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http://cms.nationalunderwriter.com/...katrina-DH

U.S. Judge: No Flood Exclusion For Levee Breaks
BY DANIEL HAYS
NU Online News Service, Nov.29, 10:44 a.m. EST


A federal judge has ruled that the policies issued by many insurers do not exclude claims for water damage caused when Hurricane Katrina breached the New Orleans levees.

U.S. District Court Judge Stanwood R. Duval in his ruling Monday noted that the impact of his decision “on individuals as well as the insurance industry might be considered overwhelming.”

Allstate said it would appeal his finding.

The judge found that flood damage exclusion language in policies issued by Allstate and other carriers does not “exclude water damage caused by negligent or intentional acts of man. It does not address the ambiguity of the term ‘flood’ and the fact that all of the listed ‘causes’ appear to be the result of natural occurrences, not the monumental civil engineering debacle that is alleged by plaintiffs.”

The judges ruling did not extend to more detailed exclusionary language in policies issued by State Farm, the largest writer in Louisiana in 2005 with a 35 percent share of the market (excluding Louisiana Citizens), or by The Hartford, which wrote only 1 percent of the premiums (according to information from Highline Data).

With respect to State Farm, the judge wrote, “The State Farm policy does precisely what the ISO Water Exclusion Policy fails to do,” referring to language in Allstate and other policies.

The judge said State Farm’s policy “makes it clear that regardless of the cause of the flooding, there is no coverage provided for any flooding ‘regardless of the cause.’ Such language is clear to the Court and as such, the Court must find that the State Farm policy as written excludes coverage for all flooding.”

Plaintiffs in the consolidated case argued that the water damage was not the result of flood, but was water intrusion, caused simply from a broken levee wall and the result of third-party negligence.

Their suits, in addition to insurers, named the Board of Commissioners for the Orleans Levee District which was severed from case when no federal jurisdiction found.

Judge Duval, finding it was the judicial role to interpret the common intent of the parties to the contract, wrote that all risk “generally allows recovery for all fortuitous losses,” not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage.

Under Louisiana law, according to Judge Duval, “unless there is a specific exclusion for the type of water damage that an insured has incurred, coverage is presumed under these policies.”

The insurers, in an argument noted by the judge, maintained that “flood” is not limited to natural events.

Mike Siemienas an Allstate spokesman said the company “disagrees with the judge’s conclusion that its policy exclusions do not apply to water damage resulting from the flooding in the New Orleans area. Allstate intends to appeal the decision in the United States 5th Circuit Court of Appeals.”

It is going to be like Déjà Vu all over again.

Let the games begin. State Farm appears to have a leg tostand on here regarding this case.

I am willing to bet it will be reversed on appeal.

I understand some parties have been surprised at how well the carriers are doing in many of the rulings coming down.

I will take your bet, Tom. This logic has stood in other courts and it will stand here.

The wording is carefully crafted and only says that the exclusion causes tension and that it is ambiguous. It will stand the test of the 5th Circuit.

I have a question, If indeed the carriers lose and are forced to reopen the denials. This with year's of appeals, would the insured see any of the money as a class action suit has a built in fee I think. Also if a mortgage is involved they take there cut, and with no
land to build on due to the flood plane changes. Who wins, policy holders not living there having to pay higher premium's.

Tim,

IMHO the biggest winners will be the attorneys, as usual.

Janice

 

 

 

Doesn't the judge (in what he obviously considers to be his infinite wisdom), realize, grasp -- or at least accept -- the premise that the bottom line here (with regard to the wording of the ISO policy) is INTENT? It is certainly obvious to us (lowly adjusters though we are) that the intent of the policy is to exclude flooding from any and all sources, regardless of whether it stems from nature or from man-made mishap. Reminds me a bit of a judge's interpretation (might I say "mis-interpretation"?) of the wording re mold exclusion a few years back . . .

-- Leslie

As it is the insurers who exclusively control the wordings, intent means nothing. If the wordings are unclear, then the benefit will go to the other party to the contract who had no say in the wordings, the homeowner. for the people whose houses were flooded due to the levee failure, depending on the actual wordings (some wordings may be clear) there is a real possiblity they will win and their lawyers wealthier. .

After reading the ruling how one carrier came out looking smart with their policy wording has to make one wonder if some of the other carriers are not kicking themselves for trusting their billions to the lawyers over at ISO. Based only on this one case that is the subject of this thread do you think the E&O carrier that ISO uses is sweating bullets instead of Christmas shopping today. With an apparent insider having in his post in another thread last night indicate MDA is going to run ISO out of the claims handling business starting in three years from now that perhaps ISO may be getting the point that moving from a not for profit organization to a regular for profit identity changes the rules of the game and their legal exposure. The following statement from the posted case can not be good for ISO if trying to defend their legal work in an E&O claim case.

 

“With respect to State Farm, the judge wrote, “The State Farm policy does precisely what the ISO Water Exclusion Policy fails to do,” referring to language in Allstate and other policies.”

If the surface water exclusion doesn't apply due to human failures in constructing the levee,

then why doewn't the construction defect clause apply

this ruling seems to ignore concurrent causation to boot

The policies this decision applies to provide all risk except as excluded coverage. The efficient proximate cause of loss is the levee failure which may or may not be excluded. As with the ISO policies the "flood" exclusion was judged to be "ambiguous" and that there is "tension" surrounding the meaning of the "flood" exclusion. When an exclusion is determined to be "ambiguous" the decision goes to the purchaser of a contract of adhesion.

To my mind it is highly unlikely that this decision will be overturned on appeal.

I think it will be the next Savings &  Loan bailout if the courts rule against the Fire & EC insurors.

How could the US economy survive if all the Property Insurance Carriers went under.

The Fed is giving away up to $300,000.00 per house hold if the loss was this amount and no insurance was in place. Or insurance was in place, but did not cover the entire loss. Go to New Orleans and act like Santa. I dont know who the  lucky vendor is.

Chuck, you have been steadfast in your position from your first post in this thread. Over the years I have learn that if you take a position is seems to be grounded in experience. The question that I and possibly others without experience in cases like these have is what are some of the possible paths forward from this point?

 

Will the carriers with polices that have been ruled to be ambiguous in their exclusion wording now have their day in court if they elect? Would it go straight to the 5^th Circuit? Anyone with thoughts on the time line that it could take if it one possible path?

 

Is there any reason carriers would start reopening claims without first contesting the ruling of one judge? While many claims have been being prepared to go the court room for some time it would seem many of the cases that lead to this issue being ruled on are ready be in the courtroom very fast.

 

Can homeowner cases move forward in the courtroom if the carriers are fighting it in the 5^th Circuit? Does State Farm coming out looking good as far as not being ambiguous hurt the ability of the other carriers to defend their wording or help? Were would the SF policy holders go to the courtroom if they disagree with the ruling that they are out of luck on lodging a successful flood claim based on wording alone?

To add into this mix, on 12-6 Judge Medley in the Civil District Court for the Parish of Orleans of the State of Louisiana endorsed the decision by Judge Duval in the federal courts by his decision in the "Historic Restoration, Inc" case. I haven't received a copy of the decision yet, and if anyone has they can address it here. When i get it I'll put the info in here, but it looks like the insurance companies have taken a pretty good 1st blow in both the federal and state court now. I tend to believe that the rulings will be reversed and there has to be some precedent already set on this issue out there somewhere. One thing is for sure, these will probably be the most watched lawsuits in a long time.