A Flood Is Not A Flood." We criticized the recent decision of a Louisiana Federal District Court entitled In Re Katrina Canal Breaches. As reported in our commentary:

. . . this Louisiana Federal District Court declared that as a matter of law a 'flood' is not a 'flood.' This Federal Court held that as a matter of law 'flood' means only 'natural floods' not those caused by the negligence of man.

 

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As we reported, this Louisiana Federal District Court was aware of the consequences of such an opinion stating, "the potential impact of such a decision on individuals as well as the insurance industry might be considered overwhelming." We noted that "if this decision stands, insurance companies that expressly excluded from their coverage damage caused by 'flood' may be required to pay an additional $1,000,000,000 in insurance proceeds for a risk they were never paid (in premium) to incur." We are now, however, relieved to report that the United States Court of Appeals for the Fifth Circuit on August 2, 2007 has reversed the lower court's decision, holding that "the flood exclusions in the Plaintiffs' policies unambiguously preclude their recovery." The Fifth Circuit Court of Appeals unanimously and courageously decided in support of the sanctity of contract.

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The Fifth Circuit stated that just because an exclusion could have been worded more explicitly, does not necessarily make it ambiguous, neither is it ambiguous because other insurance policies may more explicitly define the scope. Stating that "where the scope of an exclusion is not readily apparent, it does not mean that it must be construed in favor of coverage, [but] that the general rules of construction must be applied; namely given the language its 'general prevailing meaning.'" This Appellate Court stated succinctly the true meaning of the "doctrine of ambiguity:

 

"When the words of a policy provision are clear and unambiguous in the context of the facts of the case and do not lead to an absurd result, we apply the provision as written without any further interpretation.

[Emphasis supplied].

Hence, the In Re Katrina Canal Breaches case correctly acknowledges and applies the doctrine of "contextual ambiguity." That is, all words are ambiguous in of themselves. Phrases, clauses, sentences, paragraphs, and policies are ambiguous in and of themselves. All language is ambiguous. However, in order to determine whether particular contract language is legally ambiguous it "must be evaluated in the context of the facts of the case to which it is being applied." Hence, the doctrine of "contextual ambiguity."