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FOR IMMEDIATE NEWS RELEASE NEWS RELEASE # 26 FROM: CLERK OF SUPREME COURT OF LOUISIANA The Opinions handed down on the 8th day of April, 2008, are as follows:

BY TRAYLOR, J.: 2007-C -2441 C/W 2007-C -2443 JOSEPH SHER v. LAFAYETTE INSURANCE COMPANY; UNITED FIRE & CASUALTY COMPANY; THE UNITED FIRE GROUP; ROBERT JONES; WES SWANK; FRED VANDERBROOK; AND PROPERTY LOSS CONSULTING, INC. (Parish of Orleans) For the reasons given, we affirm in part, reverse in part, and render judgment. AFFIRMED IN PART, REVERSED IN PART, AND RENDERED. Retired Judge Lemmie O. Hightower assigned as Associate Justice Ad Hoc sitting for Chief Justice Pascal F. Calogero, recused. VICTORY, J., concurs in the result. KNOLL, J., concurs in part and dissents in part and assigns reasons. WEIMER, J., concurs in the result.

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SUPREME COURT OF LOUISIANA No. 07-C-2441 Consolidated With No. 07-C-2443 JOSEPH SHER versus LAFAYETTE INSURANCE COMPANY; UNITED FIRE & CASUALTY COMPANY; THE UNITED FIRE GROUP; ROBERT JONES; WES SWANK; FRED VANDERBROOK; AND PROPERTY LOSS CONSULTING, INC. ON WRIT OF CERTIORARI TO THE COURT OF APPEAL, FOURTH CIRCUIT, PARISH OF ORLEANS

TRAYLOR, Justice* We granted these consolidated writ applications in order to determine whether the courts below erred. For the reasons which follow, we affirm in part, reverse in part, and render judgment. FACTS and PROCEDURAL HISTORY On August 29, 2005, Hurricane Katrina struck New Orleans and the surrounding area with devastating results. As a result of the storm, extremely high water attacked the levee system protecting the city, causing some of the levees to fail and inundating the majority of the city with water. Joseph Sher, the plaintiff, owned and lived in a five-unit apartment building in New Orleans at 1410 Broadway Street. Mr. Sher did not evacuate prior to the storm and was subsequently trapped by the flood waters, which reached a level of four feet

Retired Judge Lemmie O. Hightower assigned as Associate Justice Ad Hoc sitting for Chief Justice Pascal F. Calogero, recused. 1

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in the lower level of the building. After his evacuation, plaintiff traveled to Baton Rouge and resided with one of his children. Plaintiff had obtained a commercial all-risk insurance policy covering the building from Lafayette Insurance Company in 1989, which coverage was in effect throughout the time period in question. After the hurricane, plaintiff inspected his property and informed Lafayette of his claim. Lafayette assigned the claim to Property Loss Consulting, Inc. (PLC), on October 5, 2005, and Robert Jones conducted an inspection of the building on November 1, 2005. Following the inspection, Lafayette determined that most of the building's damage was due to poor maintenance, disrepair, and flooding, and estimated plaintiff's damages as $3,307.09. After subtracting a hurricane deductible of $1,000 and a premium charge of $2,037, Lafayette issued plaintiff a check in the amount of $270.09. After a second inspection of the premises by Fred Vanderbrook, a consulting engineer hired by Lafayette, Lafayette issued plaintiff another check in the amount of $2,484.99. Plaintiff did not negotiate either check. After continuously disputing Lafayette's damage estimate and sending Lafayette additional estimates and repair invoices, plaintiff filed suit on August 28, 2006 against Lafayette, United Fire and Casualty Company (UFCC), United Fire Group (UFG), Robert Jones, Wes Swank, Fred Vanderbrook, and PLC in Civil District Court in Orleans Parish. Plaintiff's petition included claims for insurance coverage, bad faith penalties, attorney's fees and costs, and bad faith breach of insurance contract. Lafayette answered asserting the declinatory exception of lis pendens, which exception was dismissed. UFCC and UFG filed motions for summary judgment, asserting that they were not liable to plaintiff. Plaintiff dismissed UFCC and UFG without prejudice. Vanderbrook filed an exception of vagueness and/or

