Thursday, April 10, 2008

Like 5th Circuit, Louisiana Supreme Court Says Insurance Did Not Cover Levee Breaches

The New Orleans Times-Picayune reports that on April 8th the Louisiana Supreme Court, in a major post-Katrina decision, decided that insurance policies that did not cover flood damage also did not cover the levee breaches that flooded 80% of New Orleans. The decision overruled two lower courts and basically agreed with an earlier ruling by the U.S. 5th Circuit Court of Appeals. The report emphasized that the Louisiana Supreme Court ruling was even more important than the 5th Circuit's, "because state law holds sway in insurance disputes."

The ruling again seems to point to the U.S. Army Corps of Engineers as the only entity that might be held responsible for the massive loss of property and life caused by the levee breaches. So far, however, the Corps has proved all too adept at preventing itself from getting sued. Excerpts from the article follow:

The court said the lower courts should have looked at the "plain, ordinary and generally prevailing definition" of the word "flood."

"Contrary to the court of appeal's reasoning, this definition (of 'flood') does not change or depend on whether the event is a natural disaster or a man-made one -- in either case, a large amount of water covers an area that is usually dry," the Supreme Court opinion said.

Justice Chet Traylor of Winnsboro, writing the majority decision, went a step further, saying the flooding in New Orleans after Hurricane Katrina was not caused by man, only aided by human errors.

"The flood was caused by Hurricane Katrina, not by man," Traylor wrote. "The levees did not cause the flood, they, whether through faulty design, faulty construction, or some other reason, failed to prevent the flood."

Attorney John Houghtaling , who joined the lawsuit on behalf of the state of Louisiana, said, "This is the end of the road here. This is a very, very sad day for anyone who isn't an insurance executive."

Houghtaling said he was "shocked by the ruling" and thought the insurance industry had "pulled the wool over the eyes of another court." In addition to 1,500 homeowners Houghtaling represented against insurers, he was also retained by former Attorney General Charles Foti to argue that the state's Road Home program, which uses federal taxpayer dollars to cover gaps in insurance payments, should be reimbursed for at least $1 billion it paid for water damage homeowner policies should have covered.

Houghtaling's firm noted that in 2004, the industry asked the state insurance commissioner to approve new policy language making it clear that water from levee breaches wasn't covered in homeowner policies. Houghtaling said that proved the industry knew that previous policy language -- which remained in use by all but two firms at the time of Hurricane Katrina -- was ambiguous. The Supreme Court didn't address that argument in its ruling.

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