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In Katrina cases, judge OKs policy exclusions, finds ambiguities.

In determining whether two homeowners' policies from major insurers cover damage caused by Hurricane Katrina, a federal judge has ruled that policy exclusions for flooding are "valid and enforceable" but that the insurers bear the burden of proving that the exclusions apply. (Tuepker v. State Farm, No. 1:05CV559 LTS-JMR, 2006 WL 1442489 (S.D. Miss. May 24, 2006); Buente v. Allstate, No. 1:05CV712 LTS-JMR, 2006 WL 763085 (S.D. Miss. Mar. 24, 2006).)

Like many lawsuits filed since Katrina hit the Gulf Coast, these revolve around the question of whether the damage done by the storm was attributable to wind or water. Because most homeowners' policies pay for wind damage but not water damage, determining which is to blame is essential in disputes over coverage. (See Carmel Sileo, After Katrina, a Deluge of Denials, TRIAL, Dec. 2005, at 20.)

In the cases before Mississippi District Judge L.T. Senter Jr., two couples sued their insurers over denied Katrina claims. John and Claire Tuepker's Long Beach home was destroyed during the storm. They had purchased a homeowners' policy from State Farm; they claimed the insurer told them the policy would cover "any and all damage proximately, efficiently, and typically caused by hurricane wind and 'storm surge' proximately caused by hurricanes." When State Farm declined to pay their claim, saying their loss was a result of a "storm surge, wave wash, and flood," the Tuepkers sued.

Similarly, Elmer and Alexa Buente's home in Gulfport was extensively damaged during Katrina. According to their complaint, their insurer, Allstate, had assured them that they did not need flood coverage in addition to their homeowners' policy because they did not live in a flood plain and that their policy would cover damage caused by a hurricane. Allstate paid only a fraction of the estimated damages--those caused by wind, not water--because of flood exclusions in the policy.

In a March ruling, Senter denied Allstate's motion to dismiss the Buente case. "The exclusions found in the policy for water damage and for damages attributable to flooding are valid and enforceable," the judge found, but because the exclusion "constitutes an affirmative defense, Allstate would bear the burden of proving that the exclusion applies to the plaintiffs' claims."

Senter also determined that other language in the policy was ambiguous, appearing to exclude coverage for wind and rain damage--which would otherwise be covered--when water damage is "the predominant cause of the loss." He found this clause to be invalid in light of the policy's stated coverage of hurricane damage and said Allstate cannot deny coverage for damage caused by hurricane wind and rain, even if damage due to flooding occurred later.

"To the extent that plaintiffs can prove their allegations that the hurricane winds (or objects driven by those winds) and rains entering the insured premises through openings caused by the hurricane winds proximately caused damage to their insured property, those losses will be covered under the policy, and this will be the case even if flood damage, which is not covered, subsequently occurred," Senter wrote.

In a second ruling in April, the judge denied the Buentes' motion for partial summary judgment, which argued that Allstate's flood exclusion did not apply to damage caused by Katrina's storm surge because the surge was not listed as one of the perils in the exclusion. (Buente v. Allstate, No. 1:05CV712 LTS-JMR, 2006 WL 980784 (S.D. Miss. Apr. 12, 2006).)

Senter held that the specific clause containing the policy's flood exclusion was "clear and unambiguous" and applied to damage caused by a hurricane's storm surge. "The inundation that occurred during Hurricane Katrina was a flood, as that term is ordinarily understood, whether that term appears in a flood insurance policy or in a homeowners' insurance policy," Senter wrote.

A trial date remains to be set, according to the Buentes' lawyer, Richard Scruggs of Oxford, Mississippi.

Scruggs also represents the Tuepkers, whose case is moving ahead after Senter reached the same conclusions as he did in Buente: that the water damage exclusion in their homeowners' policy is "valid and enforceable" and that "State Farm would bear the burden of proving that the exclusion applies to the plaintiffs' claims."

The judge also ruled that, as in the Buentes' case, the policy's language "creates ambiguities in the context of damages sustained by the insured during a hurricane. These provisions purport to exclude coverage for wind and rain damage, both of which are covered losses under this policy, where an excluded cause of loss, e.g., water damage, also occurs. I find that these exclusions are ambiguous in light of the other policy provisions granting coverage for wind and rain damage."

Senter ruled that State Farm cannot deny coverage for damage caused by hurricane wind and rain and that finding how much damage was done by water and wind are "fact-specific inquiries that must be resolved on the basis of the evidence adduced at trial."

Lawsuits brought by Katrina victims have been hampered by a lack of judges, and decisions are coming slowly, Scruggs said. He represents a Mississippi judge who could have presided over some Katrina lawsuits, but because of his own suit against Nationwide Mutual Insurance Co., the judge recused himself, leaving only Senter to hear the Mississippi cases.

"Time is our greatest enemy here," Scruggs said. "Most of the plaintiffs have mortgages, no home, no honored insurance, and no jobs because their businesses were disrupted. It's created a tremendous amount of pressure on everybody in the coastal area, and without some quick decision up or down, the insurers will win. How many cases can a single federal judge handle in a year if he goes one by one? Unless the federal courts send 100 judges to Mississippi for the next several years to try these cases one by one, it will be one of those due process situations where no one gets a speedy trial or a trial in their lifetimes."
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Author:Jablow, Valerie
Date:Jul 1, 2006
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