Court: Court of Appeals for the Fifth Circuit; August 2, 2007; Federal Appellate Court
On August 29, 2005, Hurricane Katrina struck the Gulf Coast, causing significant damage, particularly in New Orleans, where levees on the 17th Street, Industrial, and London Avenue Canals ruptured. This led to widespread flooding, submerging approximately eighty percent of the city. Plaintiffs—policyholders with homeowners, renters, or commercial-property insurance—sought recovery for property damage despite their policies excluding coverage for 'flood' damage. They argued that the inundation resulted from negligent levee design and maintenance, claiming the flood exclusions were ambiguous in this context.
However, the court determined that regardless of any negligence, the flood exclusions in the policies unambiguously prevented recovery. The failure of the flood-control structures, leading to extensive flooding, fell under the exclusion provisions, which are enforceable under Louisiana law. The opinion indicated that the plaintiffs cannot recover under their insurance policies.
The cases discussed are part of over forty related cases consolidated in the Eastern District of Louisiana. Specifically, the Vanderbrook action involves plaintiffs claiming damage from a broken levee wall, asserting that the water intrusion was not due to a flood as defined by their policies.
The Vanderbrook plaintiffs claim their insurers, Hanover Insurance Company, Standard Fire Insurance Company, and Unitrin Preferred Insurance Company, have unjustly denied coverage for losses stemming from a sudden levee breach, which is not explicitly excluded in their policies. They argue that these policies are contracts of adhesion, overly complex, and beyond their comprehension, rendering the exclusions unconscionable and void. The plaintiffs seek compensatory damages, additional damages for arbitrary insurer conduct, interest, expert fees, and attorney fees. The policies in question include flood exclusions that deny coverage for losses caused by water damage, but the plaintiffs contend that the exclusions should not apply to losses caused by negligence. The case was moved to federal court based on diversity jurisdiction, where the insurers filed motions for judgment on the pleadings, asserting the losses were excluded. However, the district court denied these motions, finding that the policies covered water damage from levee breaches induced by negligence. The court also held the flood exclusions to be ambiguous, as "flood" could refer to both natural and negligent causes, based on multiple interpretative sources.
The court analyzed the term 'flood' using dictionary definitions, concluding it referred to natural events from rain or tide. It examined previous case law regarding 'water damage' and 'earth movement' exclusions, noting a distinction between natural and non-natural occurrences. The court dismissed interpretations that extended flood exclusions to water inundation from dam or dike failures. Finding the term 'flood' ambiguous, the district court interpreted the Hanover, Standard Fire, and Unitrin policies in favor of the insureds, ruling that water damage from a levee rupture due to inadequate design or maintenance was covered. Since plaintiffs alleged the post-Katrina flooding in New Orleans resulted from negligent levee management, the court determined that they could succeed if they proved their claims, leading to the denial of motions from Hanover, Standard Fire, and Unitrin.
In contrast, for State Farm's policies, the court found the flood exclusion's 'lead-in' clause unambiguously excluded coverage for all flood-related losses, regardless of the cause, and thus granted State Farm’s motions to dismiss.
In the Xavier action, Xavier University sued Travelers Property Casualty Company for over $30 million in damages from Hurricane Katrina, without specifying the damage's cause in the complaint. Xavier claimed Travelers failed to pay for the damages despite filing a claim. The policy included a flood exclusion covering losses from various water sources. Xavier sought partial summary judgment to assert that the damage resulted from groundwater due to levee failures caused by human actions and was covered under the policy. The district court partially granted this motion, ruling that water damage from negligent levee failure was covered, but denied the motion regarding the actual cause of damage, citing unresolved material questions of fact.
In the Chehardy action, thirty individuals and one corporation (the Chehardy plaintiffs) claim their real and personal property was damaged or destroyed due to flooding in New Orleans after Hurricane Katrina. They are pursuing a putative class action against thirteen insurance companies, including a subgroup referred to as the 'ISO Defendants,' which utilized policy forms from Insurance Services Office, Inc. Key defendants include Lafayette Insurance Company, Liberty Mutual Fire Insurance Company, and State Farm, among others.
