Louisiana Supreme Court Agrees that "Flood" Exclusion Is Not Ambiguous

Sher v. Lafayette Ins. Co., No. 07-C-2441 (La. April 8, 2008), See Sher Decision.

"Flood" means flood.  In the latest in a string of defeats for Katrina property owners in New Orleans over the interpretation of the standard flood exclusion in property insurance policies, the Louisiana high court agreed with the Federal Fifth Circuit Court of Appeals in rejecting the interpretation that the exclusion does not apply to floods caused by levee failures due to negligent design.  (See In re Katrina Canal Breaches Litigation, 495 F.3d 191, 214 (5th Cir. 2007). 

Joseph Sher, owner and resident of a 5-unit apartment building, sought property and lost income coverage in the excess of $550,000 after Katrina flood waters had inundated the first floor of his building.  The insurer asserted that most of the damage was caused by poor maintenance and flooding that were excluded under the policy.  Specifically, the exclusion bars coverage for loss caused by "flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not."

The insurer offered to pay less than $3,000.  A trial court awarded Sher over $300,000, but the insurer appealed.  Insurer lost and appealed again.  The Supreme Court reversed.  On the key issue of the interpretation of the flood exclusion, the Court held that the term was capable of only one reasonable interpretation.

The plain, ordinary and generally prevailing meaning of the word "flood" is the overflow of a body of water causing a large amount of water to cover an area that is usually dry.  This definition does not depend on locality, culture, or even national origin - the entire English speaking world recognizes that a flood is the overflow of a body of water causing a large amount of water to cover an area that is usually dry.

This definition, the Court continued, does not distinguish between man-made and natural floods.  Therefore, the term is not ambiguous.  Moreover, the Court observed that even if such a distinction was supportable, no one could reasonably argue that Katrina flooding was not the result of a natural disaster.

For large commercial policyholders, alternative coverage should be available in, say, named-storm coverage.  Private homeowners probably have no alternative to the government-backed flood insurance program which has its own pitfalls. (see, for example, my discussion in Normal Legal Principles May Not Apply with Government Backed Insurance Program).  And here we are again at the beginning of another hurricane season.