Yara Zakharia, Esq.
Last November, a U.S. district judge sided with Louisiana homeowners struggling with the financial aftermath of Hurricane Katrina as they filed suit demanding insurance reimbursement for flood damage they suffered. A federal appeals court is now reviewing the decision and has vowed to issue a speedy ruling on the insurance claims which arose out of the August 29, 2005 storm.
Federal judge Stanwood Duval Jr. had ruled last year in favor of the policyholders who claimed that contractual language present in a number of insurance policies and which excluded water damage was vague. Duval held that the policies did not differentiate between 'act of God'-type floods triggering such weather events as heavy rains and floods that are not caused by an act of God, such as the levee breaches that occurred when Katrina made landfall. Duval authorized the plaintiffs to proceed in their civil claims against The St. Paul Travelers Companies Inc., The Allstate Corporation, and other insurance companies, although he reserved the right for the insurers to appeal to the 'flood exclusion' issue.
This Wednesday, a three-judge panel at the 5th U.S. Circuit Court of Appeals, heard oral arguments from attorneys representing the homeowners and several insurers. Considering that the appellate courts typically take several months or more to issue a ruling, it was an unprecedented move by Judge Carolyn King, one of the three judges presiding over the hearing, to state that the case would be handled in an expeditious manner, and that a decision would be made in no time. 'This case is not just going to take its place in the queue,' she reassured. 'It's going to be the head of the list.'
Insurance companies argue that their home insurance policies exclude coverage for damage caused by any kind of flooding, and that includes water from broken levees following Katrina's landfall. Richard Doren, an attorney for Lexington Insurance Company, told the bench that the "generally prevailing meaning of the word flood includes what happened during and after Hurricane Katrina in this city".
According to Robert Hartwig, lead economist for the industry-financed and New York-based Insurance Information Institute, if the policyholders prevail in their lawsuit against the insurers who oppose payment for damage resulting from the levee breaches, the insurance industry will be dealt a serious blow, with losses in Louisiana estimated at $1 billion.
In a pleading filed with the court, an attorney representing the homeowners with consolidated cases against insurance companies stated that Duval correctly concluded that the 'flood' definition included in the policies is restricted to 'naturally occurring events.' However, plaintiffs' lawyer John Ellison contended that insurers deliberately omitted to define the word 'flood' and purposely drafted ambiguous policy provisions 'to frustrate the reasonable expectations of Louisiana homeowner policyholders from whom they collected premiums for years.' Ellison maintained that it is "difficult to think of a more important or significant issue that needs to be resolved with respect to Louisiana law.
Conversely, Lexington Insurance Company's lawyers argued that to punish the insurance companies for not defining generally-understood terms such as 'flood' could result in insurers engaging in "defensive over-specification, which would inevitably lead to longer policies that are less comprehensible to most policyholders." In 2006, Judge Duval agreed to let State Farm Insurance Cos. off the hook, finding that its policies had explicit language excluding all flood damage, irrespective of the cause.