The amended complaint details that after Hurricane Katrina made landfall on August 29, 2005, the New Orleans levee system failed at multiple points, resulting in significant flooding—up to eight feet in some areas—leading to the submersion of approximately eighty percent of Orleans Parish. The plaintiffs attribute their property damage to these levee failures, claiming negligence in the design, construction, or maintenance of the levees by third parties. They reference engineering reports indicating that the flooding was not due to levee overtopping but rather failures linked to inadequate design and materials.
Additionally, the complaint highlights testimony from the Chief of the Army Corps of Engineers regarding the Corps' oversight of levee integrity under pressure and mentions an incident where an inadequately moored barge contributed to a levee breach. The plaintiffs assert they were covered under all-risk insurance policies and allege that their claims were denied despite the timely filing of those claims. While acknowledging flood exclusions in their policies, they argue these should not broadly negate coverage for damages resulting from levee failures, as such interpretations would contradict the purpose of all-risk policies. They contend that typical Louisiana policyholders would not consider levee failures as 'flood' events and criticize the insurers for using vague and ambiguous language in their policy exclusions. The plaintiffs assert that unlike other insurance policies, their policies do not explicitly exclude damages from levee failures.
Chehardy plaintiffs seek a declaratory judgment asserting that the causes of their damages—windstorm, negligence, and storm surge—are covered perils, contending that the breaches in levee boundaries do not constitute a 'flood' under their insurance policies. They claim breach of contract, breach of the implied covenant of good faith and fair dealing, and insurance bad faith under Louisiana law, as well as breach of fiduciary duty against various insurers. The plaintiffs did not provide their insurance policy language in their complaint; instead, the defendants attached policy copies to their dismissal motions. The relevant policies from American, Auto Club, Hanover, Lafayette, Lexington, Liberty Mutual, Standard Fire, and Louisiana Citizens are similar, covering direct physical loss to property unless an exclusion applies, notably including a flood exclusion that denies coverage for losses related to water damage. Aegis’s policy omits a specific exclusion clause but retains a similar flood exclusion. The Great Northern policies and Allstate policies provide comparable coverage for physical loss to property but also include exclusions for flood-related damages. Definitions within these policies clarify that losses caused by any contributing factor related to excluded perils are not covered.
State Farm's policies in the Chehardy action mirror those in the Vanderbrook action. All defendants, except State Farm, had their Rule 12(b)(6) motions to dismiss denied by the district court for similar reasons as in Vanderbrook. However, State Farm's motion to dismiss was granted based on the same rationale applied in the Vanderbrook case. The court denied dismissals for extra-contractual claims without prejudice, allowing for reassertion later after the appeal's resolution.
In the Humphreys action, Kelly A. Humphreys sued Encompass Indemnity Company in Louisiana state court, alleging that her property was damaged during Hurricane Katrina due to a levee and storm wall collapse caused by inadequate maintenance from the Orleans Levee District. She claims the collapse, rather than flooding or surface water, was the efficient proximate cause of her losses. Humphreys asserts that Encompass failed to cover her losses despite her policy including coverage for direct physical loss to real and personal property from enumerated perils, subject to water-damage exclusions. The policy specifically excludes losses from flood-related events and includes a hurricane deductible that applies to losses caused by a hurricane, without other deductible provisions applying. Humphreys seeks compensatory damages, attorney’s fees, and treble damages under Louisiana law.
Hurricane is defined as a storm system, including wind, hail, rain, and tornadoes, that leads to direct physical loss or damage to property and is officially declared by the National Weather Service. In the Humphreys case, on June 12, 2006, a settlement was reached between Humphreys and Encompass Indemnity, dismissing with prejudice the wind-damage claims and the bad-faith claim, with the remaining claim focusing on flood/rising water damage under the insurance policy. Following this, Humphreys sought partial summary judgment to confirm coverage for flood damage based on the policy's hurricane-deductible endorsement. During oral arguments, her counsel referenced similar cases (Chehardy, Vanderbrook, and Xavier) regarding the flood exclusion's ambiguity, leading the district court to interpret her motion as encompassing this issue as well.
