4th Circuit Sides with La. Homeowner in Katrina Lawsuit

November 21, 2007

An insurance company should have paid for Hurricane Katrina damage to a policyholder’s home because it’s unclear what types of flood damage were excluded from coverage by its homeowner policies, a state appeals court ruled Nov. 19.

The 4th Circuit Court of Appeal agreed with a state judge’s ruling that Lafayette Insurance Co.’s policy failed to exclude all forms of flooding because its language was ambiguous.

“Lafayette failed to specifically exclude all floods because of the ambiguity contained within the water exclusion,” Judge Terri Love wrote in a 53-page majority opinion.

The 4th Circuit sided with policyholder Joseph Sher, who blamed much of the water damage to his property on water from levee failures in New Orleans following the Aug. 29, 2005, hurricane.

“It was the correct ruling, a major ruling that’s key to the rebuilding of New Orleans,” said James Garner, an attorney representing Sher.

“Everybody (the court) agreed that Mr. Sher was not handled properly by Lafayette Insurance Co. They all agreed that the company acted in bad faith and didn’t treat him fairly.”

Garner said it was likely the insurance company would ask the Louisiana Supreme Court to review the case. Attorneys representing Lafayette Insurance did not immediately return a telephone call for comment.

Two of the five 4th Circuit judges who heard the case agreed with the result of the majority opinion but gave different reasons for their conclusions.

“As I read the applicable policy provisions (quoted by the majority), because Lafayette’s all-risk policy did not specifically exclude coverage for business personal property losses, I find that coverage was afforded under the policy as written,” said Judge Max N. Tobias Jr. in concurring.

Orleans Parish Civil District Court Judge Robin Giarrusso also had sided with 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 4th Circuit case mirrors one already decided by a federal appeals court. 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.

The 4th Circuit amended the awards to $461,346 for property damage and lost rent but said the trial court erred in awarding attorney’s fees.

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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