February 21, 2008
At issue is the thousands of property owners in New Orleans who did not purchase flood insurance and are suing Travelers, Allstate, State Farm, Unitrin and other insurance companies to cover damage caused by hurricane Katrina.
The U.S. Supreme Court has declined to hear a case brought by New Orleans property owners who argued their Hurricane Katrina flood damage should be covered despite insurance policy exclusions because the flooding was caused by the failure of the city’s man-made levees. This will uphold rulings from lower courts.
The high court dismissal of the case without comment means a Fifth Circuit Court of Appeals decision in favor of insurance carriers and their exclusions stands for now, but does not mean litigation over the issue of coverage for flooding caused by breached levees is over.
Plaintiffs in the case had contended that because their properties were flooded as a result of the levee breaches, a “man-made act,” the flood exclusions in the policies did not apply. They argued that “the massive inundation of water into the city was the result of the negligent design, construction, and maintenance of the levees and that the policies’ flood exclusions in this context are ambiguous because they do not clearly exclude coverage for an inundation of water induced by negligence.”
The inaction by the U.S. Supreme Court means attention will now turn to the Louisiana Supreme Court, which is scheduled to hear a related case on Feb. 26.
One of the plaintiffs in the appeal to the U.S. Supreme Court, Xavier University, stressed that the U.S. Supreme Court refused to hear a narrow legal issue and did not rule on the substantive claims of plaintiffs.
In a statement, Xavier University in Louisiana said it had asked the Supreme Court to consider whether it was error for the U.S. Fifth Circuit to refuse to certify an issue of Louisiana insurance law to the Louisiana Supreme Court because the Fifth Circuit had recently certified insurance issues to the Texas and Mississippi Supreme Courts.
The Louisiana issue is to be decided after the Louisiana Supreme Court hears arguments on Feb. 26 in the case Sher v. Lafayette Insurance Co.
The final ruling could affect thousands of property owners in the New Orleans area and an estimated $1 billion in insurance payouts.
