In reaching a decision in the first Hurricane Katrina wind vs. water court case, Judge L.T. Senter of the Federal Court for the Southern District of Mississippi ruled in Leonard v. Nationwide Mutual Insurance Company that the vast majority of damage to the Leonards home was caused by water, and thus excluded from the homeowners policy issued by Nationwide. The decision also recognizes losses from storm surge flooding as water damage that is excluded from the policy.

While awarding $230.76 to replace a window, and $997.40 for cleaning and repairing exterior walls above water line " damages determined to be caused by wind " Senter asserted, Nationwide has met the burden of proving, by a preponderance of the evidence, that all other damage to the Leonards property was caused by water and waterborne materials within provision 1(b) of the Property Exclusions section of the Nationwide policy.

Ambiguous Language

However, he noted that some language in the Nationwide policy is ambiguous. Senter explained, The provisions of the Nationwide policy that purport to exclude coverage entirely for damages caused by a combination of the effects of water (an excluded loss) and damage caused by the effects of wind (a covered loss) are ambiguous.

After citing the two relevant provisions in the Nationwide policy, Senter said of the second one, Read literally, this provision would exclude any otherwise covered loss (e.g. windstorm damage) in any circumstance where weather conditions (i.e. the windstorm) combined with an excluded cause of loss (e.g. flooding) to damage the insured property. This reading of the policy would mean 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.

But Senter added, I do not believe this is a reasonable interpretation of the policy. A windstorm is a weather condition that is specifically included in the coverage of this policy. If this second provision were read to exclude wind damage that occurs at or near the time that any excluded water damage occurs, the result would be contrary to well-established Mississippi law.

He further noted, Nationwide seems to recognize this to be the reasonable interpretation of its policy. Nationwide has not invoked this policy provision to deny coverage to the Leonards for what everyone recognizes to be wind damage.

Agent Misrepresentation

Also at issue during the case was whether Paul Leonard was misled by his Nationwide agent, Jay Fletcher, regarding the need for a specific flood insurance policy. On this, Senter ruled that although Fletcher ventured his opinion that a flood policy was not necessary, Fletcher did not tell Paul Leonard that he did not need a flood insurance policy because his homeowners policy would cover all water damage that might occur during a hurricane. Senter added, Leonard apparently inferred that Fletchers reason for advising him that he did not need a flood policy was that his homeowners policy would cover any and all water damage that might occur during a hurricane. This was an erroneous inference, and one that might have been avoided had either party to the conversation been more articulate in his inquiry or in his response.

In sum, Senter declared, There is no evidence to support a finding that this insurance contract should be reformed. Nationwide provided a copy of the policy to the Leonards, and Paul Leonard read the policy. Having done so, the plaintiffs are bound by the express terms of the policy, even if their interpretation of the policy was incorrect and even if the inferences they drew from the conversations they had with Fletcher were erroneous.