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Court Revives Hurricane Katrina Damage Claim

(CN) - The owner of apartment buildings that were badly damaged in Hurricane Katrina might be able to recover insurance money after the 5th Circuit largely overturned a ruling for two insurance companies that refused to fully settle the owner's claims.

The estimated cost of repairing the federally subsidized Versailles Arms Apartments, owned by Versai Management Corp., was more than $17.8 million, $2.5 million of which was covered by Lloyd's of London. Versai's flood-insurance provider settled its claims for about $6 million.

The apartment owner tapped Clarendon America Insurance and Employers Fire Insurance Co. for the remaining costs, under excess insurance policies that maxed out at about $13.4 million.

But Clarendon and EFIC each paid about $3 million, about half of what Versai claimed they owed, plus another $500,000 in checks that Versailles says it never received.

Versai sued for property loss, business interruption loss, replacement costs and code compliance upgrades.

The district court granted summary judgment to the insurers on all claims, but the federal appeals court in New Orleans reinstated Versai's claims for property and business interruption losses.

The 5th Circuit Versai might be entitled to compensation for lost rental income, even if the company president's affidavit "is insufficient to support the full $1.4 million Versai seeks."

However, Versai is not entitled to get reimbursed for the costs of upgrading the buildings to comply with current codes, the court ruled.

But insurers might be on the hook for allegedly failing to settle the claims within 30 days and for misrepresenting their coverage.

"We reverse the grant of summary judgment on Versai's claims for property damage and business interruption, along with its statutory claims for failure to render timely payment and misrepresentation of coverage," the court concluded.

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