News Currents

Judge rules in favor of plaintiffs in New Orleans canal case

In a decision that could cost insurers billions of dollars more than they have already paid out in Hurricane Katrina claims, a federal judge in New Orleans ruled that ambiguities in some homeowners policies leave open the possibility that flooding due to “man-made” acts could be covered, despite widespread water damage exclusions contained in most policies.

On Nov. 28, the United States District Court for the Eastern District of Louisiana released an 85-page ruling by Judge Stanwood R. Duval Jr. in several consolidated cases in which plaintiffs argued that flood damage “arising out of all levee breaches which occurred in the aftermath of Hurricane Katrina” should be covered, since such flooding is not specifically excluded in the policies. Citing ambiguous language in the water damage exclusions in certain policies, the judge denied insurers’ requests that the lawsuits be dismissed.

The ruling applies to several cases that were consolidated in “In re: Katrina Canal Breaches Consolidated Litigation.” (C.A. No. 05-4182) The consolidated case, while not a class action, “has become the umbrella for all cases which concern damages caused by flooding as a result of breaches or overtopping in the areas of the 17th Street Canal, the London Avenue Canal, the Industrial Canal, and the Mississippi Gulf River Outlet,” according to the judge’s order.

Included in the consolidated case is Chehardy, et al. v. State Farm, et al, according to the plaintiff law firm of Anderson Kill & Olick P.C. The Chehardy action was brought against fifteen insurance companies that sold All-Risk homeowners insurance policies to Louisiana residents, the law firm said.

Chehardy was filed on behalf of the policyholders by lawyers from Anderson Kill & Olick P.C., The McKernan Law Firm, Fayard & Honeycutt P.C, Ranier, Gayle & Elliot LLC, Bruno & Bruno, Levin Papantonio Thomas Mitchell Echsner & Proctor P.A., and Domengeaux Wright Roy & Edwards.

Expecting the decision to be appealed, Judge Duval forwarded it to the 5th U.S. Circuit Court of Appeals for review.

Plaintiffs’ attorney Joseph Bruno told the Associated Press there is no timetable for the review. ‘Right now, we’re on the verge of an opportunity to get a recovery for people who have lost everything and who didn’t have flood insurance or didn’t have enough flood insurance,” Bruno said.

Mike Siemienas, a spokesman for Allstate Insurance Co., one of the companies named in the suit, told the AP that the company plans to appeal Duval’s decision. ‘Allstate disagrees with the judge’s conclusion that its policy exclusions do not apply to water damage resulting from the flooding in the New Orleans area,” he said.

According to the order, the “plaintiffs allege that the cause of the levee failures was ‘negligent design, negligent maintenance and/or inadequate materials,’ and that ‘any damages attributable to the levee failures are the result of improper and/or negligent design, construction, maintenance of the levees by various third parties and or third party negligence.'” (Id. ¶¶ 46-50). While acknowledging the water damage exclusions contained in their policies, the plaintiffs alleged that those exclusions did not apply to “‘the failing of virtually all man-made structures containing navigable Waters of the United States … due to negligent conduct’ beyond plaintiffs’ control.” (Id. ¶ 61)

Judge Duval wrote that many insurers’ policies do not specifically exclude “man-made” water breaches, but he found exceptions in the policies of State Farm and The Hartford, both of which exclude damage from flooding regardless of the cause.

In a separate action, the U.S. Supreme Court refused Nov. 28 to consider motions to recuse Judge Duval from these cases.

Associated Press reports contributed to this story.

Topics USA Flood