Louisiana insurers breathed a sigh of relief last week when the 5th U.S. Circuit Court of Appeals upheld their flood exclusions, ruling that just because damage in New Orleans following Hurricane Katrina might have been caused in part by a human failure to maintain adequate levees, that did not mean carriers were on the hook for coverage. The legal maneuver was clever, but it was clearly a stretch, and thankfully for carriers, common sense prevailed in court for a change.
The opinion written by Judge Carolyn King, serving on a court right in there The Big Easy, had to be music to the industry's often tone deaf ears.
We concludethat even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs policies unambiguously preclude their recovery, she wrote.
Regardless of what caused the failure of the flood-control structures that were put in place to prevent such a catastrophe, their failure resulted in a widespread flood that damaged the plaintiffs property, she added, seeing no need to draw distinctions between natural and man-made causes of flooding in policy language.
Indeed, the plaintiffs' focus on the fact that man-made levees had failed in seeking coverage, she said, “ignores the sizeable natural component to the disastera catastrophic hurricane and the excess water associated with it. The non-natural component is simply that in certain areas, mans efforts to mitigate the effect of the natural disaster failed, with devastating consequences.”
Clearly recognizing the implications of ruling the other way, she said that if mans failure to adequately prepare for a natural disaster could alone transform the disaster into a non-natural event outside the scope of a policys exclusion, it is difficult to conceive how an insurer could ever exclude the resulting loss; any natural event could be recharacterized as non-natural either because mans preventative measures were inadequate or because man failed to take preventative measures at all.
Well said.
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