NEW ORLEANS — An insurance company isn’t obligated to pay for water damage from the failure of New Orleans area levees after Hurricane Katrina, Louisiana’s highest court ruled Tuesday in a case that could affect thousands of homeowners.
In a major victory for insurers, the Louisiana Supreme Court reversed a state appeals court decision that favored New Orleans property owner Joseph Sher in his suit against Lafayette Insurance Co.
In November, the 4th Circuit Court of Appeal concluded Lafayette’s homeowner policy failed to exclude all forms of flooding because its language was ambiguous.
But the state Supreme Court disagreed, and said Lafayette is entitled to limit its liability for damage from a levee breach.
John Houghtaling, a lawyer who represented the state when the 4th Circuit heard the case, said the ruling has “very troubling” implications for the Louisiana insurance market and deals a sharp blow to thousands of homeowners devastated by the August 2005 hurricane.
“It’s a multibillion-dollar windfall for the insurers,” Houghtaling said.
The Supreme Court’s ruling mirrors a decision last year by a federal appeals court in a separate but similar case. The 5th U.S. Circuit Court of Appeals in New Orleans also ruled that insurers aren’t obligated to cover water damage from a levee failure.
Lafayette and other insurers say their policies cover damage from wind but not flooding, including water from a levee breach.
In Katrina’s aftermath, levee failures flooded 80 percent of New Orleans. The Army Corps of Engineers is widely blamed for poorly designing and maintaining the city’s flood protection system.
Lafayette attorney Howard Kaplan said the ruling not only favors the insurance industry but also benefits the state.
“There was a high probability that an adverse ruling would have dramatically affected insurance rates (in Louisiana),” he said.
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