Court rules against La. Katrina victims

Thu Aug 2, 2:19 PM ET

NEW ORLEANS - A federal appeals court ruled Thursday against Hurricane Katrina victims who argued their insurance policies should have covered flood damage caused by levee breaches that flooded 80 percent of New Orleans during the 2005 storm.

The case could affect thousands of rebuilding residents and business owners in Louisiana. An insurance expert had said a ruling against the industry could have cost insurers $1 billion.

"This event was excluded from coverage under the plaintiffs' insurance policies, and under Louisiana law, we are bound to enforce the unambiguous terms of their insurance contracts as written," Judge Carolyn King wrote for a three-judge panel of the 5th U.S. Circuit Court of Appeals.

As a result, she said the panel found those who filed the suit "are not entitled to recover under their policies."

The panel overturned a November decision by U.S. District Judge Stanwood Duval Jr., who had sided with policyholders arguing that language excluding water damage from some of their insurance policies was ambiguous.

Duval said the policies did not distinguish between floods caused by an act of God — such as excessive rainfall — and floods caused by an act of man, which would include the levee breaches following Katrina's landfall.

But King wrote the appeals panel concluded 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."