Judge Rules in Favor of Insurer in Miss. Wind vs. Water Case

In a highly anticipated ruling in one of the first wind vs. water insurance claims arising out of Hurricane Katrina, a Mississippi judge has upheld the exclusion for damage caused by water and water-borne materials in an insurance contract.

In his memorandum opinion in Paul Leonard and Julie Leonard v. Nationwide Mutual, Judge L.T. Senter affirmed that the insurer had met the “burden of proving” that the majority of the “damage to the Leonard’s property was caused by water and water-borne materials within provision 1(b) of the Property Exclusions section of the Nationwide policy.”

The Leonards filed suit against Columbus, Ohio-based Nationwide, their homeowners insurer, after the company paid them around $1,660 for wind damage to their home that resulted from Hurricane Katrina in August 2005. The Leonards estimated that the total damage to their house came to more than $130,000 and sought to recover more than $158,000 for the damage, interest, attorneys’ fees and expenses. They had claimed that their insurance agent, Jay Fletcher, who represented Nationwide and was a co-defendant in the Leonard’s original law suit, had represented that all wind and water damage arising out of a hurricane would be covered by their insurance policy. The Leonards, who did not carry flood insurance on their house, also claimed that Fletcher told them they did not need it.

After the case moved from state court to federal court, all claims against Fletcher personally were dismissed.

Judge Senter rejected the Leonard’s arguments, stating in the memorandum: “Fletcher did not materially misrepresent the terms of the Nationwide homeowners policy to the Leonards, and Fletcher did not make any statements which could be reasonably understood to alter the terms of the Nationwide policy. Fletcher did not tell Paul Leonard that he did not need a flood insurance policy because his homeowners policy would cover all water damage that might occur during a hurricane. Leonard apparently inferred that this was the reason Fletcher told him he did not need to buy a flood insurance policy, but Fletcher did not give any reason for his response to Leonard’s inquiry.”

The Leonards also contended in their suit that Fletcher had implied that flooding from hurricane driven storm surge would be covered under the Nationwide policy. However, Senter noted that “evidence was insufficient to support this conclusion.” The judge clarified that storm surge “is a type of flooding that is covered by flood policies sold under the National Flood Insurance Program and excluded under standard homeowners policies.”

Although Judge Senter wrote that “almost all of the damage to the Leonard residence is attributable to the incursion of water,” he recognized that the property was damaged “by wind-driven debris” to a larger extent than was provided for in Nationwide’s initial payment to the Leonards. He found that the Leonards were entitled to an additional amount, approximately $1,200, from their insurance company as a result of these damages.

“In the insurance coverage debate over wind vs. water, Judge Senter’s ruling has taken much of the wind, literally and figuratively out of the plaintiff attorney’s argument,” said Ernie Csiszar, president and CEO of the Property Casualty Insurers Association of America (PCI). “Judge Senter has made it very clear that the flood exclusion applies to storm surge.”

Cecil Pearce, vice president, American Insurance Association (AIA) Southeast Region was also encouraged by the Senter’s ruling. “The Leonard v. Nationwide decision validates the sanctity not only of insurance contracts in Mississippi, but all legal contracts in the state. This is a significant step forward for insurers and others committed to rebuilding after Katrina,” Pearce said in a statement released by the AIA. “Today’s decision also points to another key aspect of insurance contracts: that despite similarities in certain provisions of a standard homeowners policy, each and every individual claim must be decided on its own merits. Each case is different, involving different fact patterns and different levels and types of coverage that apply to each policyholder.”

Expressing “empathy for the personal plight of the plaintiffs,” Neil Alldredge, vice president of State and Regulatory Affairs for the National Association of Mutual Insurance Companies (NAMIC), nevertheless stated that, the “judge’s decision serves to uphold the validity of the flood exclusion provision in insurance contracts, a principle that has been upheld by other courts and state regulators over the past 40 years. It is important to note that in his ruling, Judge Senter noted that all of the individuals tendered as experts were ‘qualified’ to express the opinions they rendered, and none of the expert testimony will be stricken.”

After the ruling was released, Nationwide issued the following statement:

“We are very pleased that the court ruled in our favor and upheld the long-standing flood exclusion language which is foundational to traditional homeowner policies across the country. We are also pleased the court found no misrepresentation on the agent’s part. The facts clearly demonstrated the damage the Leonards’ home incurred was overwhelmingly due to floodwaters. This is clearly the type of damage covered by flood insurance provided through the National Flood Insurance Program.

“The court found that it would be inappropriate to re-write our contract after-the-fact.

“While it is unfortunate that the Leonards did not choose to purchase flood coverage, insurance carriers have an obligation on behalf of all policyholders to adjust claims based on factual evidence that supports coverage payments. We will continue to adjust claims on a case-by-case basis.

“This ruling underscores just how important it is for all policyholders to carefully read and understand the terms of the coverage they purchase.”

Judge Senter’s opinion can be found online at the U.S. District Court Southern District of Mississippi Web site http://www.mssd.uscourts.gov/.