Claims News Service, Nov. 29, 11:54 a.m. EST -- In an unexpected ruling that could have wide-ranging effects on insurers and Katrina claimants affected by the rupture of the New Orleans levee system, a federal judge in the city has ruled that the water damage exclusion is ambiguous because it does not necessarily include man-made causes and therefore must be construed against the companies.
"The word 'flood' has numerous meanings," said United States District Court Judge Stanwood R. Duvall, Jr., in his 85-page ruling issued late Monday. "It is defined in virtually all dictionaries first as a noun then as a verb. In the policies being examined by the Court, it is used as a noun. As noted, most of the definitions of the noun imply encroachment of water caused by an act of nature. Furthermore, this exclusion has been the subject of differing interpretations in the jurisprudence, which further demonstrates that it is susceptible of two reasonable interpretations. As such, under Louisiana civilian principles and the jurisprudence constant, this Court finds the ISO Water Damage Exclusion ambiguous."
Duvall also outlined and explained several other points of contention by insurers. The first included the notion that the existence of the National Flood Insurance Program means that standard insurance policies aren't meant to cover flooding of any sort, an assertion he dismissed.
"If an insurer wanted to exclude coverage for damages covered by a national insurance program, it could so state in the relevant exclusion," said Duvall.
Because he had found flood damage language ambiguous, Duvall also found that an exclusion for ensuing loss provisions for faulty, inadequate, or defective design of the levees was inapplicable. "As the Court has found there is coverage for the flood damage as alleged, then the losses would be considered 'ensuing' and as such, these exclusions would be inapplicable," said Duvall.
He also said that anti-concurrent causation language was inapplicable to the ISO water exclusion because there is no separate or other cause of damage. He was careful to point out that the New Orleans situation is different than the issues being faced in Mississippi, where the combination of wind and water forces was present.
In an interesting note, Duvall granted State Farm's request for dismissal because he said the company has a provision in its policies that removes the ambiguity in regards to whether the flood was caused naturally or was man-made. He also granted The Hartford's dismissal request because it expressly lists levee failure as an exclusion in its policies.
For the complete ruling, please click here.
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