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The words of a contract must be given their generally prevailing meaning. La. Civ. Code Ann. art. 2047 (1987). When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent. La. Civ. Code Ann. art. 2046 (1987).
On the morning of August 29, 2005, Hurricane Katrina struck along the coast of the Gulf of Mexico, devastating portions of Louisiana and Mississippi. In the City of New Orleans, some of the most significant damage occurred when levees along three major canals--the 17th Street Canal, the Industrial Canal, and the London Avenue Canal--ruptured, permitting water from the flooded canals to inundate the city. At one point in Katrina's aftermath, approximately eighty percent of the city was submerged in water. Each plaintiff in this case is a policyholder with homeowners, renters, or commercial-property insurance whose property was damaged during the New Orleans flooding. Despite exclusions in their policies providing that damage caused by "flood" is not covered, the plaintiffs seek recovery of their losses from their insurers. Their primary contention is that the massive inundation of water into the city was the result of the negligent design, construction, and maintenance of the levees and that the policies' flood exclusions in this context are ambiguous because they do not clearly exclude coverage for an inundation of water induced by negligence. The plaintiffs maintain that because their policies are ambiguous, the court must construe them in their favor to effect coverage for their losses.
Were the insureds entitled to recover under their policies where flood was excluded from coverage under their insurance policies?
The court held that even if the insureds could prove the levees were negligently designed, constructed, or maintained and that the breaches were due to that negligence, the flood exclusions unambiguously precluded recovery. One encyclopedia included the inundation of water resulting from the bursting of a levee in the definition of flood. Other definitions indicated that when a body of water overflowed its normal boundaries and inundated an area of land that was normally dry, it was a flood. That was precisely what occurred in New Orleans in the aftermath of Hurricane Katrina. A levee's failure due to negligent design, construction, or maintenance did not change the character of the water escaping through the breach; the result was a flood. The flood exclusions were unambiguous, thus, a reasonable policyholder's expectations did not have to be considered. Hurricane-deductible endorsements only altered the deductible for damage caused by a hurricane; they did not extend coverage for floods or restrict flood exclusions. The peril of negligence did not act, apart from flood, to bring about damage to the insureds' properties. Consequently, the efficient-proximate-cause doctrine was inapplicable.