Last week, the United States Supreme Court refused to hear the appeal by policyholders of the Fifth Circuit’s pro-insurer August 2007 decision that held that various policies’ flood exclusions unambiguously precluded recovery for damages caused by breach of the levees after Hurricane Katrina. (Click here to read more about the August 2007 decision.) This denial puts finality on all similar litigation pending in federal courts in Louisiana.

As we have reported on several occasions over the past year, Katrina-related coverage litigation was filed by policyholders in both Louisiana and Mississippi. Complicating matters is that some lawsuits have proceeded in the federal courts and others have proceeded in state courts. Generally speaking, if the plaintiff and defendant are from different states – i.e., if there exists “diversity” – a lawsuit, if valued at over $75,000, will proceed in federal court; otherwise, the litigation will have a state court forum.

Interestingly, the most recent decision by a Louisiana state appellate court held that a flood exclusion was ambiguous and that an insurer could not deny coverage for water damage sustained to an insured’s property on the basis of the exclusion. (Click here to read more about this decision.) That decision is currently on appeal to the Louisiana state Supreme Court. If the Louisiana Supreme Court affirms the appellate court decision, it would create a different rule in the state courts than that currently followed by federal courts in Louisiana. Under the state court holdings, a flood exclusion would be held ambiguous and an insurer would not be able to deny coverage for Katrina water damage under such an exclusion BUT under the federal court holdings, a flood exclusion unambiguously precludes recovery for Katrina water damage.

We will continue to monitor Katrina-related developments and provide updates at InsureReinsure.com.