What a shocker! Just when you think insurers have Hurricane Katrina claims under control, a new ruling comes down that even the judge admits could have an “overwhelming” impact on the industry. In case you didn't see the story, earlier this week, U.S. District Court Judge Stanwood R. Duval Jr. in New Orleans decided that many insurer flood exclusions do not apply to the 2005 levee breaks in The Big Easy last year. The big question is, now what?
At first blush, the ruling itself might “only” cost the industry a few billion dollars over and above the tens of billions already paid out for wind-related hurricane damage. But industry observers are very concerned that should the decision survive its appeal to the U.S. 5th Circuit Court of Appeals, it would set a dangerous precedent that could spread to other jurisdictions, and perhaps even be applied retroactively to storms prior to Katrina.
What's interesting is that not all contract language is alike in the supposedly standard flood exclusion cited like Biblical verse by carriers warding off water-related Katrina claims. You see, Judge Duval let State Farm–the state's biggest private homeowners carrier, with 35 percent of the market–off the hook, noting that their contract language was quite unambiguous.
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