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ambiguity, after which plaintiff dismissed him without prejudice. Lafayette filed a motion for leave to file third party demands against the Federal Emergency Management Agency and the National Flood Insurance Program, which the trial court denied due to time constraints. Plaintiff filed a motion for partial summary judgment, asking that the flood exclusion in Lafayette's policy be declared ambiguous. The trial court granted the motion for partial summary judgment, ruling that the flood exclusion was ambiguous, and that the policy covered man-made events. Lafayette filed a motion in limine to exclude new theories of recovery not disclosed prior to trial, which the trial court granted. Plaintiff filed a motion in limine to exclude limitations or exclusions not specifically pled in Lafayette's answer as affirmative defenses, which the trial court granted. Lafayette then filed a motion in limine to exclude prejudicial statements, including a statement that plaintiff was a Holocaust survivor. The trial court denied the motion as to mention of the Holocaust on a limited basis. The trial was conducted in two phases over five days, the first phase concerning liability and damages, and the second concerning only Lafayette's alleged arbitrary and capricious behavior. The jury returned a verdict against Lafayette and awarded the following damages: Building Damage Above the Basement Building Damage In the Basement Lost Rents Business Personal Property Penalties Pursuant to R.S. 22:658 TOTAL $ 175,850.00 144,300.00 17,350.00 31,577.00 184,538.50 553,615.50

$

Following the trial, plaintiff dismissed his claims, with a reservation of rights, against Robert Jones, Wes Swank, and PLC. The trial court assessed attorney's fees

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and costs as follows: Costs Pursuant to C.C.P. art. 1920 Costs Pursuant to C.C.P. art. 970 Attorney's Fees Pursuant to C.C. art. 1997 and/or R.S. 22:658 TOTAL $ 16,288.60 42,020.24 258,728.00 _________ 317,036.84

$

The total judgment against Lafayette, including attorney's fees and costs assessed by the trial judge, totaled $870,652.34. Lafayette filed a suspensive appeal asserting several claims of error, which plaintiff answered, asserting his own claims of error. The court of appeal amended in part, affirmed and rendered as amended. The awards as amended by the court of appeal are as follows: Building Damage Above the Basement Building Damage In the Basement Lost Rents Business Personal Property Penalties Pursuant to R.S. 22:658 TOTAL Costs Pursuant to C.C.P. art. 1920 Costs Pursuant to C.C.P. art. 970 Attorney's Fees Pursuant to C.C. art. 1997 and/or R.S. 22:658 TOTAL $ 175,850.00 144,300.00 17,350.00 31,577.00 92,269.25 461,346.25 16,288.60 42,020.24 0.00 _________ 53,308.84

$ $

$

The total award as amended and rendered by the court of appeal is $514,655.09. DISCUSSION Partial Summary Judgment Lafayette argues that the court of appeal erred in affirming the trial court's granting of plaintiff's partial motion for summary judgment by determining that the meaning of the word "flood," as used in the policy, was ambiguous. We agree. We recently discussed the law applicable to review of a grant or denial of a motion for summary judgment, and to the proper interpretation of an insurance policy,
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in Huggins v. Gerry Lane Enterprises, Inc., 2006-2816 (La. 5/22/07), 957 So.2d 127, 128-9. A motion for summary judgment will be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to material fact and that mover is entitled to judgment as a matter of law." This court reviews a grant or denial of a motion for summary judgment de novo. Thus, this court asks the same questions as does the trial court in determining whether summary judgment is appropriate: whether there is any genuine issue of material fact, and whether the mover is entitled to judgment as a matter of law. Interpretation of an insurance policy usually involves a legal question which can be resolved properly in the framework of a motion for summary judgment. An insurance policy is a contract between the parties and should be construed using the general rules of interpretation of contracts set forth in the Civil Code. The judicial responsibility in interpreting insurance contracts is to determine the parties' common intent. Words and phrases used in an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning, unless the words have acquired a technical meaning. An insurance policy should not be interpreted in an unreasonable or a strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion. Unless a policy conflicts with statutory provisions or public policy, it may limit an insurer's liability and impose and enforce reasonable conditions upon the policy obligations the insurer contractually assumes. If after applying the other general rules of construction an ambiguity remains, the ambiguous contractual provision is to be construed against the insurer and in favor of coverage. Under this rule of strict construction, equivocal provisions seeking to narrow an insurer's obligation are strictly construed against the insurer. That strict construction principle, however, is subject to exceptions. One of these exceptions is that the strict construction rule applies only if the ambiguous policy provision is susceptible to two or more reasonable interpretations. For the rule of strict construction to apply, the insurance policy must be not only susceptible to two or more interpretations, but each of the alternative interpretations must be reasonable. (Citations omitted). Huggins, 957 So.2d at 128-9. Here, both the trial court and the court of appeal found that the word "flood" in the water exclusion of the policy was susceptible to multiple definitions and
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therefore ambiguous. As a result, both courts construed the policy against Lafayette, finding coverage for damages caused by the four feet of water which inundated the lower floor of plaintiff's property. The exclusion at issue reads in pertinent part as follows:

