Appeals of flood exclusion ruling may linger for years.

Standard flood exclusions that many insurers used to deny Hurricane Katrina-related homeowners claims are "ambiguous" because they fail to distinguish between natural and man-made catastrophes, a federal court has ruled.

The ruling potentially could cost insurers billions in new claims payments. Insurers said they would appeal the case to the 5th U.S. Circuit Court of Appeals, a process that can take six months to two years to complete, according to one legal expert.

"These are weighty issues, and appellate courts decide things very carefully," said Doug Widin, an attorney with Reed Smith LLP.

In an 85-page decision, U.S. District Judge Stanwood R. Duval Jr. denied motions by Allstate Insurance Co., St. Paul Travelers Cos. and several insurers that relied on water-damage exclusions written by the Insurance Services Office to dismiss a number of claims caused by the breach or overtopping of several Louisiana levees. Duval found the claims may not be excluded, as the term "flood" may be read only to refer to a natural event and not the result of human errors in the construction and maintenance of the levees.

However, plaintiffs attorney Joseph Bruno will ask the appeals court to send the case to the Louisiana Supreme Court. "It's our opinion it's a matter of Louisiana law," said Bruno, whose law firm also is suing the U.S. Army Corps of Engineers for its "faulty" levee design. He also said the legal issues were not weighty because the insurers "really didn't contemplate negligence and negligent behavior in drafting that flood exclusion."

Widin said the appeals court decision could "change the landscape a bit" from the Duval ruling. And even if Duval's ruling is sustained, the plaintiffs will have to prove the levees' collapse was because of human errors in construction or design. Widin said it remains to be seen if that can be done.

Meanwhile, Widin said insurers "will be trying very hard to show" the levees breached because flood waters overtopped them--a natural flood excluded by the policy language Duval did not find ambiguous.

Duval also dismissed suits against State Farm Fire & Casualty Co. and Hartford Insurance Co., ruling that their policy language more explicitly denied coverage for water damage irrespective of cause. State Farm spokesman Jeff McCollum said the company welcomed that decision.