Katrina case to hit high court

The Louisiana Supreme Court will hear arguments Feb. 26 to decide whether homeowner insurers must foot the bill for water damage done to the property of thousands of their south Louisiana customers when the levees broke after Hurricane Katrina.

Individual homeowners, thousands of whom have sued to force their insurers to pay up, are hoping the justices affirm rulings by lower courts in favor of 91-year-old Uptown resident and Holocaust survivor Joseph Sher, whose insurer denied most of his claims by saying they were caused by "flood" and therefore not covered by his hazard policy.

Sher sued Lafayette Insurance Co. in Civil District Court and won a jury verdict that put the firm on the hook for the cost of repairs to his house.

Lafayette tried unsuccessfully to get the verdict overturned by a five-judge panel of the state 4th Circuit Court of Appeal. The company is now appealing to the state Supreme Court.

On the key question of whether the water from levee breaches constituted a "flood," the 4th Circuit judges ruled 3-2 that the word "flood" in Sher's policy was ambiguous.

The panel majority said that when doubt about the meaning of a policy exists, the court must find against the issuer of the policy.

In August, however, three Texas judges on the 5th U.S. Circuit Court of Appeals ruled the opposite way in a different case.

The federal judges said flatly that a flood is a flood, regardless of what causes it. Manmade failure of the levees didn't change the basic fact that a flood "is precisely what occurred in New Orleans in the aftermath of Hurricane Katrina, the 5th Circuit said in a decision now on appeal to the U.S. Supreme Court.

But in the view of lawyers for homeowners trying to win flood-damage compensation from their insurers, the 4th Circuit's opinion on a question of state law supersedes the federal appeals court's decision.

Others say it would take a ruling from the state Supreme Court to force the federal courts to reverse their interpretation of Louisiana law.

Either way, an expected decision by the state Supreme Court on the Sher case would likely set the lasting precedent for all claims of this kind.

The success of the Sher case so far has given hope to hurricane victims who have argued in their own lawsuits that flooding from levee failures is not a "natural disaster" but a manmade event that should have been covered by most homeowner policies.

It also could bolster a lawsuit filed by the Louisiana attorney general on behalf of about 165,000 Road Home applicants against nearly every insurance company operating in Louisiana. That lawsuit says the insurers underpaid all Road Home recipients by interpreting homeowner policies to exclude coverage for the water damage caused by the levee breaches.

The insurance industry is watching warily to see which way the Louisiana Supreme Court comes down in the Sher case.

Failure by the court to decide in Lafayette's favor would "send a chill through the marketplace" and hurt the overall recovery from the 2005 storms, one insurance industry spokesman said in November.