Recent Louisiana Flood Decisions

The Standard Flood Exclusion

FHAM attorneys are defending multiple Hurricane Katrina coverage lawsuits in the Gulf Coast region in federal and state courts. There have been a number of new developments in the area of coverage law regarding the standard flood exclusion included in most homeowner’s policies. A major issue has been whether the standard flood exclusion, upheld by the Louisiana courts for eighty years, bars recovery for flood caused by so-called manmade events such as levee failure. Judge Duval of the Unites States District Court for the Eastern District of Louisiana recently held that the flood exclusion was ambiguous with respect to flood caused by alleged levee failure due to negligent levee design.

By way of a brief background, the standard flood exclusion was traditionally upheld under Louisiana law. See Morehead v. Allstate Ins. Co., 406 F.2d 122 (5th Cir. 1969) (holding exclusion for loss “caused by, resulting from, contributed to or aggravated by . . . flood, surface water, waves, tidal wave . . . .” upheld where house floated from its piers and settled on the ground); see also Milton v. Main Mut. Ins. Co., 261 So.2d 723 (La. Ct. App. 1972) (upholding similar flood exclusion where car was submerged under rising waters caused by Hurricane Betsy); see also Travelers Indem. Co. v. Powell Ins. Co., No. 95-4188, 1996 WL 578030, at * 1 (E.D. La. Oct. 4, 1996) (concluding that the exclusion barred coverage of golf carts flooded by torrential rains in New Orleans because the exclusion “unequivocally” and “unambiguously excludes coverage for flood damage . . . .”).

Despite the established body of Louisiana law upholding the flood exclusion, Judge Duval held that the exclusion was ambiguous because it did not distinguish between “man-made” and “natural” flood, and, therefore, the wording failed to exclude man-made flood resulting from the alleged negligent design of the levees. In re Katrina Canal Breaches Consol. Litig. (E.D. La. Nov. 27, 2006). This ruling has been appealed to the 5th Circuit Court of Appeals, and oral argument is scheduled for 4 June 2007. (At least one Louisiana state court has agreed with this holding, and that decision has also been appealed. Historic Restoration Inc. v. RSUI Indem. Co. and Essex Inc. Co., No. 06-4990, Div. D. (Civ. Dist. Ct. for the Parish of Orleans, Dec. 5, 2006). FHAM attorneys are monitoring the appeals, and we shall periodically update the Blog with current developments.

Flood Policy Recovery Offset

In a series of very recent decisions, the United States District Court for the Eastern District of Louisiana resolved an important question regarding another flood issue: whether insureds may recover under both their flood policies and standard homeowner’s policies for the same damage. The answer is “no.” In Esposito v. Allstate Ins. Co., No. 06-1837, 2007 WL 1125761, at *1 (E.D. La. April 16, 2007), Allstate denied recovery to a homeowner who sought policy limits under his wind policy because he was already compensated for the loss by his flood carrier. The insured’s property was flooded for approximately two weeks by six feet of water. The Court ruled that such an additional recovery contradicted the insured’s position regarding flood damage and would exceed the value of his property.

Allstate tendered payment for some wind damage and contents damage with respect to the second floor, but filed a Motion for Summary Judgment contending the insured should be estopped from asserting that wind caused all of his losses after having received funds for the same loss from his federal flood policy. In the alternative, Allstate argued that any further recovery must be offset by the flood recovery because the Plaintiff was limited to the actual cash value of the home.

The District Court acknowledged a recent decision, Weiss v. Allstate Ins. Co., No. 06-3774, 2007 WL 891869, at *1 (E.D. La. Mar. 21, 2007), rendered by Judge Vance of the Eastern District, in which a similar motion by Allstate was denied. In that case, Judge Vance determined issues of material fact pertaining to the value of the property and regarding whether plaintiffs had admitted that their property was damaged solely by water precluded summary judgment. Id. at *2-3. In reaching her decision to deny summary judgment, Judge Vance ruled that a plaintiff whose property sustains damage from flood and from wind can recover for his segregable wind and flood damages except to the extent that he seeks to recover twice for the same loss. Weiss, 2007 891869, at *2; see also Wellmeyer v. Allstate Ins. Co., No.06-1585, 2007 WL ___, at *1 (E.D. La. April 26, 2007).

Based on the reasoning in Weiss, the Esposito Court opined that the insured could recover any previously uncompensated losses covered by his wind policy, and which, when combined with his flood insurance recovery, did not exceed the value of his property. The Court held that the insured could not obtain a windfall double recovery by re-characterizing as wind damage those losses for which he had been compensated already by his flood coverage:

The NFIP [National Flood Insurance Program] did not erroneously make payments to Plaintiff for flood losses to his home. Plaintiff sought those payments and he obtained them by convincing FEMA that his losses were caused by flood and covered by his flood policy. Plaintiff has now been compensated for those losses based on the statements and information that he provided to FEMA. For purposes of the instant suit this Court will not allow Plaintiff to cavalierly repudiate those prior statements while nevertheless retaining the funds that he received based on those same statements (emphasis in original).

Accordingly, the Court granted summary judgment to Allstate, denying any further recovery to Plaintiff. These cases are fact intensive, and recovery will depend heavily on the nature of the insured’s recovery from his flood insurer and on the value of the property.

Please let us know if you would like a copy of the cases. We continue to monitor the latest rulings from Gulf Coast courts.