Storm surge: nearly a year after Hurricane Katrina, Gulf Coast courts are beginning to weigh in on homeowners flood claims.

When Hurricane Katrina came ashore last year in Mississippi, it left behind a path of unprecedented devastation and spawned a second tidal wave: one of litigation over the extent to which the damage was covered or excluded under standard homeowners policies.

Tens of thousands of Louisiana, Mississippi and Alabama homes experienced hours of wind and rain damage before being inundated by the waters of the Gulf and ultimately destroyed by Katrina's storm surge--leaving only a foundation slab behind. Faced with a potential liability of billions of dollars, insurers have been anxiously waiting to see how the courts would treat these cases.

Would flood exclusions, long deemed valid and enforceable in Gulf Coast states, continue to be upheld? Would storm surge--which is not mentioned by name in most carriers' flood exclusions--be excluded as flood or included as wind-related damage? What are the insurers' obligations when wind damage and flood damage both occur?

Immediately, a surge of cases started to tackle these questions. Less than three weeks after Katrina struck, Mississippi Attorney General Jim Hood spearheaded an assault on flood exclusions found in every homeowners policy, filing a would-be class action against the state's homeowners carriers. The fastest moving cases, however, were fried by well-known plaintiffs' lawyer Richard "Dickie" Scruggs, who interviewed dozens of prospective plaintiffs to find an ideal fact pattern. Scruggs filed individual breach of contract actions against Mississippi's five largest homeowners carriers, seeking judicial declarations that storm surge was a covered type of wind loss.

By putting the claims in front of a judge at the earliest moment possible, Scruggs' strategy was to secure the very first opinions on homeowners coverage. Insurers did the same, pursuing early dispositive motions themselves. The strategy worked, with his cases--Buente vs. Allstate and Tuepker vs. State Farm--generating the first substantive rulings on homeowners coverage for Hurricane Katrina loss.

The Buentes' home sustained $50,000 to $100,000 in damages as a result of Katrina; they were paid $2,600--the amount Allstate determined to be covered wind damage. The Tuepkers' home was destroyed by the storm; State Farm denied the claim.

In these cases, Southern District of Mississippi Judge L.T. Senter Jr. denied motions on both sides: Allstate's motion for judgment on the pleadings on March 24 in Buente vs. Allstate (Buente I); plaintiffs' motion for partial summary judgment on April 12 in Buente vs. Allstate (Buente II); and, State Farm's motion to dismiss on May 24 in Tuepker vs. State Farm.

Allstate and State Farm invoked their policies' flood exclusions. Allstate barred coverage for loss caused by "flood, including, but not limited to surface water, waves, tidal water or overflow from any body of water, or spray from any of these, whether or not driven by wind." Both also invoked anti-concurrent cause language.

In all three opinions, Judge Senter stated the flood exclusions were "valid and enforceable policy provisions" and noted that "similar policy terms have been enforced with respect to damage caused by high water associated with hurricanes in many reported decisions." As he explained in Buente II, such provisions were "drawn quite broadly" with "the clear purpose of excluding damage caused by inundation." The hurricane "moved tidal waters on shore," and the flood exclusions were applicable precisely because the damage was caused by that--"tidal water." Plaintiffs' argument that "storm surge" is covered because the term is not enumerated as an excluded peril was specifically rejected.

The court also observed, however, that damage caused by wind and rain did constitute loss by a covered peril. It also held that the anti-concurrent cause provisions in the insurance contracts were ambiguous and unenforceable in the hurricane-related loss context to the extent that such language, "purport[s] to exclude from coverage losses that would otherwise be covered, such as wind damage, when that covered loss happens to accompany water damage (an excluded loss)." Finally, Judge Senter made it clear that if plaintiffs prove loss by wind or wind-driven rain, they can recover "regardless of whether a later inflow of water caused additional damage that would be excluded from coverage."

In other words, a loss that has been demonstrated to have been triggered by wind and wind-driven rain in the hours before the storm surge came ashore has to be quantified and paid, even if the excluded storm surge reduced the structure to a foundation slab when it arrived.

Senter's decisions should alleviate a lot of anxiety, for they reaffirm that only covered wind and rain damage are the responsibility of homeowners carriers.

Richard C. Bennett, a Best's Review contributor, is a member of the insurance litigation department at the law firm of Cozen O'Connor, Philadelphia. He can [e-mail].