The Supreme Court of Louisiana recently overturned a Katrina-related Louisiana state appellate court decision, and held that an insurer’s flood exclusion was not ambiguous and that coverage could be denied for water damage sustained to an insured’s property on the basis of this exclusion. (Click here to read the Louisiana Supreme Court’s decision in Sher v. Lafayette Insurance Company, et al.).

As previously reported here, a Louisiana state appellate court previously had held that an insurer’s flood exclusion was ambiguous and that the insurer could not deny coverage for water damage to an insured’s property caused by a levee breach on the basis of the exclusion.  The state appellate court’s decision was subsequently appealed.

In reaching its decision, the Louisiana Supreme Court relied on the plain and ordinary meaning of the word “flood.”  The court noted that regardless of whether the event at issue qualified as a natural disaster or a man-made one, the definition of flood – where a large amount of water covers an area that is usually dry – does not change.  The court also noted that even if the flood exclusion only referred to natural, rather than man-made floods, the flood at issue was caused by Hurricane Katrina and was not caused by man, stating that  “[t]he levees did not cause the flood, they, whether through faulty design, faulty construction, or some other reason, failed to prevent the flood.”

In its decision, the Louisiana Supreme Court noted that its analysis is supported by the recent Fifth Circuit decision in In re: Katrina Canal Breaches Litigation, (click here and here for prior related posts).  In that decision, the federal appellate court explicitly rejected the policyholder’s argument that there should be a distinction between natural and non-natural causes of flood with respect to the applicability of the flood exclusion, and held that the policies’ flood exclusion unambiguously precluded recovery for damages caused by breach of the levees after Hurricane Katrina.

We will continue to provide updates on Katrina-related coverage litigation on InsureReinsure.com.