Mississippi Judge Rules on Katrina Claim
Decision Paves Way for Future Cases

Leonard v. Nationwide Mutual Ins. Co., 2006 WL 2353961 (S.D. Miss. Aug. 15, 2006)

Josh Clemons

In August a federal district court judge rendered a verdict in the first trial to reach a conclusion over disputed Hurricane Katrina insurance payments. Judge L.T. Senter of the U.S. District Court for the Southern District of Mississippi in Gulfport held that Paul and Julie Leonard were not entitled to payment for damages to their home caused by incursion of water. However, the judge invalidated an exclusion for wind damage that occurs in conjunction with water damage, so the Leonards were able to recover for losses due to wind.

Factual Background
Hurricane Katrina made landfall on Mississippi’s Gulf coast on August 29, 2005. Among the thousands of homes in the storm’s path was the Pascagoula residence of police officer Paul Leonard and his wife Julie. On that dark morning winds over one hundred miles per hour ripped through their neighborhood, and water from the Mississippi Sound surged five feet above the Leonard’s foundation. The water destroyed or seriously damaged the flooring, walls, and personal belongings on the first floor of the Leonards’ home but did not reach the second floor. Fortunately, the roof remained watertight despite losing some shingles to the violent winds. The wind also caused a golf ball-sized hole in a first-floor window.

A combination of wind and water plastered the exterior of the Leonards’ home with debris. The family’s attached garage suffered both wind and water damage as well, and a tree, toppled by the wind, smashed a fence.
The Leonards hired an expert who estimated their total storm-related damages at $130,253.49. Of this amount, $47,365.41 was attributed to wind damage and included replacement of the roof.

The Leonards had a homeowner’s insurance policy from Nationwide Mutual Insurance Company, which they had purchased from local Nationwide agent Jay Fletcher. Their policy covered their house, attached structures, and the property inside the house. However, the policy contained two exclusions that created the controversy addressed in this lawsuit. The first excluded losses from, among other things, “flood, surface water, waves, tidal waves, overflow of a body of water, [and] spray from these, whether or not driven by wind.”1 The second excluded losses from, among other things, “[w]eather conditions, if contributing in any way with an exclusion listed in paragraph 1.”2 Paragraph 1 included the exclusion for “flood, surface water, waves,” etc.

Nationwide sent an adjustor to the Leonards’ home. He authorized payment only for damage caused solely by wind, which he determined to be the loss of roof shingles and the destruction of the fence. After their five hundred dollar deductible was applied, the Leonards received $1,661.17, which was $128,592.32 less than their estimated damages.

The Leonards did not have a flood insurance policy. They had discussed the need for one in 1999 with Fletcher, who regularly advised his clients that they did not need flood insurance if they did not live in a flood prone area. Because the Leonards did not live in a flood prone area, Fletcher told them they did not need flood insurance. Fletcher did not even have flood insurance on his own house, although he had sold numerous flood policies in Pascagoula, including twelve in the Leonards’ neighborhood. Fletcher did not give the Leonards a specific reason why he was not recommending flood insurance.

Although Fletcher never actually said so, Mr. Leonard inferred from his discussions with the agent that his homeowner’s policy would cover all damages from a hurricane, including water damage. Mr. Leonard testified at trial that he read the policy and that he did not ask Fletcher about the exclusions at issue.
The Leonards sued Nationwide on the grounds that Fletcher misled them, and that the policy was ambiguous and should therefore be construed in their favor.

The Court’s Decision
The court rejected the Leonards’ claim that they suffered harm by relying on Fletcher’s alleged misrepresentation. Such a claim requires the reliance to be reasonable. The court determined that the Leonards’ reliance was not reasonable because Mr. Leonard had read the insurance policy and was also aware that optional flood policies were available; therefore, he had reason to be aware that the type of damage his home suffered might not be covered, and it was his responsibility to make further inquiries to find out the extent of his coverage.

The bulk of the court’s opinion concerned the enforceability of the two exclusions described above. The court upheld the exclusion for water damage after finding that it was not ambiguous and that similar exclusions had been upheld in earlier cases involving hurricane losses.

The second exclusion presented more of a problem. This exclusion, by the court’s literal reading, would have excluded any wind damage that occurred in circumstances in which water damage also occurred. The court observed that “an insured whose dwelling lost its roof in high winds and at the same time suffered an incursion of even an inch of water could recover nothing under his Nationwide policy.”3 This situation troubled the court, because taken as a whole the policy insured losses from wind damage. The court concluded that the second exclusion was ambiguous. Nationwide argued that the policy was unambiguous because it had been approved by the Mississippi Department of Insurance, but the court disagreed. Even the Department of Insurance makes mistakes occasionally, the court remarked, and that is why its decisions are subject to judicial review.
Under Mississippi law, the Leonards are entitled to recover the loss that they can prove was caused by the covered cause (wind), and Nationwide is not responsible for losses that it can prove were caused by the excluded cause (water). In this case, the court found that Nationwide could prove almost all of the damage to the Leonards’ home was caused by water. The Leonards proved that they suffered wind damage losses $1,228.16 in excess of what Nationwide had originally paid, and were awarded that amount in addition to their original $1,661.17 compensation. This amount was far short of the Leonards’ total estimated losses.

Conclusion
This decision could hardly be considered a victory for the Leonards; however, in the long run it could turn out to be tremendously costly for insurers – to the tune of hundreds of millions of dollars. Some insurers who have issued similar policies have been attempting to deny claims for wind damage when it occurred in combination with water damage. Judge Senter’s decision will allow people insured under such policies the opportunity to present evidence in court that their damage was caused by wind, and accordingly the opportunity to receive some compensation for their losses. The Leonards’ attorney, Richard “Dickie” Scruggs, has said that this decision will “open the door for recovery for thousands of Mississippi homeowners.”4

Endnotes
1. Leonard v. Nationwide Mutual Ins. Co., 2006 WL 2353961 at *2 (S.D. Miss. Aug. 15, 2006).
2. Id.
3. Id. at *7.
4. Joseph B. Treaster, Judge Rules for Insurers in Katrina, N.Y. Times C1 (Aug. 16, 2006).

University of Mississippi