Several Insurance Policies Provide Coverage from Levee-Breach Flooding

SandBar Printer-Friendly Article
Several Insurance Policies Provide Coverage from Levee-Breach Flooding In re Katrina Canal Breaches Consolidated Litigation v. Encompass Insurance Co., 2006 U.S. Dist. LEXIS 85777 (D. La. November 27, 2006) Sarah E. Spigener, 2L, University of Mississippi School of Law In November, the United States District Court for the Eastern District of Louisiana held that the “flooding” exclusion in several insurance policies is limited to flooding caused by a natural event. Because much of the flooding in New Orleans was caused by canal breaches and not solely by a natural event, some New Orleans residents’ insurance policies were interpreted to grant coverage. Background The In re Katrina Canal Breaches Consolidated Litigation encompasses all of the cases concerning damages caused by flooding as a result of breaches or overtopping in the areas of the 17th Street Canal, the London Avenue Canal, the Industrial Canal, and the Mississippi River Gulf Outlet (“MRGO”) in New Orleans.1 Four individual cases that focus on the issue of insurance coverage are incorporated in this decision.2 The plaintiffs, residents of New Orleans, claimed that sometime between 10:00 and 11:00 a.m. on August 29, 2005, before the full force of Hurricane Katrina reached the city, a small section of the concrete canal wall, known as the 17th Street Canal, suddenly broke, causing water to enter the streets and their homes. The residents sued various insurance companies seeking coverage for damage caused by the collapse of the 17th Street floodwall and the resulting water damage, arguing that the insurance companies improperly failed to compensate them for the damage to their homes. The residents also claimed that the Board of Commissioners for the Orleans Levee District (“OLD”) was negligent; however, the court severed the negligence allegations against the Board from this case. Insurance Policies The policies at issue were homeowner’s policies. A homeowner’s policy is considered a type of “all-risks” insurance. These policies generally allow recovery for all losses, unless the policy contains a specific exclusion expressly excluding the loss from coverage. Under Louisiana law, unless there is a specific exclusion stated, the presumption is that the policy covers all damage. In this case, the plaintiffs had the burden of proving that the water intrusion falls within their policies’ terms; however, the defendants had to prove that the water intrusion falls within an exclusionary clause. The policies issued by Standard Fire, Hartford, Hanover, and Unitrin all included provisions stating that they did not insure for loss caused directly or indirectly by water damage, which includes flooding. However, the word “flood” was not defined in the policies. State Farm’s policies noted that they did not insure loss as a result of flooding that arises from nature or external forces. The Hartford policies also stated that they did not insure for loss as a result of flooding, which the policy defined to include “the release of water held by a levee or a flood control device.” Defining the Word “Flood” The defendant insurance companies contended that all water damage caused by the canal breach was excluded from coverage because their policies exclude coverage for water damage resulting from a “flood.” They maintain that all the claimed damage was a result of a “flood.” They further argued that the definition of “flood” is not limited to natural events. The plaintiffs argued that with regard to the exclusions included in their policies, “flooding” is limited to natural events. In addition, they argued that the “flooding” that occurred was not caused by the overtopping of the levees or by rainwater filling the city with surface water. They contended that Louisiana courts have construed the water damage exclusion to require a “rising over” of water; whereas, here, a “rising over” of water did not occur; rather, it was the negligence of OLD that caused the canal walls to collapse. The issue for this court was whether in an all-risk policy, where coverage is provided for direct loss to property, these insurance provisions which exclude coverage for water damage caused by “flood” clearly exclude from coverage damages caused by the alleged negligence of OLD. In other words, the issue is whether it is reasonable to conclude that there are two definitions of “flood.” The majority of the definitions of the word “flood” found independently by the court required an “overflowing” or an “overtopping.” The court further concluded that the definition of “overflowing” contemplates the occurrence of a natural event caused by rain or tide. Therefore, the court concluded that a reasonable interpretation of the word “flood” would be flooding caused by a natural event. Conclusion Because the word “flood” is not defined in the policies in question, the court found the exclusionary clauses of the policies ambiguous. Any exclusion listed in these “all-risk” policies must be clear and unambiguous; otherwise, the policy will be construed to give coverage. Consequently, the court held that the insurers must provide damages for the plaintiffs’ losses, with the exception of State Farm and Hartford. The State Farm policies clearly exclude regardless of the cause of the flooding; therefore, they do not have to provide damages for the losses. Also, the court held that the Hartford policies expressly excluded the damages caused by negligently maintained levees and that Hartford is not liable for damages. Endnotes 1. Another case entitled Robinson v. United States is also grouped under In re Katrina Canal Breaches Consolidated Litigation and is still pending; however this case can be distinguished from the cases here because the central issue is different. In Robinson, New Orleans residents are suing the Army Corps of Engineers, not their insurance companies, for the negligent construction and maintenance of the MRGO. Robinson v. United States, C.A. No. 06-2268, Document 2994 (E. D. La. Feb. 2, 2007). 2.These cases are: Vanderbrook, et al. v. State Farm Fire & Casualty Co., et al.; Xavier University of Louisiana v. Travelers Property Casualty Co. of America; Chehardy, et al. v. State Farm, et al.; and Humphreys v. Encompass Insurance Co.
Please report any broken links or other problems to the Webmaster Site Map University of Mississippi

Several Insurance Policies Provide Coverage from Levee-Breach Flooding

In re Katrina Canal Breaches Consolidated Litigation v. Encompass Insurance Co., 2006 U.S. Dist. LEXIS 85777 (D. La. November 27, 2006)

Sarah E. Spigener, 2L, University of Mississippi School of Law

In November, the United States District Court for the Eastern District of Louisiana held that the “flooding” exclusion in several insurance policies is limited to flooding caused by a natural event. Because much of the flooding in New Orleans was caused by canal breaches and not solely by a natural event, some New Orleans residents’ insurance policies were interpreted to grant coverage.

