Storm Surge Is Flood, Judge Says
Standard Insurance Won't Cover Damage

By Kathleen Day
Washington Post Staff Writer
Wednesday, August 16, 2006

A federal judge sided with the insurance industry yesterday and against water-battered victims of Hurricane Katrina by ruling that storm-induced surges are floods and therefore not covered by standard homeowner policies.

Paul and Julie Leonard of Pascagoula, Miss., in a case watched closely by Gulf Coast residents battered by Katrina a year ago, sued Nationwide Mutual Insurance Co. for more than $47,000 of the $130,253 in damage to their home they say was caused by the storm.

The ruling by U.S. District Court Judge L. T. Senter Jr. is one of the first to address thousands of similar claims that have been filed by Mississippi and Louisiana residents in Katrina's aftermath. If upheld, it could save the industry -- and cost policyholders -- tens of billions of dollars in unpaid claims.

It is the clearest ruling, lawyers on both sides agree, on the pivotal issue of whether a water surge caused by a hurricane falls under the definition of "flood." For more than 40 years the private insurance industry has specifically excluded flood damage from standard property policies. A Nationwide spokesman applauded the decision, as did the rest of industry.

"In the insurance coverage debate over wind versus water, Judge Senter's ruling has taken much of the wind, literally and figuratively out of the plaintiff attorney's argument," Ernie Csiszar, president of the Property Casualty Insurers Association of America, said in a prepared statement. "Judge Senter has made it very clear that the flood exclusion applies to storm surge."

The judge cited "similar" interpretations of law in other cases involving "damage caused by high water associated with hurricanes."

Neither the Leonards nor their lawyer, Richard F. Scruggs, could be reached for comment. But other lawyers representing policyholders, including commercial property owners, decried the judge's decision and said they expected Scruggs, a litigator known for taking on the tobacco and asbestos industries, would appeal it.

Gary Thompson, a lawyer at Reed Smith in Washington who specializes in representing policyholders, said he agrees with Scruggs's argument that a storm surge is inextricably intertwined with a hurricane and the force and damage it delivers and so should be covered under hurricane protection policies.

"This is an unfair attempt to dodge coverage obligations, and on an unprecedented scale," Thompson said.

The judge did hand the Leonards, and possibly other policyholders, one victory, ruling that Nationwide could not avoid paying wind damage just because water damage was also present.

He ordered the company to pay the Leonards $1,228.16 of the $47,000 they sought to cover wind damage. That is in addition to the $1,661.17 Nationwide had already paid the couple on their policy but far short of the tens of thousands in estimated damage to their home.

To fill the gap in private insurance for flood damage, the federal government offers homeowner policies under the National Flood Insurance Program. The Leonards said they did not seek coverage under that program after their Nationwide agent advised them they did not need it.

In yesterday's ruling the judge also said it was not the Nationwide agent's fault that the Leonards interpreted his advice to mean their existing policy would cover any hurricane water damage. "This was an erroneous inference," the judge said.

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