Katrina Victims Lose Insurance Court Battle

Insurance companies don't have to pay damages to New Orleans homeowners whose properties were destroyed by the floodwaters of Hurricane Katrina, according to a federal appeals court ruling. The court says the companies' policies clearly weren't intended to cover flood damage.

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A federal appeals court says insurance companies don't have to pay New Orleans homeowners whose properties were destroyed by floodwaters. The court ruled that the company's policies weren't intended to cover flood damage.

It's a big victory for the insurance industry, as NPR's Jim Zarroli reports.

JIM ZARROLI: Homeowners policies typically rule out coverage for flood damage, and after Hurricane Katrina, insurance companies turned down thousands of claims from people and businesses whose properties were inundated by water. Some of those policyholders sued, and the issue has been tied up in state and federal courts ever since.

In the cases ruled on yesterday, the plaintiffs argue that the term flood is ambiguous. They said this wasn't a natural flood because it was caused by the breaking of the New Orleans levees, which happened because government officials didn't maintain the structures properly.

A federal court upheld one of the claims, but the Fifth Circuit Court of Appeals overturned that ruling yesterday. Judge Carolyn King said regardless of what caused the levees to fail, their failure resulted in a widespread flood that damaged plaintiffs' properties.

The defendants had included such major insurance companies as Travelers, State Farm, and All State. Insurance industry official say a ruling against them might have cost as much as a billion dollars. But an attorney for one of the plaintiffs, Xavier University, said the issue wasn't resolved and would be argued again in state court in September.

Jim Zarroli, NPR News.

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