The Louisiana Supreme Court concluded that a water exclusion in a property policy is not restricted to natural events and has held that coverage for damage caused by flooding from levee breaches during and following a hurricane is excluded. Sher v. Lafayette Insurance Company, et al., No. 2008 WL 928486 (La. April 8, 2008).
The insured owned property in New Orleans that flooded after levees breached during and after Hurricane Katrina. His claim was denied in part by his property insurer to the extent damage was caused by flood. The insured sued, and the trial court denied the insurer's summary judgment motion for a declaration that its policy did not cover flood damage. Judgment was ultimately rendered against the insurer, which was affirmed on appeal. The insurer appealed.
The Louisiana Supreme Court held the term "flood" in the water exclusion is not ambiguous and that the exclusion is not restricted to natural events but also includes "man-made" events. The Supreme Court further noted, however, that the flooding was not caused by man in any event because, the Court concluded, the levees did not cause the flood but rather failed to prevent it. The Supreme Court also held that judicial interest on statutory penalties for arbitrary and capricious claims adjustment runs not from the date of judicial demand (as is typical in Louisiana) but from the date of the judgment awarding penalties, and that a statutory amendment in 2006 increasing those penalties would not apply retroactively based solely on an insurer's continuing obligation to act in good faith.
The ruling on the water exclusion is consistent with a prior ruling under Louisiana law on the same issue by the U.S. Fifth Circuit Court of Appeals in In Re Katrina Canal Breaches Litigation (See October 2007 Insurance Law Report).
