Federal District Court In Louisiana: Flood Exclusions Are Ambiguous As To Levee Collapse As Opposed To Overtopping Of Levees

UPDATE:  More commentary from Martin Grace at RiskProf and PointofLaw

Let me start out this post with this scenario.  Suppose all the dams on the Columbia River above Portland failed — let’s just say there was some big surge of water in the Columbia, maybe because a cliff sheared off in an earthquake and fell into the river.  Let’s also say the dams had structural flaws that made them unable to withstand increased water pressure, and they crumbled like graham crackers before the water surge could go over the top.  Suppose the dams failed, one after the other: John Day, the Dalles, Bonneville, and a big wall of water came rushing down the Columbia Gorge, and when it hit Portland and Vancouver, Washington, it scoured the river valley of homes and people for a mile on either side of the river channel.  Here’s the question: what word do you use to describe what just happened?  Here’s something to consider in your answer: ever hear of the Johnstown Flood?

Now let’s talk about the Katrina coverage case in federal district court in Louisiana handed down this week.  Here’s a pdf of the case, which I’m not sure what to call because of its disorganized caption, but I’ll try Vanderbrook, the first name on the caption, or In Re Katrina Canal Breaches Consolidated Litigation.  You’ll notice the journalists in this story run away from having to put a name on this case like it was a process server holding a libel summons.

The case considers flood and water damage exclusions in homeowners policies issued to people in New Orleans by a number of insurance companies including State Farm, Travelers, Encompass, Allstate, Unitrim and Hanover.  Claims by homeowners were denied because the city was flooded by Hurricane Katrina, and the policies have flood exclusions.  However, in motions on the pleadings or for summary judgment by the insurers, the court found the exclusions were ambiguous and therefore must be decided against the insurer.  Why were they ambiguous?  Basically, because the court thought the word "flood" refers to "a natural event caused by rain or tide" rather than by "man-made" flooding.  

First observation about the decision: really, really long, 85 pages long.  I know, it discusses several consolidated cases, but there is a lot of padding in there.  Thoreau said "simplify, simplify," and he wasn’t just talking about cabins in the woods.  One can say a lot with a little.  The Gettysburg Address has some 269 words. When I’m tempted to go long, I remember two adages: "One who talks too long hopes to convince himself;" and "When you got too many excuses, you ain’t got no excuse."

Second observation: the decision talks a lot about cases involving burst water pipes outside homes, where the courts found the damages were covered and not precluded by flood exclusions because the water damages were not from naturally occurring floods.  This is then used as evidence that the definition of the word "flood" applies only to naturally occurring phenomenon.  In a reach of logic that is difficult to swallow, the court then categorizes the New Orleans flooding as caused by human negligence — the collapse of canal and levee walls due to human design or construction faults — rather than by Hurricane Katrina.  One could also say the flooding was caused by people building a city below sea level, but is that sound logic or mere reductionist technique? 

Third observation: the court’s approving citation of this quote from the West Virginia Supreme Court made me laugh aloud.  

A provision in an insurance policy may be deemed to be ambiguous if courts in other jurisdictions have interpreted the provision in different ways.  This rule is based on the understanding that "one cannot expect a mere layman to understand the meaning of a clause respecting the meaning of which fine judicial minds are at variance." (Emphasis in original).

What kind of reasoning is this: Variance Happens? I guess if those fine judicial minds across the country don’t agree on every point, something just has to be ambiguous.  By the way, who’s going to vouch for how fine each of those minds are?

Fourth observation: I could go on and on about this case, but why bother? I’ve made my point.

Fifth observation: see if you can get a line in Vegas on whether this will be appealed to the Fifth Circuit by the insurers, and bet your flood insurance money that it will be.  


Filed under First Party Insurance

2 Responses to Federal District Court In Louisiana: Flood Exclusions Are Ambiguous As To Levee Collapse As Opposed To Overtopping Of Levees

  1. It seems we think alike!

  2. I take that as quite a compliment.