B. EXCLUSIONS 1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. *** g. Water (1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not; (2) Mudslide or mudflow; (3) Water that backs up from a sewer or drain; or (4) Water under the ground surface pressing on, or flowing or seeping through: (a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings. The term "flood" is not defined in the policy. In such a case, the word should, as stated above, be given its plain, ordinary and generally prevailing meaning. C.C. art. 2047. Although the court of appeal recognized this rule of construction, it found that because there were varying causes of floods, the word "flood," itself, was ambiguous. The court of appeal then proceeded to construe the exception against

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Lafayette and in favor of plaintiff, finding that the policy did, indeed, provide flood coverage for the plaintiff. In support of its reasoning, the court of appeal pointed out that the "exclusion includes `flood,' but then continued to list specific natural disasters that cause inundations of water, commonly labeled as `floods,'" such as waves, tides, tidal waves and the overflow of water, whether driven by wind or not. Sher, 973 So. 2d at 51. The plain, ordinary and generally prevailing meaning of the word "flood" is the overflow of a body of water causing a large amount of water to cover an area that is usually dry. This definition does not depend on locality, culture, or even national origin - the entire English speaking world recognizes that a flood is the overflow of a body of water causing a large amount of water to cover an area that is usually dry land.1 Contrary to the court of appeal's reasoning, this definition does not change or depend on whether the event is a natural disaster or a man-made one - in either case, a large amount of water covers an area that is usually dry. The plain, ordinary and generally prevailing meaning is all-inclusive. Further, of the examples of high water contained in the exclusion and described by the court of appeal as "natural disasters,"only one, tides, is exclusively natural - waves, tidal waves, and the overflow of water may be either natural or man-made,2 as may be "floods." Far from supporting the court of appeal's conclusion that the term "flood" is ambiguous because it does not distinguish between man-made and natural flood, this tends to show that the parties intended the word "flood," to have its plain, ordinary and

The Louisiana House of Representatives, in House Concurrent Resolution 59, 2005, found in the Historical and Statutory Notes to R.S. art. 22:658, repeatedly refers to the inundation in and around New Orleans following Hurricane Katrina as "flooding." Waves may be caused by wind, boats, or even cars driven in high water. Tidal waves are caused by seismic events, such as earthquakes, underwater landslides (which may be natural or man-made), or underground nuclear testing. Water may overflow its natural boundaries because of seasonal rising of the water level, damming, levee breakage, or other natural and man-made causes. 7
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generally prevailing meaning - the overflow of a body of water causing a large amount of water to cover an area that is usually dry - regardless of its cause. The court of appeal's reasoning was likewise flawed when, because it had found the word "flood" ambiguous, it construed the policy against the insurer, finding coverage for the flood damage to the basement of plaintiff's building. As stated above, when there is an ambiguity in a policy of insurance, coverage should be construed in favor of coverage, but only if the ambiguous policy provision is susceptible to two or more reasonable interpretations. The court of appeal did not definitively state what were the two or more reasonable interpretations it found of the word "flood." We assume that one "reasonable interpretation" of the word would be its plain, ordinary and generally prevailing meaning - the overflow of a body of water causing a large amount of water to cover an area that is usually dry, including both man-made and natural disasters.3 Applying this meaning to the word "flood" in the exclusion would be entirely reasonable, as "flood" is used in the exclusion without modifier and along with other terms which are likewise susceptible to being caused by man or nature. We further assume that the other interpretation of the word "flood" found "reasonable" by the court of appeal would be a flood which is entirely natural. Because there is no indication within the four corners of the insurance contract that the parties intended to use such a restrictive definition of the word "flood," and because such a definition is not the plain, ordinary and generally prevailing meaning of the word, the use of that definition is per se unreasonable. In other words, to fail to give the generally prevailing common meaning to a term in an insurance contract, when the use of that meaning would be perfectly reasonable, in favor of a more

We note that under the generally prevailing definition of the word "flood" - the overflow of a body of water causing a large amount of water to cover an area that is usually dry the inundation of property due to broken water mains or overflowing sinks would not be excluded as a "flood," as neither a water main nor a sink is a "body of water." 8