Background
The In re Katrina Canal Breaches Consolidated Litigation encompasses all of the cases concerning damages caused by flooding as a result of breaches or overtopping in the areas of the 17th Street Canal, the London Avenue Canal, the Industrial Canal, and the Mississippi River Gulf Outlet (“MRGO”) in New Orleans.1 Four individual cases that focus on the issue of insurance coverage are incorporated in this decision.2

The plaintiffs, residents of New Orleans, claimed that sometime between 10:00 and 11:00 a.m. on August 29, 2005, before the full force of Hurricane Katrina reached the city, a small section of the concrete canal wall, known as the 17th Street Canal, suddenly broke, causing water to enter the streets and their homes. The residents sued various insurance companies seeking coverage for damage caused by the collapse of the 17th Street floodwall and the resulting water damage, arguing that the insurance companies improperly failed to compensate them for the damage to their homes. The residents also claimed that the Board of Commissioners for the Orleans Levee District (“OLD”) was negligent; however, the court severed the negligence allegations against the Board from this case.

Insurance Policies
The policies at issue were homeowner’s policies. A homeowner’s policy is considered a type of “all-risks” insurance. These policies generally allow recovery for all losses, unless the policy contains a specific exclusion expressly excluding the loss from coverage. Under Louisiana law, unless there is a specific exclusion stated, the presumption is that the policy covers all damage. In this case, the plaintiffs had the burden of proving that the water intrusion falls within their policies’ terms; however, the defendants had to prove that the water intrusion falls within an exclusionary clause.
The policies issued by Standard Fire, Hartford, Hanover, and Unitrin all included provisions stating that they did not insure for loss caused directly or indirectly by water damage, which includes flooding. However, the word “flood” was not defined in the policies. State Farm’s policies noted that they did not insure loss as a result of flooding that arises from nature or external forces. The Hartford policies also stated that they did not insure for loss as a result of flooding, which the policy defined to include “the release of water held by a levee or a flood control device.”

Defining the Word “Flood”
The defendant insurance companies contended that all water damage caused by the canal breach was excluded from coverage because their policies exclude coverage for water damage resulting from a “flood.” They maintain that all the claimed damage was a result of a “flood.” They further argued that the definition of “flood” is not limited to natural events. The plaintiffs argued that with regard to the exclusions included in their policies, “flooding” is limited to natural events. In addition, they argued that the “flooding” that occurred was not caused by the overtopping of the levees or by rainwater filling the city with surface water. They contended that Louisiana courts have construed the water damage exclusion to require a “rising over” of water; whereas, here, a “rising over” of water did not occur; rather, it was the negligence of OLD that caused the canal walls to collapse.

The issue for this court was whether in an all-risk policy, where coverage is provided for direct loss to property, these insurance provisions which exclude coverage for water damage caused by “flood” clearly exclude from coverage damages caused by the alleged negligence of OLD. In other words, the issue is whether it is reasonable to conclude that there are two definitions of “flood.”

The majority of the definitions of the word “flood” found independently by the court required an “overflowing” or an “overtopping.” The court further concluded that the definition of “overflowing” contemplates the occurrence of a natural event caused by rain or tide. Therefore, the court concluded that a reasonable interpretation of the word “flood” would be flooding caused by a natural event.

Conclusion
Because the word “flood” is not defined in the policies in question, the court found the exclusionary clauses of the policies ambiguous. Any exclusion listed in these “all-risk” policies must be clear and unambiguous; otherwise, the policy will be construed to give coverage. Consequently, the court held that the insurers must provide damages for the plaintiffs’ losses, with the exception of State Farm and Hartford. The State Farm policies clearly exclude regardless of the cause of the flooding; therefore, they do not have to provide damages for the losses. Also, the court held that the Hartford policies expressly excluded the damages caused by negligently maintained levees and that Hartford is not liable for damages.

Endnotes
1. Another case entitled Robinson v. United States is also grouped under In re Katrina Canal Breaches Consolidated Litigation and is still pending; however this case can be distinguished from the cases here because the central issue is different. In Robinson, New Orleans residents are suing the Army Corps of Engineers, not their insurance companies, for the negligent construction and maintenance of the MRGO. Robinson v. United States, C.A. No. 06-2268, Document 2994 (E. D. La. Feb. 2, 2007).
2.These cases are: Vanderbrook, et al. v. State Farm Fire & Casualty Co., et al.; Xavier University of Louisiana v. Travelers Property Casualty Co. of America; Chehardy, et al. v. State Farm, et al.; and Humphreys v. Encompass Insurance Co.