Katrina Victims Lose To The Insurance Industry

The Fifth Circuit Court of Appeals in New Orleans ruled Aug. 2, 2007, in In re Katrina Canal Breaches Litigation, No. 07-30119, that property owners in New Orleans whose buildings were flooded as a result of levee breaches in the aftermath of Hurricane Katrina cannot recover losses from their insurance companies because of the flood exclusions in their insurance policies. Thousands of policyholders of various insurance companies will be affected by the ruling and it is estimated that the policyholders may have to absorb losses in the range of 1 billion dollars.
The policyholders had argued that because their properties were flooded as a result of the levee breaches, a “man-made act,” the flood exclusions in the policies were void. They argued that the flooding in the city was the result of the negligent design, construction, and maintenance of the levees.
In the Fifth Circuit opinion, which the insurance industry is applauding, the court held “that even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs’ policies unambiguously preclude their recovery. Regardless of what caused the failure of the flood-control structures that were put in place to prevent such a catastrophe, their failure resulted in a widespread flood that damaged the plaintiffs’ property. This event was excluded from coverage under the plaintiffs’ insurance policies, and under Louisiana law, we are bound to enforce the unambiguous terms of their insurance contracts as written.”
The case was appealed to the Fifth Circuit from the United States District Court for the Eastern District of Louisiana, which held in November 2006 that ambiguous language in the water damage exclusions in some insurance policies left open the possibility that policyholders could recover losses under their policies.