In re Katrina Canal Breaches Litigation

On August 29, 2005, Hurricane Katrina hit New Orleans, Louisiana, and caused significant water damage to most of the city. This litigation represents over forty separate suits by plaintiffs suing their insurance companies. All plaintiffs hold insurance policies with “flood exclusions.” Hanover Insurance Company (Hanover), Standard Fire Insurance Company (Standard Fire), and Unitrin Preferred Insurance Company (Unitrin) (defendants) provide insurance coverage to most of the plaintiffs (collectively, Vanderbook plaintiffs). These policies exclude coverage for “Water Damage, meaning:…Flood, surface water, waves, tidal water, over-flow of a body of water, or spray from any of these, whether or not driven by wind…” Mary Jane Silva (plaintiff) and Robert G. Harvey, Sr. (plaintiff) were insured by State Farm Fire and Casualty Company (“State Farm”). State Farm provided a similar insurance policy and flood exclusion to that provided by Hanover, Standard Fire, and Unitrin. The only difference is that State Farm prefaced its flood exclusion by saying that the exclusion applied to water damage arising “from natural or external forces.” After Hurricane Katrina, Hanover, Standard Fire, Unitrin, and State Farm denied coverage to the plaintiffs holding policies with flood exclusions. The Vanderbrook plaintiffs, Silva, and Harvey brought suit against Hanover, Standard Fire, Unitrin, and State Farm in federal district court, seeking to enforce their insurance policies. The plaintiffs argued that the term “flood” was ambiguous in their insurance policies. The plaintiffs argued that because the water damage was caused by an inundation of water from canals due to the breaking of man-made levees during Hurricane Katrina, the damage should not be considered the result of a “flood” and should thus be covered by their insurance companies. The district court held that the term “flood” in the Hanover, Standard Fire, and Unitrin policies was ambiguous as it could be interpreted as referring to water damage from either natural or unnatural causes. The district judge held that these different types of “floods” should be treated differently and based on the ambiguity in the insurance policies, denied the motions to dismiss of Hanover, Standard Fire, Unitrin. The district judge did not find ambiguity, however in State Farm’s flood exclusion policy because of its lead-in statement saying that the exclusion applied to damage from “natural or external forces.” The district judge granted State Farm’s motion to dismiss. All plaintiffs appealed.