Insurance Company "Flood Exclusion" Language Challenged in Hurricane Katrina Litigation
The language of "flood exclusion" in homeowner insurance policies has been a source of debate recently, as Hurricane Katrina victims struggle to rebuild in the wake of the 2005 disaster. Insurance companies throughout the area have denied claims, leaving devastated residents with no means to repair or rebuild their homes.
Typically, most insurance policies do not cover flood damage resulting from natural events like a massive monsoon or hurricane. Consequently, homeowners must get flood coverage separately through the federal government's National Flood Insurance Program (FEMA).
However, Hurricane Katrina litigation has raised some important questions about the scope of the "flood exclusion". Most of those damages were caused by man-made actions when the levees breached and flooded more than 80% of New Orleans. At the end of November, a federal judge in Louisiana agreed with New Orleans homeowners that the language excluding water damage from insurance policies was ambiguous and did not necessarily exclude man-made actions.
This ruling opens the possibility of recovery for many New Orleans residents whose claims had previously been denied, but the battle isn't over yet. The Louisiana ruling comes as a direct contradiction to a Gulfport, Mississippi court decision in August which favored the insurance companies.
In that similar lawsuit, a Mississippi federal judge ruled that a couple couldn't collect money from their insurance company because their policy didn't cover damages sustained from storm surges or floodwaters.
Louisiana insurance companies seem fairly confident that the decision will be overturned as "flood exclusion" language in their policies is very similar to what's stated in the other 49 states.
While Louisiana insurance companies quickly appeal, New Orleans homeowners will likely file a rash of Hurricane Katrina lawsuits in the meantime to see if they can recover any damages.
With both sides having so much money at stake, these legal battles should only intensify during the next couple of months, and the rulings may affect the terms of future homeowner's policies. Meanwhile, the litigation serves as an excellent reminder to all of us of the importance of understanding our insurance policies and any possible gaps in coverage. If you have questions about your own insurance protection, speak to a local lawyer in your area.