Louisiana Supreme Court upholds Katrina flood exclusions

NEW ORLEANS (Reuters) - Louisiana's Supreme Court on Tuesday ruled out insurance companies paying billions of dollars to policyholders for damage caused by levee and floodwall failure in 2005's Hurricane Katrina.

In the decision, state Supreme Court justices said the flood exclusion in a Lafayette Insurance Co policy covering a New Orleans apartment building applied to damages even from a flood caused by breaks in poorly maintained levees.

"Even if the exclusion only referred to natural, rather than man-made floods, the flood at issue was not caused by man. The flood was caused by Hurricane Katrina, not by man," the court wrote in its decision.

Last year the Fifth U.S. Circuit Court of Appeals reached a similar decision, saying flood exclusions, which are routinely written into U.S. commercial and private property insurance policies, are not eliminated if the flooding is due to negligence.

The U.S. Army Corps of Engineers has been faulted for failing to properly maintain the levee system around low-lying New Orleans. Storm surge and high winds from Katrina breached the levees, leaving more than 80 percent of the city underwater for weeks.

A federal program provides flood insurance.

New Orleans attorney John Houghtaling, who represents the about 1,000 property owners in Hurricane Katrina cases against insurers, said he was "shocked" by Tuesday's decision.

"This is a multibillion-dollar windfall for the insurance industry," Houghtaling said. "This was a man-made disaster, and prior to today, it's been the law in Louisiana that water damage exclusions did not cover man-made disasters."

(Reporting by Russell McCulley in New Orleans, Writing by Erwin Seba; Editing by Braden Reddall)