Back in June, I reported that homeowners who lost homes in Katrina were waiting for a major ruling in their case against insurance companies.

U.S. District Judge Stanwood Duval Jr. had ruled in November that the insurance polices were ambiguous with regard to the language excluding water damage. He said the policies should have distinguished between floods caused by (a) a natural disaster, which would not be covered by most regular homeowners’ policies, or (b) a broken levee, which might be considered a man-made disaster and might be covered under regular policies. His decision was in favor of the policyholders.

The insurance companies appealed, and earlier this month, a three-judge panel of the 5th U.S. Circuit Court of Appeals ruled in favor of the insurance companies. The written opinion said in part:

“This event was excluded from coverage under the plaintiffs’ insurance policies, and under Louisiana law, we are bound to enforce the unambiguous terms of their insurance contracts as written.”

With regard to the issue of whether the floods were caused by nature or a man-made structure:

“…even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs’ policies unambiguously preclude their recovery.”

The judges said that the insurance policies clearly excluded water damage from floods:

“Regardless of what caused the failure of the flood-control structures that were put in place to prevent such a catastrophe, their failure resulted in a widespread flood that damaged the plaintiffs’ property.”

This ruling effectively prevents the homeowners from being paid any insurance money under their policies. The defendants in this case included more than a dozen insurance companies, and over a billion dollars in insurance payments were at stake.

The plaintiffs are planning to appeal to the Louisiana Supreme Court.