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Insurers might have gotten the answer they were looking for in the wind versus water debate raging post-Katrina. A federal judge in August validated the flood exclusions in a homeowners policy from Nationwide Mutual Insurance Co., though he still called into question another significant exclusionary clause in the contract.

"The provisions of the Nationwide policy that exclude coverage for damages caused by water are valid and enforceable," Judge L. T. Senter Jr. wrote in his decision for the U.S. District Court for the Southern District of Mississippi. "Similar policy terms have been enforced with respect to damage caused by high water associated with hurricanes in many reported decisions."

The Pascagoula, Miss., home of the plaintiffs, Paul and Julie Leonard, was hit by 100 mph winds and flooded with five feet of water when Katrina made landfall on Aug. 29, 2005. The plaintiffs estimated $130,253 in damage, including $47,365 from wind, and were seeking more than $158,000. Nationwide had paid the Leonards $1,661.

Senter awarded the couple, however, only another $1,228.16 for damage to the house caused by wind-driven debris. In announcements, insurance industry associations called the decision a blow to plaintiffs' attorney Richard Scruggs and others arguing against the flood exclusion.

In his decision, however, the judge called the anti-concurrent causation clauses in the policy "ambiguous"--even though Nationwide didn't invoke the clauses in withholding payments to the Leonards. Anti-concurrent causation clauses state that the insurer does not have to pay for property damaged in the same timeframe by both an excluded and a covered peril.

"This reading of the policy would make the windstorm protection illusory for those who live in areas where the risk of flooding is greatest," Senter wrote.

Gary Thompson, partner at Washington, D.C., law firm Reed Smith LLC, said that Senter's ruling could clear up a lot of gray area when it comes to deciding whether property damage was caused by wind or water.

"The ruling indicates that the gray area goes to the policyholder," Thompson said.

But when asked whether this verdict will influence how the scores of other Katrina policyholder suits are settled, Thompson said that the finding is limited to federal court in the Southern District of Mississippi for the time being, unless the 5th U.S. Circuit Court of Appels decides on it. And Thompson foresees an appeal in the near future.

"Both sides have reason to appeal," he said, "so I would be very surprised if there was not an appeal."

October 1, 2006

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