Louisiana Supreme Court Finds for Insurer

In 2005, Joseph Sher owned and lived in a five-unit apartment building in New Orleans. Hurricane Katrina struck and his apartment building was inundated with four feet of water. He had a commercial all-risk policy from Lafayette Insurance. Lafayette inspected the building and found most of the damages attributed to flooding - specifically excluded by the policy. They issued Sher about $2,700 as a settlement. Sher declined and sued for bad faith and some ancillary claims.

The exclusion in the policy excluded water damage from flooding. Sher argued that the term "flood" in the policy was ambiguous and the water damage was man-made because it was the result of levee breaks in New Orleans. At trial, Sher was awarded $870,652 later reduced to a bit more than $500,000.

The appeals court upheld the decision and the insurer appealed to the state supreme court. The Court, in a decision reached on April 8, overturned the decision holding that "flood" was not an ambiguous term and - more critically for fellow New Orleans residents - held the floods were not man made. The exclusion was upheld as valid.

Water damage from flooding and other forms of water infiltration is routinely excluded from coverage in commercial property policies. If your business is in an area with a potential flooding problem, then you should talk with your insurance professional about flood insurance.