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Ruling in Katrina levee suit favors insurers


NEW ORLEANS--A three-judge federal appeals court panel ruled Thursday that the flood exclusion in Louisiana commercial and homeowners policies precludes recovery for water damage sustained when levees failed after Hurricane Katrina struck New Orleans in September 2005.

A group of about 40 policyholders held that the exclusion should not apply because the levees had been poorly designed and built. In a ruling issued on Nov. 27, 2006, a U.S. district court judge drew a distinction between natural and manmade flooding, holding that the language in most of the policies involved was ambiguous regarding manmade flooding and therefore allowed the coverage suit to proceed. About a dozen insurers named as defendants in the case appealed.

A three judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans, however, ruled against the policyholders Thursday. The panel noted the policyholders' arguments but held "we conclude, however, that even if the plaintiffs can prove that the levees were negligently designed, constructed or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs' policies unambiguously preclude their recovery."