A Louisiana state appeals court is weighing whether an insurance company must pay for damage from the failure of levees in New Orleans after Hurricane Katrina, a case that could affect thousands of property owners in the storm-ravaged city.
In the case heard Sept. 12 by the 4th Circuit Court of Appeal, Lafayette Insurance Co. says a state judge mistakenly concluded that the company’s policy language was ambiguous and didn’t specifically exclude damage from a levee breach from coverage.
Orleans Parish Civil District Court Judge Robin Giarrusso sided with policyholder Joseph Sher, a 91-year-old Holocaust survivor who owned an apartment complex in New Orleans and sued Lafayette for denying most of his claim after Katrina.
The case before the 4th Circuit mirrors one already decided by a federal appeals court.
Last month, the 5th U.S. Circuit Court of Appeals dealt a blow to Gulf Coast homeowners by ruling that insurers aren’t obligated to cover water damage from a levee failure.
Sher, who lived in one of the five units at his apartment complex, rode out the storm at home and blames much of the damage to his property on water from levee failures in Katrina’s aftermath.
Lafayette paid Sher about $2,700 for wind damage, but he estimates his home sustained a total of $223,488 in damage that should be covered.
In March, a jury awarded Sher $369,077 for property damage and lost rent, plus $184,538 in penalties. Giarrusso also ordered Lafayette to pay $258,728 in attorney fees.
Lafayette says its policies cover damage from wind but not flood water. Water from a levee breach is clearly excluded from coverage, whether it’s a man-made event or an act of God, the company argues.
“No non-flood policy has ever been called on to cover flood damage,” Lafayette attorney Howard Kaplan told a five-judge panel of the 4th Circuit, which didn’t immediately rule on the company’s appeal.
Sher’s attorneys argue that water damage from a man-made event, such as a levee breach, aren’t specifically excluded from coverage under the company’s policies. The U.S. Army Corps of Engineers has conceded that the city’s levees were poorly designed and constructed.
James Garner, one of Sher’s attorneys, said Lafayette could have written policy language that specifically excluded damage from a levee breach from coverage, but didn’t. “They wrote the contract,” he said. “It’s their job to make it clear.”
Sher’s lawyers cite a ruling last November in New Orleans by U.S. District Judge Stanwood Duval Jr., who sided with policyholders against several insurance companies and ruled that policy language excluding flood damage from coverage was ambiguous. But the 5th Circuit overturned Duval’s decision and ruled that water from a levee failure is a “flood” and is unambiguously excluded from coverage.
Lafayette attorney Ralph Hubbard said the issues raised in the federal appeal are virtually identical to those in Sher’s case.
“While you have your own road to follow, the 5th Circuit has given you a road map that will show you the right way,” Hubbard told the 4th Circuit panel.
Attorney General Charles Foti’s office has sided with Sher in the case, arguing that Lafayette and other insurers are obligated to pay for water damage from levee breaches.
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