Insurers continued an impressive record of securing reversals on appeal from adverse coverage decisions in Katrina related litigation. The two latest cases were issued on consecutive days, one by the Fifth Circuit Court of Appeals in Broussard v. State Farm Fire and Casualty Co., No. 07-60443 (5th Cir. April 7, 2008) and the other by the Louisiana Supreme Court in Sher v. Lafayette Ins. Co., No. 07-C-2441 (La. April 8, 2008).
Broussard was the fourth important Katrina case in which the Fifth Circuit reversed decisions issued by the district court. See In Re Katrina Canal Breaches Litigation, 495 F.3d 191 (5th Cir. 2007)(overturning district court’s decision that flood exclusion is ambiguous); Leonard v. Nationwide Mutual Ins. Co., 499 F.3d 419 (5th Cir. 2007)(reversing district court’s determination that anti-concurrent cause provision is ambiguous); Tuepker v. State Farm Fire & Casualty Co., 507 F.3d 346 (5th Cir. 2007)(also reversing district court’s ruling that anti-concurrent cause provision is ambiguous).
Broussard addressed allocating the burden of proof in determining whether there is coverage for a total loss to a house caused both by wind (covered peril) and flood (excluded peril). The district court placed the burden in the insurer to establish by a preponderance of the evidence that a portion of the loss was attributable to the excluded flooding. Consequently, the district court granted a Judgment as a Matter of Law in the homeowner’s favor, finding there was no evidence upon which the finder of fact could rationally determine that State Farm had met its burden to demonstrate no damage was caused by wind.
The Fifth Circuit reversed. Two of State Farm’s experts testified that Katrina’s winds were not strong enough to cause structural damage to the home. Therefore, State Farm’s evidence was more than sufficient to withstand a motion for Judgment as a Matter of Law. The Court followed its burden of proof discussion from Tuepker. The insured still had the basic burden of proving a right to recover under the policy. The insurer then bore the burden of proving that a particular peril fell within a policy exclusion. The case was remanded with instructions that the parties must meet their burdens of proof. The ultimate allocation of wind and water damage was a question of fact for the jury.
In the Sher case, both the trial court and Court of Appeals found the flood exclusion was ambiguous because it did not exclude man-made floods, only naturally caused floods. The flood exclusion in Sher was similar to the flood exclusion used in homeowner’s policies issued in Hawaii:
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss:
. . .
g. Water [including flood].
The Louisiana Supreme Court unanimously reversed. The Court determined, “The plain, ordinary and generally prevailing meaning of the word ‘flood’ is the overflow of a body of water causing a large amount of water to cover an area that is usually dry.” The Court added, “This definition does not change or depend on whether the event is a natural disaster or a man-made one – in either case, a large amount of water covers an area that is usually dry. The plain, ordinary and generally prevailing meaning is all-inclusive.”
Although policyholders scored some early victories in the Katrina litigation, insurers have successfully overturned adverse trial court decisions on appeal.