The district court partially granted and partially denied her motion, ruling that the hurricane-deductible endorsement did not extend coverage. However, it found coverage for the alleged damages under her policy, granting partial summary judgment in her favor. The district court certified the orders for appeal, highlighting a significant legal question and the potential to advance litigation. All parties, except State Farm, appealed the order regarding water damage from levee breaches and the Chehardy and Vanderbrook plaintiffs cross-appealed the dismissal of their claims. Humphreys also cross-appealed the denial of her motion concerning the hurricane-deductible endorsement.
The standard of review for a motion to dismiss under Rule 12(b)(6) is de novo, requiring that all well-pleaded facts be taken as true and viewed favorably towards the plaintiff. To survive a motion to dismiss, the plaintiff must present sufficient facts to establish a plausible claim for relief. If external materials, such as insurance contracts, are considered by the court but not excluded, the motion may be treated as one for summary judgment.
Defendants' motions to dismiss included contracts that are referenced in the plaintiffs' complaints and are essential to the plaintiffs' claims, allowing the court to consider the contracts' terms. According to established case law, documents attached to a motion to dismiss can be included in the pleadings if they are central to the claims made. The district court's ruling on a Rule 12(c) motion for judgment on the pleadings is reviewed de novo, using the same standard as for a Rule 12(b)(6) motion, focusing on whether the complaint, viewed in the light most favorable to the plaintiff, states a valid claim for relief. Summary judgment is also reviewed de novo, requiring no genuine issues of material fact and entitlement to judgment as a matter of law for the non-moving party.
In diversity cases, federal courts apply state substantive law, determined by the forum state's choice-of-law rules. In this instance, Louisiana law governs due to the nature of the insurance policies involved. The court relies on final decisions from the Louisiana Supreme Court, and in their absence, makes an "Erie guess," interpreting how the court would likely rule. This involves prioritizing primary legal sources, such as the Louisiana Constitution and Civil Code, while jurisprudence from intermediate courts is considered but not strictly binding. Under Louisiana law, insurance policies are contracts interpreted according to the general rules of contract interpretation, focusing on the common intent of the parties and the entirety of the policy's terms, including any attached riders or endorsements.
Interpretation of an insurance contract is primarily a legal matter, requiring that contract language be understood according to its common meaning. When contract terms are clear and explicit, further interpretation is unnecessary, and the contract should be enforced as written. Ambiguities in policy wording must be resolved by analyzing the policy as a whole, ensuring that all provisions are considered in relation to one another. Terms with multiple meanings should be given the interpretation that best aligns with the contract's purpose and effectiveness.
The reasonable-expectations doctrine may also be applied, determining how a typical policyholder would understand the clause at the time of contract formation. Courts should interpret policies to meet the reasonable expectations of the parties, informed by industry customs. When ambiguity persists after applying standard interpretative rules, the ambiguous provision is construed against the drafter, or in the context of insurance, in favor of the insured.
Louisiana Civil Code Article 2056 states that doubtful provisions should be interpreted against the party that provided the text. Standard-form contracts favor the non-drafting party in cases of doubt. Under strict construction, provisions limiting an insurer's obligations are interpreted against the insurer, but this applies only if the provision is reasonably open to multiple interpretations. A term's lack of definition in the policy does not inherently create ambiguity.
Insurance contracts must not be interpreted in an unreasonable manner to expand or restrict their provisions beyond the intention of clear terms. Courts cannot alter unambiguous contract terms under the guise of interpretation. The policies in question—homeowners, renters, and commercial-property policies—are all-risk policies, which cover losses not typically included in other insurance types, except where exclusions are specifically stated. Insurers retain the right to limit their liability under these all-risk policies.
