In re Katrina Canal Breaches Litigation

Facts

Hurricane Katrina struck New Orleans and surrounding areas in 2005, causing widespread devastation. During the storm, several canal levees surrounding New Orleans were breached and 80 percent of New Orleans was under water. Plaintiffs sought coverage for their losses under their homeowners, renters, and commercial property all-risk insurance policies. Some of these policies excluded recovery for water damage arising from “flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these.” State Farm policies stated that “We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following….” The list of exclusions included water damage and defined that term in the same manner that the other policies had. This policy clearly stated that any water damage, regardless of the source, or combination of sources, was excluded from coverage. The Plaintiffs argued that their losses were covered by their policies, despite the exclusionary language, because the damage resulted from the negligent design, construction, and maintenance of the failed levees and the policies did not exclude coverage for inundation of water induced by negligence. Defendants declined coverage under this theory and Plaintiffs brought a series of separate state actions, which were then consolidated and removed to federal district court. The trial court found that the non-State Farm policies’ flood exclusions were ambiguous because they could be interpreted either to only exclude floods from natural causes, or could be interpreted to exclude floods from natural causes or negligent or intentional acts. As a result, the court denied the Defendant’s motion for summary judgment on these polices and held that these policies covered the Plaintiff’s losses to the extent the Plaintiffs could prove the flooding was a result of the alleged levee negligence. As to the State Farm policies, the trial court determined that the introductory language to the exclusions removed any ambiguity and clearly excluded a flood from any cause. The court dismissed the actions against State Farm. Plaintiffs and Defendants cross-appealed to the appellate court.