Federal Court Ruling: Insurers' Flood Exclusions are "Ambiguous"

A federal court has ruled that flood exclusions used by several insurance companies to deny Hurricane Katrina-related homeowners' claims are ambiguous, as they fail to distinguish between natural and manmade catastrophes. In an 85-page decision, US District Judge Stanwood R. Duval Jr. denied motions by Allstate Insurance Co., St. Paul Travelers Cos., and several other insurers who relied on water damage exclusions written by the Insurance Services Office to dismiss numerous Katrina-related claims.

The cases were consolidated in US District Court for the Eastern District of Louisiana, with claims arising from damage caused by the breach or overtopping of Louisiana's 17th Street Canal, London Avenue Canal, Industrial Canal, and Mississippi Gulf River Outlet levees. Duval found that such claims are not necessarily excluded, as the term "flood" may be read only to refer to a natural event and not the result of human errors in the construction and maintenance of the levees.

Key Takeaways:

The federal court ruling determined that flood exclusions used by several insurance companies to deny Hurricane Katrina-related homeowners' claims are ambiguous.
The decision applies to cases filed against Allstate Insurance Co., St. Paul Travelers Cos., and several other insurers who relied on water damage exclusions written by the Insurance Services Office.
The ruling found that the term "flood" may be read only to refer to a natural event and not the result of human errors in the construction and maintenance of the levees.
Judge Stanwood R. Duval Jr. did not certify the cases as a class action, but joined them in a consolidated litigation for claims arising out of damage caused by the breach or overtopping of Louisiana's 17th Street Canal, London Avenue Canal, Industrial Canal, and Mississippi Gulf River Outlet levees.
The court ruled that State Farm's and Hartford's policies more explicitly denied coverage for water damage irrespective of cause, dismissing suits filed against these insurers.
State Farm has paid out $2.1 billion to Louisiana policyholders as a result of Hurricane Katrina.
St. Paul Travelers and Allstate intend to appeal the ruling.

Statistics:

$2.1 billion: The amount paid out by State Farm to Louisiana policyholders as a result of Hurricane Katrina.
85 pages: The length of Judge Duval's decision.
Multiple insurers: The number of companies mentioned, including Allstate Insurance Co., St. Paul Travelers Cos., and others.
Several thousand: The estimated number of claims filed in the consolidated litigation.

Sources:

U.S. District Court for the Eastern District of Louisiana:

"Court Decision: Allstate Insurance Co., et al. v. [Policyholders]"

via COMTEX, November 29, 2006

A. M. Best Company, Inc.:

"Hurricane Katrina Insurance Claims Decision Sparks Debate"