Insurers are generally allowed to limit their liability and establish reasonable conditions in their policies, provided there is no conflict with statutory provisions or public policy. Exclusionary provisions in insurance contracts are interpreted against the insurer, with any ambiguities favoring the insured. In this case, plaintiffs argue that their policies’ flood exclusions do not clearly exclude coverage for damages from water inundation due to breached levees, particularly where negligence in design or maintenance is involved. They claim the term "flood" is ambiguous, necessitating a broad interpretation in favor of coverage. Conversely, insurers assert that the policies clearly exclude such flood-related damages. The Louisiana Supreme Court has not addressed flood exclusions in the context of levee breaches, requiring a judicial estimate of how the court would rule.
Plaintiffs argue that the lack of a definition for "flood" in the policies creates ambiguity; however, courts typically interpret undefined terms based on their common meanings. The plaintiffs also contend that insurers’ failure to explicitly exclude floods caused by negligence indicates ambiguity. They reference evidence that insurers were aware of policy forms that more clearly excluded negligence-related floods but chose not to revise their language, suggesting a deliberate omission.
The district court analyzed flood exclusions in various insurance policies, noting that State Farm and Hartford Insurance Company successfully excluded water damage from negligent acts with minimal effort. The court emphasized that the potential for clearer wording does not inherently create ambiguity. It cited legal precedents to support the notion that a policy's clarity must be upheld unless it leads to absurd results. The appellate court incorrectly concluded that because some policies explicitly defined "relative" to include foster children, the term was ambiguous in the policy at issue. Instead, the term should be interpreted using its plain and ordinary meaning as defined in the specific policy. The court reaffirmed that the insurance contract sets the limits of liability and should be enforced as written, rejecting claims of ambiguity based on other policies' language. Additionally, the court stated that when exclusions are not immediately clear, the standard rules of contract interpretation from the Civil Code apply, which prioritize the common meanings of terms. It highlighted that having multiple definitions for a term does not constitute ambiguity, and the definition that best fits the context should be used.
A word with dual meanings, one broad and one narrow, does not imply that the narrower meaning was intended, as established in *Comm. Union Ins. Co. v. Advance Coating Co.* (1977) and supported by *Falgout v. Walter Jester, Hampton Inc.* (2004). Definitions of "flood" from various dictionaries, including the Oxford English Dictionary, Webster’s Dictionary, and Black’s Law Dictionary, highlight its meaning as an overflowing of water onto land typically not submerged. Notably, Black's eighth edition does not define "flood" but includes "floodwater" as water escaping a watercourse. The American Heritage Dictionary simplifies "flood" to mean an overflow of water onto normally dry land. The Columbia Encyclopedia further specifies that floods can arise from levee failures and extreme rainfall, citing historical examples like the Johnstown flood of 1889. Treatises such as Appleman's Insurance Law and Practice and Couch on Insurance also define "flood" in similar terms, emphasizing its overflow characteristics. Jurisprudence, including the case *Riche v. State Farm Fire & Casualty Co.* (1978), interprets policy exclusions related to "flood" broadly, encompassing various water-related incidents.
In Riche, the plaintiff sought recovery for fishing gear lost when his boat sank during a windstorm, claiming coverage under his homeowners insurance policy. The court ruled that the policy's water-damage exclusion did not apply, as it only pertained to damage on land normally dry and not to incidents on a body of water. This limited the relevance of Riche to cases involving water damage on land. Other courts have interpreted similar flood exclusions as covering water damage resulting from structural failures, such as dam breaches. In Kane v. Royal Ins. Co., the Colorado Supreme Court found that the term "flood" included damage from a dam failure that inundated normally dry land, affirming that such inundation fell within the exclusion’s language. Similarly, Wallis v. Country Mutual Insurance Co. defined "flood" as water escaping from a defined watercourse in large volumes, regardless of whether the watercourse was natural or man-made. These interpretations emphasize that the definition of "flood" is generally understood to exclude coverage for damage occurring on bodies of water but includes inundation of dry land.
