New Orleans' householders whose homes were devastated by the inundation of water that poured onto the city after Hurricane Katrina caused protective levees to breach are continuing to file lawsuits against insurers.

Literally thousands have been filed in recent months just before an extended deadline for such legal action ran out on the second anniversary of the hurricane striking the US city in 2005.

Some of the resulting claims and lawsuits are likely to find their way to the desks of insurance companies in Bermuda and, at the moment, there remains uncertainty as to how valid they will prove to be once tested by the US courts.

Hurricane Katrina was the costliest natural disaster in US history, estimated at more than $80 billion with $40 billion of that being insured losses, but the final cost to insurers and reinsurers remains clouded by the on-going litigation.

The reasons, and the potential impact to the industry, was revealed to insurance industry executives at Sedgwick's fifth annual Hot Topics seminar, held yesterday afternoon at the Bermuda Underwater Exploration Institute.

Speaker Mark Tillman presented an insight into a number of the lawsuits that have already been tested in US courts.

With an event of such magnitude presenting a complexity of issues, the US government extended the time when related lawsuits could be filed up to the two year anniversary of the hurricane landfall, which occurred on August 29, 2005.

At the heart of the litigation is whether or not the virtual submersion of the city was caused by negligence on the part of those charged with maintaining the city levees and also whether a "storm surge" - a combination of wind and water - is covered within insurance policies.

"Most homeowners' policies exclude flood. We know a storm surge is a combination of wind and flood.

"Storm surge itself is typically not defined in a policy. So this a real issue. What is it? Wind and flood, a combination, and should it be covered?" said Mr. Tillman.

Insurers argue that storm surge equals flood, and therefore is not covered, but policyholders contend that it is more ambiguous and also that in some policies for those living in coastal areas there is a hurricane deductible and therefore the element of storm surge must be factored in.

The Hurricane Katrina storm surge that struck New Orleans was 25ft high.

US District Judge L.T. Senter, of the Southern District of Mississippi, has held that anti-concurrent causation clauses found in a lot of the policies is ambiguous.

Summarising from the "Senter trilogy" cases, Mr. Tillman said: "Wind damage should be covered, flood damage shouldn't be covered. Even if there is all this damage caused by wind and flood, a carrier cannot say it is all excluded based on the anti-concurrent causation clause."

Judge Senter felt there was a burden on the insurer to prove that a storm surge/flooding event was excluded.

The argument continued with another case Broussard vs State Farm, in which the Broussard family was awarded compensation for their destroyed home after experts were unable to say how much damage had been caused by the hurricane winds (covered in the insurance policy) and how much of the damage was then caused by the following storm surge.

Because State Farm could not provide the relevant damage assessment from the wind alone it was found liable to pay the full amount of loss suffered by the Broussards. Following on from that State Farm set aside $50 million of guaranteed payments to cover a homeowners' class action, although Judge Senter felt that was too low a figure. Some estimates put the potential payouts at $600m.

It hasn't all been bad news though. Mr. Tillman looked also at the conclusion from the Leonard vs Nationwide Mutual and the decision by Judge Senter in favour of the insurance firm because it was right, in that case, not to pay out flood damage incurred to the Leonards' home.

There was a similar verdict in Tuepker vs State Farm, and the Katrina Canal Breaches Litigation, in which plaintiffs argued that design and construction faults and negligent maintenance of the New Orleans city levees resulted in a man-made inundation of water that covered 80 percent of the city.

They contended that in the context of these factors their insurance policies; flood exclusions were ambiguous because they did not clearly exclude coverage for an inundation of water induced by negligence.

Judges sitting in the US Court of Appeals Fifth Circuit in the past month have dismissed this argument by stating that the canal/levee breaches were floods in the terms of the insurance policies.

Mr Tillman concluded by telling attendees at the seminar: "Thousands of new lawsuits have been filed within the last few months. I think you will see a lot of them coming across your desks.

"The lower courts have been reaching some fairly scary results, but it appears that the appellant courts are straightening those out and reaching the correct conclusion and hopefully that trend will continue."