Water from Broken Levees Falls within Insurance Policy Flood Exclusion

In Sher v. Lafayette Insurance Co. (La. 2008), an apartment unit was flooded when levees failed immediately following Hurricane Katrina. The insurer inspected the property to determine the amount of covered loss and concluded that most of the building’s damage was due to poor maintenance, disrepair, and flooding. Checks totaling slightly more than $2,700 were tendered but rejected. Although the term “flood” was not defined in the policy, the Louisiana Supreme Court rejected the argument that the definition depended on whether the event resulted from a natural disaster or a man-made one, instead focusing on the prevailing meaning of the word “flood,” i.e., the overflow of a body of water causing a large amount of water to cover an area that is usually dry. Accordingly, the court did not find the term ambiguous, and found that the levee breaches were covered by the flood exclusion.

Moreover, the court also concluded that the flood at issue was not caused by a man made event, and that the levees were intended to prevent the flood. (Emphasis court’s.) The court also concluded that modifications to Louisiana’s statutory provisions that impose a continuing duty of good faith and fair dealings, La. R.S. 22:658, does not apply retroactively and that while the duty is a continuing obligation, the claim against the insurer was first made prior to the statutory amendments that would have provided relief. Accordingly, the insurer was not responsible for penalties and attorneys’ fees for its failure to make payments within the requisite period of time after receiving satisfactory written proof of loss.