A man-made watercourse, if permanent and maintained over time, can be considered a natural watercourse. The Wallis court determined that water overflowing a man-made creek and damaging a plaintiff's property constituted a flood, thereby excluding the plaintiff's loss from coverage under his insurance policy's flood exclusion. The definitions of flood are unambiguous, describing it as an event where water overflows its normal boundaries and inundates typically dry land. This was evident in New Orleans after Hurricane Katrina, where the 17th Street, Industrial, and London Avenue Canals overflowed due to levee failures, resulting in widespread flooding.
Levees are designed to prevent floods by holding back water, and their failure leads to more extensive flooding, regardless of the reasons behind the levee's failure. The plaintiffs attempted to argue that “flood” should only refer to naturally caused inundations, citing cases related to broken water mains and applying rules of legal interpretation suggesting that only natural causes should be considered. However, the argument overlooks the significant natural factors contributing to the flooding, such as the hurricane itself. While the plaintiffs attribute the flooding to negligent levee design and maintenance, this perspective neglects the inherent natural disaster that triggered the circumstances leading to the flood.
Man's inadequate preparation for natural disasters cannot solely transform those disasters into non-natural events that would fall outside an insurance policy's exclusion. If such a transformation were possible, insurers would struggle to exclude any loss from a natural event, as any disaster could be recharacterized based on human actions or inactions. The plaintiffs argue that the term "flood" should be limited to natural events; however, dictionary definitions do not differentiate between floods caused by natural and artificial means. The Columbia Encyclopedia notes that floods can result from levee failures, and legal treatises support that a flood may arise from either natural or artificial causes.
The plaintiffs reference case law from incidents involving broken water mains, suggesting that "flood" is ambiguous and applies only to water from natural sources. Cases such as Ferndale Development Co. v. Great American Insurance Co. and Ebbing v. State Farm Fire and Casualty Co. establish that the term "flood" is commonly understood to involve natural events, while other rulings, like Popkin v. Security Mutual Insurance Co. of New York, indicate that the term connotes inundation from natural sources. However, despite the outcomes in these water-main cases, the distinction between natural and non-natural causes is deemed inapplicable in the current context, as water mains do not qualify as bodies of water or watercourses.
Definitions of "flood" generally describe it as an overflow of water from a body or watercourse. Appleman's treatise specifies that floodwaters typically originate from natural water sources. In cases involving water-main breaks, the classification of such incidents as floods is ambiguous, as water mains do not clearly fit the definition of a body of water. Legal precedents, such as Kane, highlight this ambiguity, contrasting the nature of water-main ruptures with that of overflowing watercourses. Couch on Insurance emphasizes that distinguishing between natural and artificial causes of inundation may lead to inconsistencies, suggesting that the definition of a flood should focus on the overflow aspect. When inundation arises from a body of water, it qualifies as a flood; otherwise, such as in a water-main break, it does not. Additionally, the volume of water from a broken water main is typically less significant than that from major flood events like breached levees, which are designed to manage floodwaters. The nature of levees as flood-control structures distinguishes them from water mains, as levees interact directly with floodwaters, irrespective of their man-made status.
Levee failures are attributed to inadequate construction, either in height or footing stability, leading to overtopping or instability. Even if a levee does not fail, it can redirect floodwaters downstream, creating floods in those areas due to the levee's design. The presence of a levee introduces a non-natural element to floods, but this does not change the nature of the floodwaters. Citing the case Smith v. Union Auto. Indem. Co., it is established that surface water remains classified as such despite interaction with man-made structures. The court rejects the idea that distinguishing between natural and non-natural causes would undermine flood exclusions, as this could lead to illogical outcomes. The plaintiffs argue that specific canons of construction—noscitur a sociis and ejusdem generis—suggest “flood” refers only to natural events because other terms in water-damage exclusions refer to natural occurrences. However, the court disagrees, stating that the surrounding terms can also encompass non-natural events, as demonstrated by various cited cases. Consequently, the canons do not support the plaintiffs’ restrictive interpretation of “flood.”
