Louisiana’s Supreme Court has ruled out insurance companies paying billions of dollars to policyholders for damage caused by levee and floodwall failure in Hurricane Katrina. In the decision issued last month, state Supreme Court justices said the flood exclusion in a Lafayette Insurance Co. policy covering a New Orleans apartment building applied to damages even from a flood caused by breaks in poorly maintained levees. The court wrote in its decision:
Even if the exclusion only referred to natural, rather than man-made floods, the flood at issue was not caused by man. The flood was caused by Hurricane Katrina, not by man.
Last year the Fifth U.S. Circuit Court of Appeals reached a similar decision, saying flood exclusions, which are routinely written into commercial and private property insurance policies, are not eliminated if the flooding is due to negligence. The U.S. Army Corps of Engineers has been faulted for failing to properly maintain the levee system around low-lying New Orleans. Storm surge and high winds from Katrina breached the levees, leaving more than 80% of the city underwater for weeks. This ruling came as a surprise to many observers since the jury could reasonably have found that the damage was caused by a man-made disaster. According to lawyers it’s been the law in the state of Louisiana that water damage exclusions did not cover man-made disasters. In any event, this ruling must be considered a major set-back for policyholders and a significant victory for the insurance industry.
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