Insurers Must Cover Flooding Damage Caused by Canal Breaches After Katrina, Federal Judge Rules

Insurers Must Cover Flooding Damage Caused by Canal Breaches After Katrina, Federal Judge Rules

By KATHERINE MANGAN

Xavier University of Louisiana is among the beneficiaries of a sweeping decision this week by a federal judge in Louisiana who ruled that insurance companies must pay for damages caused by canal breaches in the aftermath of Hurricane Katrina.
A handful of insurance companies had denied coverage, saying their policies excluded flood damage. But Judge Stanwood R. Duval Jr., of the U.S. District Court in New Orleans, said that most of the insurers had failed to clearly distinguish in their policies between flooding that is caused by heavy rains and high winds, and damage caused by human error.
"The exclusion does not clearly address flooding caused by man-induced causes, and as such, the court must find coverage," he wrote in his 85-page ruling.
Xavier suffered an estimated $50-million in property damages after breaches at the 17th Street and London Avenue Canals in New Orleans sent several feet of water cascading into campus buildings, where it remained for weeks.
The university had argued that the canal breaches were caused by human error and were not a natural disaster, and that therefore the insurer, Travelers Property Casualty Company of America, did not have the right to deny coverage based on its flood-exclusion policy.
Xavier was one of several Gulf Coast universities that sued after its insurers refused to pay for the damages.
"This was a great ruling for Xavier and for all institutions in Louisiana," said James M. Garner, who argued the case for Xavier. "The policies cover all risks, and the risk here was badly built levees."
He said that because of the insurer's refusal to cover damages, Xavier's president, Norman C. Francis, was forced to borrow tens of millions of dollars to reopen the university.
"Dr. Francis had to spend millions of dollars out of pocket to put the university back together, and this ruling will allow Xavier to come close to getting its money back," Mr. Garner said.
The ruling came in an umbrella case that consolidated numerous claims for damages that resulted from post-Katrina canal breaches. It was the first by a court in Louisiana on insurance claims from Hurricane Katrina, and it followed a ruling by a federal judge in Mississippi that had favored insurance companies that had denied coverage.
"Judge Duval did the right thing, and we're going to look to the other judges to do the same," Mr. Garner said.
Other universities that have sued their insurers include Dillard University, Loyola University New Orleans, and Tulane University. The Dillard and Loyola lawsuits did not specifically involve flood damage, so they were not directly affected by this week's ruling.
Officials at Tulane, which suffered around $400-million in damages, released a written statement saying that they were proceeding with their own suit. Their case is not directly related to the Xavier case but may benefit from it, since Tulane also suffered massive water damage.
"Tulane University is pleased for those policy holders, who the court found were entitled to insurance proceeds for damages arising from Hurricane Katrina," it read. "Judge Duval's recent ruling will go a long way to rebuild the City of New Orleans."
Although he ruled in favor of the homeowners and Xavier, Judge Duval cleared the way for an immediate appeal by the insurance companies. Officials from Allstate and St. Paul Travelers, the corporate office for Travelers Insurance, said on Thursday that they planned to appeal, so the case could drag on for up to a year or more.
"We respectfully disagree with Judge Duval's ruling," Jennifer Wislocki, a spokeswoman for St. Paul Travelers, said. "It is inconsistent with many other court rulings that held that a flood is a flood, whether or not manmade factors are involved. The language in our policies specifically and clearly exclude damage from floodwater."
Lawyers have said they expect this week's ruling, if upheld, will cost the insurance industry more than $1-billion.