"Flood" is specifically defined within the context of "water damage" and should not be interpreted ambiguously. Distinguishing between natural and non-natural floods would introduce uncertainty into an otherwise clear term, which is contrary to legal principles that prevent creating ambiguity. The plaintiffs argue that homeowners would reasonably expect coverage for damage from man-made floods; however, Louisiana law does not allow the reasonable expectations doctrine to alter clear policy language. The flood exclusions in the insurance policies at issue are unambiguous, negating the need to consider policyholder expectations.
While some courts suggest that all-risk policies imply heightened expectations of coverage, there is no Louisiana precedent supporting this notion. All-risk policies cover unforeseen losses unless explicitly excluded, which is the case here, as each policy clearly excludes flood damage. The term "flood" is generally understood to include significant water inundation, such as that from a breached levee, and a reasonable policyholder would not expect such damage to be covered under an all-risk policy.
Additionally, the plaintiffs claim that policies with a "Hurricane Deductible Endorsement" would lead reasonable policyholders to expect coverage for hurricane-related damage. One example cited is from Humphreys’s policy, which states that the deductible applies to losses from hurricanes as defined in the policy. However, the existence of such endorsements does not negate the flood exclusions present in the policies.
The deductible for hurricane-related losses is applicable regardless of other causes contributing to the loss. It cannot be lower than the property deductible specified in the Coverage Summary. A hurricane is defined as a storm system declared by the National Weather Service that causes direct physical loss or damage through wind, hail, rain, or similar conditions. The plaintiffs believe this language implies coverage for water damage, while Humphreys argues that the hurricane-deductible endorsement expands coverage to all property damage caused by hurricanes. However, the language of the endorsements only modifies the deductible for hurricane damage and does not extend coverage to floods or restrict flood exclusions, as floods are not included in the definition of "hurricane." The endorsements affirm that all other policy provisions remain effective, meaning flood exclusions are still applicable. Several defendants argue that the existence of the National Flood Insurance Program (NFIP) indicates a reasonable policyholder wouldn't expect standard homeowners' policies to cover flooding, as flood coverage must be purchased separately through the NFIP. Plaintiffs counter that the NFIP's relevance is limited and suggest that naturally occurring floods should be covered by the NFIP, while floods caused by negligence should be covered under standard policies. The decision does not rely on the NFIP for its conclusion but acknowledges that the NFIP's definition of "flood" aligns with the interpretation that flood exclusions in the policies unambiguously prevent the plaintiffs' recovery. The NFIP defines "flood" as the inundation of land or properties from various water sources.
Unusual and rapid accumulation or runoff of surface waters, including mudflows, is categorized as a flood under the National Flood Insurance Program (NFIP), which does not differentiate between natural and man-made levee failures. The overflow of canals in New Orleans during a hurricane constituted a flood as per NFIP definitions, resulting in significant property damage and being excluded from coverage under all-risk policies held by the plaintiffs. The court found the flood exclusions to be clear and unambiguous, rejecting the district court's contrary conclusion.
The doctrine of efficient proximate cause applies when a loss arises from both covered and excluded risks; if the covered risk is the primary cause, the loss may be covered. However, many insurance policies include anti-concurrent-causation clauses that explicitly exclude coverage for losses caused directly or indirectly by floods, irrespective of other contributing factors. The district court deemed these clauses inapplicable, asserting that the plaintiffs' damage did not stem from multiple causes but solely from the flood itself, rendering claims of negligent design or maintenance of the levees as intertwined with the flood cause.
The court indicated that it would not address the anti-concurrent-causation clauses at the current stage but acknowledged they may need consideration later. Several insurers cited these clauses on appeal to argue that floods are excluded from coverage regardless of their cause. The Chehardy plaintiffs contended that the district court correctly ruled these clauses were inapplicable, arguing that their damages stemmed from man-made inundation or third-party negligence, which they asserted were covered perils. Xavier supported the district court's position, noting that the anti-concurrent-causation clause was irrelevant because there was no distinct cause of damage besides the flood itself.