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restrictive meaning, is without justification, and appears to be more result determinative than legally warranted. Furthermore, use of the restrictive definition would lead to absurd results. Using the court of appeal's definition, a homeowner whose house is located outside a protective levee would be excluded from recovering flood damages to his property, while a homeowner whose house is located inside the levee system would be able to recover under the same policy for the same flood water simply because it flowed through a breach in the levee. Finally, 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 levees did not cause the flood, they, whether through faulty design, faulty construction, or some other reason, failed to prevent the flood. Our conclusion in this regard is supported by a similar analysis by the Colorado Supreme Court. There, after a dam broke causing a man-made lake to flood their property, the plaintiffs argued that the flood exclusion in their insurance policy was ambiguous, in that the policy did not distinguish between man-made and natural floods. In its analysis, the Colorado Supreme Court said: Mere disagreement between the parties about the meaning of a term does not create ambiguity. In ascertaining whether certain provisions of a document are ambiguous, the instrument's language must be examined and construed in harmony with the plain and generally accepted meaning of the words employed, and reference must be made to all the provisions of the agreement. The generally accepted meaning of the term "flood" does not include a distinction between artificial and natural floods. For example, Webster's New World Dictionary 535 (2d ed. 1974), defines "flood" as: "[A]n overflowing of water on an area normally dry; inundation; deluge . . ." Webster's Ninth New Collegiate Dictionary 474 (9th ed. 1988), defines the term as: "[A] rising and overflowing of a body of water esp[ecially] onto normally dry land . . ." Black's Law Dictionary (5th ed. 1979), contains a similar definition: "An inundation of water over land not usually covered by it. Water which inundates area of surface of earth where it ordinarily would not be expected to be." The inundation of insureds' normally dry land fall squarely within these generally accepted
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definitions of the term "flood." *** Here . . . there is no basis for holding that the term "flood" is ambiguous as applied to "the great overflowing of water" caused by the failure of the Lawn Lake Dam. That is, when this exclusion is construed in harmony with the generally accepted meaning of the term "flood" and in the context of the facts of this case, there is no doubt that this large-scale inundation of water was a "flood." *** In interpreting insurance contracts, courts are not at liberty to raise doubts where there are none or to make a new contract between the insured and the insurer. We decline to force an ambiguity where the meaning of the term "flood" is clear in the context of the facts of this case. (Citations omitted). Kane v. Royal Ins. Co. of America, 768 P.2d 678 (Colo. 1989). Likewise, our analysis is supported by that of the United States Fifth Circuit Court of Appeals. In a suit resulting from the failure of levees along canals in New Orleans following Hurricane Katrina, the federal court stated: In light of these definitions, we conclude that the flood exclusions are unambiguous in the context of this case and that what occurred here fits squarely within the generally prevailing meaning of the term "flood." When a body of water overflows its normal boundaries and inundates an area of land that is normally dry, the event is a flood. This is precisely what happened in New Orleans in the aftermath of Hurricane Katrina. Three watercourses . . . overflowed their normal channels, and the levees built alongside the canals to hold back their floodwaters failed to do so. As a result, an enormous volume of water inundated the city. In common parlance, this event is known as a flood. Additionally, a levee is a flood-control structure; its very purpose is to prevent the floodwaters from overflowing onto certain land areas, i.e., to prevent floods from becoming more widespread. By definition, whenever a levee ruptures and fails to hold back floodwaters, the result is a more widespread flood. That a levee's failure is due to its negligent design, construction, or maintenance does not change the character of the water escaping through the levee's breach; the waters are still floodwaters, and the result is a flood. In re: Katrina Canal Breaches Litigation, 495 F.3d 191, 214 (5th Cir. 2007). Because the use of the plain, ordinary and generally prevailing meaning of the word "flood" in the exclusion is reasonable and does not conflict with any statutory
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provision or public policy, Lafayette is entitled, through use of the term "flood", to limit its own liability and impose and enforce such reasonable conditions upon the policy obligations that the insurer has contractually assumed. In his testimony as to damage to the building, plaintiff's architectural expert testified that the basement repairs would include "[d]emolition, gutting, and cleanup" due to the standing water. R., Vol. XVII at 94. The expert further testified that the standing flood water caused corroded fasteners, expanded and shrinking wood, split members in the framing system. R., Vol. XVII at 109. Based on plaintiff's architectural expert's testimony, the damage to the lower level of plaintiff's building was caused entirely by excluded flood damage. Plaintiff's Claims of Error Penalties and Attorney's Fees under R.S. 22:658 Plaintiff contends that the court of appeal erred in holding that Lafayette was liable under the version of R.S. 22:658 in effect at the time that plaintiff's property was damaged and when the claim was filed, which called for a twenty-five percent penalty in cases involving an insurer's failure to make payment within thirty days of receiving satisfactory written proof of loss, rather than under the amended version of the statute, which mandated a fifty percent penalty in such cases, as well as attorney's fees and costs. At the time of the loss and during the initiation of loss adjustment, the statute at issue read in pertinent part:

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