After Hurricane Katrina struck New Orleans, breaches in levees along the 17th Street, Industrial, and London Avenue Canals allowed enormous volumes of water to inundate much of the city. Property owners and Xavier University sought recovery under homeowners, renters, and commercial-property policies for resulting damage. They alleged that negligent design, construction, or maintenance of the levees—and, in one allegation, an inadequately moored barge—caused the breaches.
The policies were generally all-risk policies, but each contained a water-damage exclusion covering flood or substantially similar terms. Most policies also stated that flood losses were excluded regardless of other causes contributing concurrently or sequentially. The insureds argued that “flood” meant only a naturally caused inundation and did not include water released through negligently failed levees.
The district court held that most insurers’ flood exclusions were ambiguous and therefore covered damage from levee breaches caused by negligence. It denied the insurers’ dismissal motions or granted partial summary judgment for the insureds. The court reached a different result for State Farm because its policy expressly excluded flood losses regardless of the cause of the excluded event or whether the event arose from natural or external forces. It also ruled that Encompass’s hurricane-deductible endorsement did not itself create coverage. The Fifth Circuit accepted interlocutory appeals under 28 U.S.C. § 1292(b).
Issue #1
Whether Louisiana law governed interpretation of the insurance policies.
Holding
Yes. Louisiana substantive law governed, and Louisiana’s Civil Code rules for contract interpretation controlled the dispute.
Reasoning
Because the cases were in federal court based on diversity jurisdiction, the court applied the forum state’s choice-of-law rules and then the substantive law selected by those rules. The parties agreed that Louisiana law applied: the policies were issued in Louisiana and insured property located there.
reasoning omitted
Issue #2
Whether the court should certify the flood-exclusion questions to the Louisiana Supreme Court.
Holding
No. Certification was unnecessary.
Reasoning
The Louisiana Supreme Court had not decided whether a flood exclusion applies to damage caused by water escaping through negligently breached levees. But the absence of directly controlling state precedent alone does not require certification. The Fifth Circuit could make the necessary Erie prediction by applying Louisiana’s codified rules of contract interpretation and available authorities.
Issue #3
Whether the policies’ flood exclusions unambiguously barred coverage for water damage caused by breaches in the New Orleans canal levees, even if negligence contributed to the breaches.
Holding
Yes. The inundation was a flood within the ordinary meaning of that term, and the exclusions barred recovery.
Reasoning
Under Louisiana law, an insurance policy is construed as a contract. Courts give words their generally prevailing meaning and enforce clear policy language as written. Although exclusions are construed strictly against insurers, that principle applies only when competing interpretations are both reasonable; an undefined term is not ambiguous merely because the policy does not define it.
reasoning omitted
Issue #4
Whether the policies’ flood exclusions unambiguously barred coverage for water damage caused by breaches in the New Orleans canal levees, even if negligence contributed to the breaches.
Holding
Yes. The inundation was a flood within the ordinary meaning of that term, and the exclusions barred recovery.
Reasoning
Dictionary definitions, insurance treatises, and decisions from other courts defined a flood as water overflowing or escaping from a body of water or watercourse and inundating land that is ordinarily dry. Those sources did not restrict a flood to an event caused solely by natural forces. They also recognized that a flood may result from the failure of a dam or levee.
reasoning omitted
Issue #5
Whether the policies’ flood exclusions unambiguously barred coverage for water damage caused by breaches in the New Orleans canal levees, even if negligence contributed to the breaches.
Holding
Yes. The inundation was a flood within the ordinary meaning of that term, and the exclusions barred recovery.
Reasoning
That definition described the alleged Katrina losses exactly. The canals were watercourses, their waters escaped the channels that ordinarily contained them, and the water inundated normally dry portions of New Orleans. A levee is itself a flood-control structure; when it fails to restrain floodwaters, the result is a broader flood. Alleged negligence in designing, constructing, or maintaining the levee did not alter the character of the escaped water or the resulting event.
reasoning omitted
Issue #6
Whether the policies’ flood exclusions unambiguously barred coverage for water damage caused by breaches in the New Orleans canal levees, even if negligence contributed to the breaches.
