Louisiana insurers breathed a sigh of relief last week when the 5th U.S. Circuit Court of Appeals upheld their flood exclusions, ruling that just because damage in New Orleans following Hurricane Katrina might have been caused in part by a human failure to maintain adequate levees, that did not mean carriers were on the hook for coverage. The legal maneuver was clever, but it was clearly a stretch, and thankfully for carriers, common sense prevailed in court for a change.
(For full coverage of the decision, click here, and for the industry's reaction, click here.)
The opinion written by Judge Carolyn King, serving on a court right in there The Big Easy, had to be music to the industry's often tone deaf ears.
“We conclude…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,” she wrote.
“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,” she added, seeing no need to draw distinctions between natural and man-made causes of flooding in policy language.
Indeed, the plaintiffs' focus on the fact that man-made levees had failed in seeking coverage, she said, "ignores the sizeable natural component to the disaster—a catastrophic hurricane and the excess water associated with it. The non-natural component is simply that in certain areas, man’s efforts to mitigate the effect of the natural disaster failed, with devastating consequences."
Clearly recognizing the implications of ruling the other way, she said that “if man’s failure to adequately prepare for a natural disaster could alone transform the disaster into a non-natural event outside the scope of a policy’s exclusion, it is difficult to conceive how an insurer could ever exclude the resulting loss; any natural event could be recharacterized as non-natural either because man’s preventative measures were inadequate or because man failed to take preventative measures at all.”
Well said.
Comments (6)
This is not only a victory for insurers. The ruling removes the uncertainty of wind v. flood for insurers on future policies and should allow them to help insure the recovery of New Orleans.
We're counting on them to help us move forward. Some have. Others have been a bit, shall we say, hesitant.
Posted by Anderson Baker | August 7, 2007 10:53 AM
Posted on August 7, 2007 10:53
Kinda restores your faith in the legal system.
This decision stands in opposition to the myriad political and legal viewpoints to the contrary. I say common sense does sometimes prevail. Now if only.......
Posted by Marc Dubois | August 7, 2007 10:55 AM
Posted on August 7, 2007 10:55
The judge is right that the flood was a natural disaster. The failure of the levees was man-made, and if the government could be held liable, all those affected should be paid by the government for the loss, as reports before the storm said the levees were not built right in the first place.
We don't live in that world, and no insurance company should be faulted for the levees failure.
But the government (Army Corp of Engineers) that paid for the levees should be held responsible.
Posted by Joe Sanders | August 7, 2007 12:19 PM
Posted on August 7, 2007 12:19
Yay for us, finally. But I'll bet the press will castigate the industry for wanting to uphold an exclusion that has withstood 30-plus years of court tests.
And I just heard that most of the people who took out flood policies after Hurricane Wilma have let them expire!
Posted by Bill Lockhart | August 7, 2007 2:08 PM
Posted on August 7, 2007 14:08
I have nothing to add to this except that the illustration that accompanied your post is fantastic!
Posted by James | August 7, 2007 2:37 PM
Posted on August 7, 2007 14:37
The ruling is what we needed down here. The legal industry jumped on the "let's make a quick buck" mentality as soon as Katrina hit by not allowing public adjusters to practice without being employed by an attorney, and then by attempting to state that licensed adjusters were not qualified to interpert policy language at all because it was a legal contract.
Let's do the math! A public adjuster with a modest 6-10% cap on fees or an attorney at 33% contigency fee? Guess who loses out?
You got it, the home- and businessowners in this state have payed a ton of money to settle losses that would have been quickly settled through normal claims procedures.
This is not to say that all public adjusters are honest and competent, but quick legislation here could been made to protect citizens from the ones that were not ethical.
Many commercial losses that have attorney involvement are still open and moving very, very slowly, even though the insured has been paid a full undisputed amount that was more than sufficient to pay for covered repairs!
I for one believe that this will be a wakeup call to the legal profession here in Louisiana. More common sense in decisions from our benches is going to cost them money!
Now to address the issue of non-renewals of flood policies: Why pay money into a policy when you have seen first-hand that the people that didn't have coverage were paid by the government for their loss anyway?
Many that were paid had no intention of making repairs nor ever planned to return. I don't know how FEMA/Homeland Security is going to prompt the purchase of flood policies or premium payments at this point.
The only common sense approach would be national legislation that states no coverage, no free payments. A loan program like the SBA should have been applied to non-insured losses in order to recover our hard-earned and easily spent tax dollars, over a fixed period of time with a reasonable period prior to the beginning of monthly repayments.
Again, we need more common sense all the way to the top!
Michael J. Fuller, C.E.O.
Executive General Adjuster
Baron Catastrophe Services
318-644-5113
Calhoun, LA
Posted by Mike Fuller | August 8, 2007 1:49 PM
Posted on August 8, 2007 13:49