Big Insurers Win Ruling On Katrina Levee Break

By Becky Bohrer
Associated Press
Friday, August 3, 2007

Hurricane Katrina victims whose homes and businesses were destroyed after floodwaters breached levees in the 2005 storm cannot recover money from their insurance companies for the damage, a federal appeals court ruled yesterday.

The case could affect thousands of residents and business owners in Louisiana who are attempting to rebuild. Robert P. Hartwig, chief economist at the industry-funded Insurance Information Institute in New York, said in June that a ruling against the industry could have cost insurers $1 billion.

"This event was excluded from coverage under the plaintiffs' insurance policies, and under Louisiana law, we are bound to enforce the unambiguous terms of their insurance contracts as written," Judge Carolyn D. King wrote for a three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans.

As a result, the panel found those who filed the suit "are not entitled to recover under their policies," she said.

More than a dozen insurance companies, including Allstate and Travelers, were defendants.

The decision overturns a ruling by U.S. District Judge Stanwood R. Duval Jr., who in November sided with policyholders arguing that language excluding water damage from some of their insurance policies was ambiguous. The policies did not distinguish between floods caused by an act of God, such as excessive rainfall, and floods caused by an act of man, which would include the levee breaches after Katrina's landfall, he said.

The appeals panel concluded, however, that "even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs' policies unambiguously preclude their recovery."

"Regardless of what caused the failure of the flood-control structures that were put in place to prevent such a catastrophe, their failure resulted in a widespread flood that damaged the plaintiffs' property," and policies clearly excluded water damage caused by floods, King wrote.

This was a consolidated case, including about 40 named plaintiffs, including Xavier University, and more than a dozen insurance companies. It is one of many cases pending in federal court over Katrina damage. The U.S. Army Corps of Engineers faces thousands of claims for damage resulting after the levees were breached. King noted in her opinion that dozens of cases, some consolidated and involving property owners suing insurers, are pending in federal court in New Orleans.

Attorneys on both sides of the case did not immediately return telephone messages or declined comment.

Janet McConnaughey and Kevin McGill contributed to this report.

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