Judge gives hope to Katrina homeowners

NEW YORK — An unexpected ruling by a federal judge in Louisiana could result in more homeowners collecting money for flood damage caused by Hurricane Katrina — at a likely cost of more than $1 billion to the industry.

U.S. District Judge Stanwood Duval Jr. on Monday sided with New Orleans homeowners who argued that the language excluding water damage from some insurance policies was ambiguous.

Although he said the lawsuit against The Allstate Corp., The St. Paul Travelers Companies Inc. and other insurers could go forward, he also said the issue of “flood exclusion” was so central to the case that it could be appealed immediately by the insurers.

Spokesmen for both Allstate and St. Paul Travelers said they planned an appeal.

At issue are the clauses in almost all homeowners policies that specifically exclude flood damage from coverage. Such coverage generally must be acquired separately through the federal government’s National Flood Insurance Program.

Duval found that language used by most insurance companies doesn’t differentiate between a flood caused by an act of God — such as excessive rainfall — and a flood caused by an act of man, which would include the levee breaches following Katrina’s landfall on Aug. 29, 2005.

The ruling contradicts an August decision by a federal judge in Gulfport, Miss., who ruled that a couple could not collect from their insurer because their policy doesn’t cover damages from floodwaters or storm surges.

“It’s one battle in a big war, but it’s the policyholders’ biggest victory to date,” said Remy Starns, a lawyer based in Baton Rouge, La., who represents several dozen Louisiana policyholders with lawsuits against insurers.