The court affirmed that the efficient-proximate-cause doctrine, which applies when multiple distinct causes contribute to a loss, was not applicable since the sole cause of damage was the flood. Even if negligence in levee maintenance contributed to the flood, it was not an independent cause, as it merely served as a factor in the flooding event. The plaintiffs’ attempt to recharacterize their damages as stemming from negligence rather than water damage was rejected, reinforcing that one cannot evade contractual exclusions by altering the characterization of the cause. The court referenced prior cases to illustrate that if a loss is attributed to a single cause, even if it can be described in various ways, the efficient-proximate-cause analysis does not apply. Thus, categorizing the cause differently does not change the applicability of insurance exclusions.
In Kish v. Insurance Co. of North America, the court ruled that an insured party could not circumvent a flood exclusion by labeling the flood as rain. The court determined that the loss was caused solely by rain-induced flooding, which was explicitly excluded from coverage, and the efficient-proximate-cause rule did not apply. Similarly, attempts by the plaintiffs to redefine the flood as negligence were rejected, as the underlying cause of their losses remained excluded. The court clarified that the applicability of anti-concurrent-causation clauses or the efficient-proximate-cause rule was unnecessary to discuss since there was only one cause for the losses.
In the Vanderbrook case, the district court's grant of State Farm’s motion for judgment on the pleadings was affirmed, while the denials of Hanover and Standard Fire's motions were vacated and remanded. For the Xavier action, the motion to certify questions to the Louisiana Supreme Court was denied, and the court's partial summary judgment in favor of Xavier was vacated and remanded. The Chehardy action saw the motion to certify questions also denied, with the district court’s partial grant of State Farm’s motion to dismiss affirmed, while the denials of various insurers' motions regarding declaratory judgment and breach of contract claims were vacated and remanded. In the Humphreys action, the denial of Humphreys's partial-summary-judgment motion regarding the hurricane-deductible endorsement was affirmed, but the partial summary judgment in favor of Humphreys regarding the flood exclusion was vacated and remanded.
The appeals court affirmed certain decisions while vacating and remanding others for further proceedings, ordering the appellees to bear the costs of the appeal. Additionally, the Humphreys case, initially consolidated with others, was severed at the district court's discretion. The appeal did not concern the claim against the Board of Commissioners for the Orleans Levee District. The court noted a lack of complete documentation regarding Madeline Grenier’s policy, instructing the district court to obtain a full copy for interpretation consistent with its ruling. The Chehardy plaintiffs were listed in detail.
The amended complaint classifies policyholders as owners of immovable property with improvements, primarily in Orleans, St. Bernard, and Jefferson Parishes, Louisiana, whose property was damaged by Hurricane Katrina, exceeding their policy deductibles, and not reimbursed by insurance. The class excludes members of the judiciary and related personnel. The district court noted difficulties in identifying which plaintiffs were insured by which defendants due to a lack of clarity in the records, though it was asserted that all insurers had at least one policy for a plaintiff. The court found insurance policies for most named plaintiffs, except for Wendell Glation and Andre and Marilyn Mauberret, for whom the record was supplemented. It concluded that the district court should determine the specific insurance coverage on remand. Minor variances in policy language were deemed irrelevant to the appeal. Additionally, Humphreys added the Orleans Levee District as a defendant, though her claims against it are not part of the current appeal. Encompass Indemnity contested the district court's ruling on the flood exclusion, arguing it lacked proper notice under Rule 56(c) before the summary judgment was granted. The court found the summary judgment erroneous regardless of the notice issue. It reiterated that a claim should only be dismissed under Rule 12(b)(6) when no set of facts can support relief, referencing the precedent established in Conley v. Gibson and clarified by Bell Atlantic, which revised the standard for adequate pleading.
