Insurers Win Court Ruling on Katrina Levee Claims

Insurers including Allstate Corp. and Travelers Cos. don't have to pay homeowners for the damage caused when Hurricane Katrina overwhelmed levees in New Orleans in 2005, a U.S. appeals court ruled today.

Reversing a lower court's ruling, a three-judge panel in the appeals court in New Orleans said policy language used by 13 insurers clearly states flooding damage isn't covered, whether it's caused by the failure of manmade levees or not. Lawyers seeking class-action status on behalf of thousands of policyholders sought to invalidate the exclusions because the floods were ``artificially caused.''

A victory for the policyholders would have cost insurers billions of dollars, according to Meyer Shields, an industry analyst at Stifel Nicolaus & Co. in Baltimore. Wind-related damage has contributed to $41.1 billion in insured losses from Katrina so far, according to a survey of claims by Insurance Services Office Inc. in Jersey City, New Jersey.

``You had 80 percent of the city underwater and if insurers had to pay every one of those claims it would have been disastrous,'' Shields said in an interview.

John Ellison, Vernon Thomas and Matthew Schultz, lawyers representing the plaintiffs, didn't return phone calls seeking comment.

Any appeal the plaintiffs might attempt would likely fail because the three judges were unanimous in their ruling today, said Carl Tobias, a law professor at the University of Richmond in Richmond, Virginia.

``They are unlikely to find anyone to entertain an appeal,'' Tobias said. ``It's an important victory for the insurance companies.''

State Farm

Northbrook, Illinois-based Allstate, the country's largest publicly traded home insurer, said it was pleased with the ruling, as did Travelers of St. Paul, Minnesota.

The other defendants are State Farm Mutual Automobile Insurance Co., American International Group Inc., Liberty Mutual Insurance Co., AAA Homeowners Auto Club Family Insurance Co., Aegis Security Insurance Co., American Insurance Co., Great Northern Insurance Co., Hanover Insurance Co., Lafayette Insurance Co., Unitrin Preferred Insurance Company, and the state-run insurer, Louisiana Citizens Property Insurance Corp.

District Court Judge Stanwood Duval's original ruling in November said the one defendant that didn't use ambiguous language was State Farm, the only home insurer bigger than Allstate.

Negligence Aside

In the ruling today, the appeals panel said flood exclusions at all 13 companies ``unambiguously'' preclude payment ``even if the plaintiffs can prove that the levees were negligently designed, constructed or maintained.''

Homeowners in New Orleans are also seeking class-action status in related suits against state and federal authorities responsible for maintaining the city's levee system.

The shares of Allstate rose 25 cents to $53.78 in New York Stock Exchange composite trading, while Travelers increased 3 cents to $51.70.

source:bloomberg.com