A U.S. appeals court judge promised a swift ruling in a case pitting New Orleans homeowners against insurance companies for their refusal to cover damage from the failure of levees in Hurricane Katrina’s aftermath in 2005.
Rulings by the 5th U.S. Circuit Court of Appeals often take months, but Judge Carolyn King said “a prompt decision is very important” given that tens of thousands of residents could be affected.
“This case is not just going to take its place in the queue. It’s going to the head of the list,” said King, one of three judges who heard arguments June 6.
The insurance industry could lose an estimated $1 billion in Louisiana if policyholders successfully challenge companies’ refusal to cover damage from levee breaches, said Robert Hartwig, chief economist at the industry-funded Insurance Information Institute in New York.
In a November decision, U.S. District Judge Stanwood Duval Jr. sided with policyholders who argued that language excluding water damage from some insurance policies was ambiguous.
Duval said the policies did not distinguish between floods caused by an act of God – such as excessive rainfall – and those that are not, which would include the levee breaches following Katrina’s landfall.
Duval allowed a lawsuit against The Allstate Corp., The St. Paul Travelers Companies Inc. and other insurers to proceed, but said the issue of “flood exclusion” could be appealed.
Insurers say their homeowner policies do not cover damage from all types of flooding, including water from the levees that broke in the aftermath of the Aug. 29, 2005, storm.
Plaintiffs’ attorney John Ellison accuses insurers of purposely not defining the term ‘flood’ and deliberately drafting vague policy language “to frustrate the reasonable expectations of Louisiana homeowner policyholders from whom they collected premiums for years.”
Richard Doren, a lawyer for Lexington Insurance Co., noted that federally subsidized flood insurance policies are sold separately from homeowner policies that cover damage from wind but not flood water.
“There is no secret here. There is no mystery here. Floods are excluded under homeowner insurance policies,” he said.
Duval agreed last year to dismiss State Farm Insurance Cos. from the litigation. He ruled that State Farm’s policies included language that clearly excluded all flood damage, regardless of the cause.
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