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Hurricane Katrina Appeal Could Affect Thousands of Insurance Claims

Aug 7, 2007 | Parker Waichman LLP, LLP A case being appealed by Nationwide Insurance Company in Federal court could have far reaching consequences for thousands of Mississippi citizens hit hard by  Hurricane Katrina.  The 5th U.S. Circuit Court of Appeals heard arguments on Monday in the case of a Pascagoula, Mississippi couple who had sued Nationwide in an effort to get the insurer to cover more of the damage to their home.  Though Nationwide won at trial, the insurer is appealing part the trial court’s verdict because the outcome could affect how it and other insurers cover Hurricane Katrina damage.

The Nationwide appeal centers around a provision in homeowners’ policies called “anticoncurrent causation.”  Basically these clauses enable insurers to deny claims if damage is caused by both wind and water.  Most homeowners’ insurance policies do not cover flood damage.  Critics of these policies say they are vague, and are interpreted by insurance companies to deny claims that they really should pay.

Paul and Julie Leonard’s home was damaged by Hurricane Katrina in 2005.  The couple estimated the total damage to their home at $130,253.  But Nationwide only paid the Leonard’s $1,661.00, saying that most of the damage to the home was the result of storm surge.  In 2006, the Leonards took Nationwide to court.  Their case was heard by U.S. District Judge L.T. Senter Jr, and was held without a jury.  Senter ruled that Nationwide was not responsible to pay for damage from Katrina’s storm surge, however, he did order the insurer to pay the couple an additional $1,228 for wind damage.   Senter had ruled that the  anticoncurrent causation provision in the Leonard’s policy  was “ambiguous” and could not be enforced.  Though the case was a victory for Nationwide, the ruling on anticoncurrent causation could force it and other insurance companies to pay out more in damage claims to hurricane victims.

The Leonard’s dropped their appeal of Senter’s ruling in July.  But Nationwide is appealing his finding on the anticoncurrent causation provision.  On Monday, Nationwide’s lawyer argued before a three-judge panel that Senter’s ruling gave “enormous leverage” to policyholders, and that his ruling was impractical because in many cases, it cannot be determined if damage was caused by wind or water.  However the court decides the case, it will have an enormous effect on other Katrina claims.

This is not the first Katrina case the 5th Circuit has heard, and it has a record of ruling in favor of insurance companies.  On Monday, the court upheld the dismissal of lawsuits filed by another group of Katrina homeowners who said that Louisiana law required insurers to pay for the full value of wind damaged homes, even if a flooding was responsible for the home’s destruction.  The 5th Circuit said that Louisiana’s Value Policy Law does not apply when a covered peril like wind is not solely responsible for a home’s destruction.  

And last week, the court ruled that insurance companies do not have to pay for damage that resulted when floodwater from broken levees destroyed homes and businesses in New Orleans.  That decision overturned a ruling by a U. S. District Court Judge that found in favor of the homeowners. In that case, the judge had ruled that the flooding caused by the levee failure was a manmade disaster that insurers were obligated to cover.  The 5th Circuit court said that insurers do not have to pay for flood damage, even if it was not the result of an “act of God.”

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