Hurricane Katrina Coverage Under Homeowners Policies

Judge Stanwood R. Duvall, Jr. of United States District Court for the Eastern District of Louisiana has issued a ruling which could have a dramatic impact on the scope of coverage afforded for water damage under homeowners and commercial property policies. On and shortly after August 29, 2005, approximately 80% of the surface area of New Orleans was flooded as a result of the failure of outfall drainage canal walls which had been designed and built by united states army core of engineers and maintained by the Orleans Levee District. In late August and early September, 2006, hundreds of lawsuits were filed, in both state and Federal court in New Orleans, by homeowners and commercial property policyholders seeking coverage for water-related damage. Because so many of these cases were either file directly in, removed to, federal court, the United States District Court for the Eastern District of Louisiana held that in order to avoid conflicting decisions among the various sections of the court, all such filings would be consolidated for the purposes of pretrial discovery and motion practice. In a re: Katrina Canal Breaches Consolidated Litigation, Civil Action No. 05-4182, has become the umbrella litigation for all cases concerning damage caused as a result of breaches in canal walls and levees in the 17th Street Canal, the London Avenue Canal, and the Industrial Canal in the Mississippi River Gulf Outlet.

On November 27, 2006, Judge Duvall issued an 85 page Order ruling on various motions filed in four of the consolidated cases. Although the specific motions on which Judge Duval was ruling varied from case to case, the import of the Order is the effectiveness of various exclusions for water damage contained in the insurers’ wind policies. In summary, a Judge Duval ruled that standard exclusions for water damage and wind policies are, for the most part, ambiguous when applied to flooding resulting from the failure of flood walls are levees allegedly due to third party negligence. Should this ruling stand, homeowners insurers and other insurers issuing wind damage policies could be exposed to significant liability for flood damage resulting from hurricane Katrina.

For more information, download the full review of these cases here.

Printed with permission from Sydney W. Degan, III of Degan, Blanchard & Nash, a professional law corporation.