Motions from Xavier and the Chehardy plaintiffs to certify questions for the Louisiana Supreme Court are denied. The court acknowledges the absence of a definitive ruling on flood exclusion interpretation but deems this insufficient for certification per Rule XII. The court cites precedent indicating that lack of a clear answer from the state supreme court does not alone justify certification, as the Louisiana Civil Code offers adequate grounds for decision. The Chehardy plaintiffs reference Hendricks, arguing that undefined policy terms should be interpreted favorably for policyholders. However, the court clarifies that Hendricks emphasizes determining the common meaning of terms before construal in favor of the insured. Additionally, the case of Arnette is cited, where "professional duty" was deemed ambiguous due to its undefined status in the policy, contrasting with the term "flood," which possesses a generally accepted meaning. The court distinguishes that ambiguity cannot be claimed solely due to a lack of definition when common understanding exists. The plaintiffs also assert that ambiguity in other policies could clarify the current case; however, the court finds the flood exclusions unambiguous as they relate to the facts at hand. Finally, definitions of terms like "irruption" are provided, but the plaintiffs argue distinctions in previous cases on flood exclusions.
The term "rising (including overflowing or breaking of boundaries)" refers to water bodies such as lakes, rivers, and reservoirs. The plaintiffs argue that "breaking of boundaries" encompasses levee breaches. While the reasoning from E.B. Metal may not apply here, there is consensus among courts that the term "flood" is unambiguous in the context of broken dams or levees, and flood exclusions in insurance policies generally prevent recovery. The document does not reference cases like TNT Speed Sport Center or Pakmark Corp., where the occurrence of a flood was undisputed, nor does it consider Florida East Coast Railway due to differing interpretations of flood-related immunity compared to policy exclusions. The flood exclusion in Kane specifies that the insurer is not liable for losses caused by floods and similar water conditions, regardless of whether they are wind-driven. The district court's attempts to distinguish Kane are flawed; it incorrectly claimed that Kane used an overly broad definition of "flood," while Kane actually found the exclusion unambiguous and consistent with Louisiana law, which mandates clear contractual language to be enforced as written. The court also mistakenly asserted that the Kane case involved water overtopping the dam, whereas it was the river that overflowed due to the dam's failure. Lastly, the district court questioned whether Colorado recognizes the doctrine of efficient proximate cause, but this point remains unclear based on Kane's language.
The 'efficient moving cause' rule's relevance is questioned, particularly regarding its effect on policy exclusion terms. Even if Louisiana recognizes this doctrine, it applies only when both a covered and excluded loss are present, which is not the case here. The district court incorrectly equated "overflowing" with "overtopping," despite the latter not being present in dictionary definitions. The term "overflow" is defined as flowing over or flooding, which is broader than "overtop," meaning to rise above. Furthermore, while Xavier cites "Act of God" in relation to floods, Black's Law Dictionary does not equate floods solely with natural events, indicating a broader interpretation. The context of a hurricane introduces a significant natural component to the flood event in question. The discussion also references cases involving "earth movement" exclusions, where a majority of jurisdictions differentiate between natural and non-natural causes. However, applying this distinction to flood-related cases is impractical, as the meanings of "earth movement" and "flood" differ significantly in common usage, and such a distinction would lead to absurd conclusions in the context of levee failures.
Definitions of "body of water" and related terms are provided by various dictionaries, highlighting that a man-made watercourse can be classified as natural if it is permanent and maintained over time. Black’s Law Dictionary states that a permanent watercourse with a defined bed and visible banks is considered natural, regardless of its origin. In this case, the canals in question, despite being man-made, are recognized as watercourses. Overflow from such watercourses can lead to flooding, as established by case law. The document also discusses the interpretation of earth-movement exclusions in insurance policies, with some courts distinguishing between natural and non-natural movements. Notably, there is an acknowledgment that the Louisiana Supreme Court has not definitively ruled on the application of the efficient-proximate-cause doctrine within all-risk policies, though it has addressed it in the context of windstorm insurance, allowing recovery if the windstorm is the dominant cause of loss, irrespective of other contributing factors. The relevance of this doctrine to the current case is deemed inapplicable, while the Vanderbrook plaintiffs and Humphreys align with the arguments of the Chehardy plaintiffs.