Holding
Yes. The inundation was a flood within the ordinary meaning of that term, and the exclusions barred recovery.
Reasoning
The court rejected the insureds’ reliance on cases involving ruptured water mains. A water main is not a body of water or watercourse, and a localized release from a pipe differs materially from the massive inundation caused by a failed levee. The more coherent distinction is between an overflow from a body of water, which is a flood, and water released from a broken pipe, which ordinarily is not.
reasoning omitted
Issue #7
Whether the policies’ flood exclusions unambiguously barred coverage for water damage caused by breaches in the New Orleans canal levees, even if negligence contributed to the breaches.
Holding
Yes. The inundation was a flood within the ordinary meaning of that term, and the exclusions barred recovery.
Reasoning
Limiting “flood” to purely natural events would produce unreasonable results. Because levees are human-built structures intended to manage floodwaters, nearly every flood involving a levee could be characterized as partly man-made—whether because the levee was negligently built, insufficiently high, poorly maintained, or successfully diverted water elsewhere. That interpretation would effectively eliminate the flood exclusion whenever flood-control works were involved.
reasoning omitted
Issue #8
Whether the policies’ flood exclusions unambiguously barred coverage for water damage caused by breaches in the New Orleans canal levees, even if negligence contributed to the breaches.
Holding
Yes. The inundation was a flood within the ordinary meaning of that term, and the exclusions barred recovery.
Reasoning
The interpretive canons of noscitur a sociis and ejusdem generis did not narrow “flood” to natural phenomena. Terms surrounding “flood,” such as surface water and waves, can include events affected by artificial forces. Moreover, ejusdem generis concerns broad residual terms following specific examples, while “flood” was itself a specific listed peril. Those canons could not be used to manufacture ambiguity in otherwise plain language.
reasoning omitted
Issue #9
Whether the policies’ flood exclusions unambiguously barred coverage for water damage caused by breaches in the New Orleans canal levees, even if negligence contributed to the breaches.
Holding
Yes. The inundation was a flood within the ordinary meaning of that term, and the exclusions barred recovery.
Reasoning
The all-risk character of the policies and the insureds’ asserted reasonable expectations did not change the result. All-risk insurance covers fortuitous losses only unless a policy specifically excludes them, and these policies specifically excluded flood. Nor did hurricane-deductible endorsements imply flood coverage: they altered the deductible for covered hurricane-related losses while preserving all other policy provisions, including the flood exclusions.
reasoning omitted
Issue #10
Whether the efficient-proximate-cause doctrine or the policies’ anti-concurrent-causation clauses determined coverage.
Holding
No. Neither doctrine had to be applied because, as pleaded, flood was the only peril that directly damaged the insureds’ property.
Reasoning
The efficient-proximate-cause doctrine applies when two or more distinct causes or perils combine to produce a loss. Here, negligence in levee design, construction, or maintenance was alleged to have contributed to the occurrence of the flood, but it did not independently damage the property apart from the floodwater. The only damaging force was the excluded flood.
reasoning omitted
Issue #11
Whether the efficient-proximate-cause doctrine or the policies’ anti-concurrent-causation clauses determined coverage.
Holding
No. Neither doctrine had to be applied because, as pleaded, flood was the only peril that directly damaged the insureds’ property.
Reasoning
The insureds could not avoid the exclusion merely by relabeling the flood as negligence. Treating every causal factor behind an excluded event as a separate covered peril would render exclusions largely meaningless. Because there were not two independent causes of the asserted property losses, the court did not decide whether Louisiana recognizes the efficient-proximate-cause doctrine for all-risk policies or whether anti-concurrent-causation clauses can displace it.
reasoning omitted
Issue #12
Whether Encompass’s hurricane-deductible endorsement independently extended coverage to Humphreys’s flood damage.
Holding
No. The endorsement set a deductible; it did not create or expand coverage.
Reasoning
The endorsement stated the deductible applicable to covered property losses caused by a hurricane and expressly preserved all other policy provisions. It did not purport to insure against flood or override the separate water-damage exclusion. The court therefore affirmed the denial of Humphreys’s partial-summary-judgment motion on that theory.