Victims of Katrina Floods Lose an Insurance Appeal

NEW ORLEANS, Aug. 2 (AP) — Hurricane Katrina victims whose homes and businesses were destroyed when floodwaters breached levees in the 2005 storm cannot recover money from their insurance companies for the damages, a federal appeals court ruled on Thursday.

The case could affect tens of thousands of rebuilding residents and business owners in Louisiana, said Daniel E. Becnel Jr., who represented 21 plaintiffs in the case.

David Rossmiller, an insurance lawyer and analyst, said insurers could have taken a “multibillion-dollar hit” if the ruling had gone against them.

“This event was excluded from coverage under the plaintiffs’ insurance policies, and under Louisiana law, we are bound to enforce the unambiguous terms of their insurance contracts as written,” Judge Carolyn D. King wrote for a three-judge panel of the Fifth Circuit Court of Appeals.

As a result, the panel found those who filed the suit “are not entitled to recover under their policies,” she said.

More than a dozen insurance companies, including Allstate and Travelers, were defendants. Mr. Becnel said he planned to appeal.

The decision overturns a ruling by United States District Judge Stanwood R. Duval Jr., who in November sided with policyholders arguing that language excluding water damage from some of their insurance policies was ambiguous.

Judge Duval said the policies did not distinguish between floods caused by an act of God — such as excessive rainfall — and floods caused by an act of man, which would include the levee breaches after Katrina’s landfall.

But the appeals panel concluded that “even if the plaintiffs can prove that the levees were negligently designed, constructed or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs’ policies unambiguously preclude their recovery.”

This was a consolidated case, including about 40 named plaintiffs, including Xavier University, and more than a dozen insurance companies. It is just one of the cases pending in federal court over Katrina damage. The Army Corps of Engineers faces thousands of claims for damage after the levees breached; Judge King noted in her opinion that dozens more cases, some consolidated and involving property owners suing insurers, are pending in federal court in New Orleans.