Like a shot to the gut, insurers had the wind knocked out of them last month by a potentially monumental decision that many insurer flood exclusions did not, in fact, preclude payment of claims resulting from the failure of levees to protect New Orleans during Hurricane Katrina.
U.S. District Court Judge Stanwood R. Duval Jr. in New Orleans ruled that flood exclusion language in policies issued by Allstate and other carriers does not exclude water damage caused by negligent or intentional acts of man. It does not address the ambiguity of the term flood and the fact that all of the listed causes appear to be the result of natural occurrences, not the monumental civil engineering debacle that is alleged by plaintiffs.
The plaintiffs in the consolidated case successfully argued that water damage to their properties was caused not by your standard catastrophic flood, but because the man-made levee failed to keep water out as it was designed to do. Therefore, the cause of loss is third-party negligence in the building and maintenance of the levees, not Mother Nature.
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