Louisiana Supreme Court Upholds Flood Exclusion in Katrina Cases
On Tuesday, the Louisiana Supreme Court upheld the standard flood exclusion in the standard commercial property policy rejecting the claims of the citizens and business owners of New Orleans who claimed the flood exclusion was ambiguous and should not exclude "man made" disasters such as levee breeches or the failure to operate drain pumps. In Joseph Sher vs. Lafayette Insurance Co., No. 07-2441, the high court of Louisiana was presented with an opportunity to evaluate the Fifth Circuit's determination of the same issue last August in the consolidated Katrina Canal Levee Breech Litigation where the Fifth Circuit held the flood exclusion to be unambiguous and precluded coverage for the Katrina flooding in New Orleans under the standard homeowner's policy. The Fifth Circuit's decision prompted plaintiffs' lawyers to select Sher to expedite an appeal through the Louisiana appellate courts in an effort to essentially "reverse" the Fifth Circuit's earlier decision. The holding of the Louisiana Supreme Court actually echoed that of the Fifth Circuit when it ruled: "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....[T]his definition does not change or depend on whether the event is a natural disaster or a man-made one....The plain, ordinary and generally prevailing meaning is all-inclusive."
Sher was picked by plaintiff lawyers prosecuting Hurricane Katrina insurance coverage cases because the trial court ruled the flood exclusion was ambiguous and awarded more than $461,000 in damages. The intermediate appellate court agreed as to the ambiguity of the flood exclusion. In a 7-0 decision, he high court disagreed, and did so strongly. The Louisiana Supreme Court focused on the failure of the lower courts to identify the existence of two or more reasonable interpretations of the flood exclusion, as opposed to just finding two or more interpretations. The high court obviously found the insured's construction inherently unreasonable.
This case was obviously watched closely by all of the insurers defending the Katrina insurance cases in the state and federal courts of Louisiana. A contrary decision, which some commentators estimated would have cost the insurance industry more than $3 Billion, would have been a short term gain to some insured in New Orleans and surrounding areas, but a long term disaster for the other citizens and business owners in Louisiana in terms of future premiums, carrier insolvencies, and the unavailability of affordable property insurance statewide. The Louisiana Supreme Court should be commended for not bowing to intense political pressure declare the flood exclusion ambiguous which would have resulted in the retroactive providing of flood insurance to every resident and business owner in New Orleans who owned a basic property insurance policy but who never paid a dollar in premium for flood coverage.
