November 29, 2006 by Canadian Underwriter
Insurers are responsible for paying out flood claims filed as a result of Hurricane Katrina, a Federal Court Judge in New Orleans has ruled.
Justice Stanwood R. Duval, Jr. overturned an initial court ruling that insurers are exempt from flood claims due to policy exclusions.
“There is coverage as a result of the ambiguity in the Water Damage Exclusion,” Duval ruled, denying the insurers’ claim that the flood damage falls outside of the policy.
Duval’s decision has been sent to the 5th U.S. Circuit Court of Appeals for review.
The ruling addressed an ambiguity that appears in New Orleans residents’ homeowners’ policies.
The policies clearly exclude floods by rising water or from rainfall Unfortunately for the insurance companies (bar a small few), the policies do not “clearly exclude man-made” loss due to flood.
Duval found the cause of flooding in New Orleans was due to levee failure and therefore could not be attributed to rising water or rainfall, which would trigger an exclusion.
According to The Chicago Tribune, Robert Hartwig, the chief economist at the U.S. Insurance Information Institute, says said “the judge reached the wrong conclusion. The policies clearly excluded flood-related damage under any and all circumstances. We don’t believe the decision will be upheld.” Should the ruling stand, insurers may be obligated to pay out even more than the US$41 billion they’ve already paid in claims.
It could take years before the case is resolved.