Evaluating claims for subrogation potential is a delicate business. Successfullyproving and quantifying damages in court is trickier still. Assubrogation attorneys and claims adjusters will attest, doing sooften requires a sizeable investment in terms of both time andresources.

While the onus for the insurer and its chosen counsel aregreat, the potential reward can be reclaiming millions of dollars.After the cause and circumstances of a loss have been investigatedand determined, the insurer's counsel must take greatcare in vetting experts and appropriate technologies to succinctlyrelay the findings to compel a fair judgment at trial.

The recent $3.4 million victory in U.S. Fire InsuranceCompany v. Omnova Solutions, Inc., a complex flood case thatmany had deemed “unwinnable,” illustrates the importance ofselecting the right experts and technology to prove damages incourt. In the article below, Peter G. Rossi,the subrogation attorney who secured the unanimousverdict, discusses the broader implications for the industry,acts of God, and the '200-year storm' that wasn't.

Claims' Q&A withPeter G. Rossi begins on Page 3

Before delving into the nuances of handling floodclaims, let's examine some case specifics and howRossi and his team convinced a jury of eight to rule in favorof their client, Crum & Forster (U.S. Fire InsuranceCo.).

A Manufacturing Legacy

The case involved a flooding claim by Crum & Forster,whose insured, Mafcote, manufactures cardboard boxes for nationalretail stores. The defendant, Omnova Solutions, Inc., manufacturesvinyl products. Both companies are located on the banks of BrushCreek in Jeannette, Pennsylvania, with Omnova situated about350 feet downstream from Mafcote.

The Omnova facility has occupied the space since 1915, first asthe General Tire and Rubber plant (GT); then as GenCorp; andfinally as GenCorp spin-off Omnova. In 1974, General Tireconstructed a new building over Brush Creek, which necessitatedbuilding a culvert under the structure. General Tire obtained theproper approvals for the building and the culvert, including apermit from the Pennsylvania Department of Natural Resources.However, the permit was for a culvert measuring 43 feet wide and 7feet tall.

Rossi and his legal team contended the culvert was undersized,using data prepared by the defendant's experts to prove it. Thegist of the argument there was the insufficient sizeof the culvert caused it to become obstructed,thereby flooding the Mafcote property.

Acts of God

The defense countered that the flood was caused by an 'act ofGod,' as Jeannette suffered one of the largest rain storms inits history and obstructions downstream from Omnova. Almost 3.5inches of rain fell in 3 hours on the day of the flood, the defensecontinued, characterizing the weather pattern as a 200-yearrainstorm. An AccuWeather meteorologist was amongthose testifying that the storm was as catastrophic as thedefense was depicting.

However, Rossi and his team called on two local witnesses whosaid that although the storm was indeed large, there had been prior storms ofsimilar magnitude in the area. Moreover, the Mafcote facility hadnever flooded until 2009, when the Omnova culvert becameobstructed. Mafcote reported 18 inches of water in the factory as aresult. Rossi's theory was that the undersized culvertcollected debris, in turn causing water to back up the creek.

Evidence presented by the defense indicated the culvert wascleaned on an annual and as-needed basis. But Rossi presentedevidence challenging this assertion. He showed pictures ofdebris in the culvert immediately after the flood to indicate itwas obstructed. Rossi and his team then focused on the design andconstruction claim, ultimately winning the case.

Central to the case was a costly computerized model, which Rossiused in his opening argument. Here, Rossi talks about othercomponents that helped ensure success in the multi-million dollarsubrogation action and what P&C insurers can learn abouthandling flood claims.

Q: What are some key takeaways from U.S. FireInsurance Company v. Omnova Solutions, Inc. in regard todue diligence in subrogation actions and claimsinvestigation?

A: You'll never know until you try! The onlyway to understand the causes and effects of a flood is to conduct aproper investigation and evaluate the details. This does not ensurethat you will win every case but it will ensure that you areleveraging the law of averages in your favor; you are identifyingand pursuing the viable cases and promptly closing thenon-productive cases. This is especially true for flood cases.Flood cases are subtle and might appear to be futile because ofheavy rain or deep flood water, however some cases might havepotential after an engineer or hydrologist reviews. Reference toAct of God and hundred or thousand-year storms and floods areconclusions that are interesting, but irrelevant.

Typically a potentially responsible third party will claim thatan event was an Act of God which could not have been prevented.Often this is true but not always. If a culvert, bridge or streambed is designed to carry a 500-year storm, then a 100-yearstorm should not cause a flood. If it does, then something wentwrong. Perhaps a design problem or something else caused asmall storm to behave like a bigger storm; a downstream blockage oran upstream dam failure or release. Or, if a flood wall is designedto protect a property from 500-year floods and 200-year stormfloods the property, then something is wrong and there might besubrogation potential. The 'Act of God' defense requires thereis absolutely no human intervention or causation in the event. Itmust be an exclusive Act of God. If the flood was the result of thecombined effects of nature and man then there may be subrogationpotential. In any significant flood case, the costs associated witha professional investigation are justified by the potential for arecovery.

Q: In your opinion, does this judgment carry largerimplications for the industry?

A: Maybe for the liability side of the house.Flood cases involve sophisticated legal and technical issues andare very expensive to litigate. The fact of a major rain stormshould not preclude settlement discussions nor does it mean that ajury will necessarily find for the defense. In this case there wereno meaningful settlement discussions and there should have been.The defense and the liability carriers were convinced that imagesof flooded streets and waves of water would convince the jury thatthis was an unpredictable unpreventable Act of God. For the P&Ccarriers, it reinforces the idea that a disciplined approach tosubrogation cases in general and flood cases in particular paysdividends. At the outset this case did not appear to be viable.Local news reports claimed that this was the “storm of thecentury.” But after the lawyers and experts evaluated the storm andflood, the subrogated carrier saw the potential. The storm was notas big as first thought and previous similar storms did not causefloods at the insured property. Experts who can analyze floods arenecessary to give the industry insight into these cases. Accordingto FEMA the average annual U.S. flood losses in the past 10 years(2002-2011) were more than $2.9 billion. Floods are big business.They cause devastating damages, disrupt communities and lives.Juries are sophisticated and, when educated in the proper case, arenot unduly influenced by photographs of swirling, rushing waves ofwater and will consider potential human involvement.

Q: Tell us about vetting experts for this case. Howcrucial were they in winning, and in subrogation casesspecifically?

A: A flood case requires expert advice andtestimony. We use experts that we share mutual respect and trustwith. They know we will not ask them to do or say things that theydon't believe in and vice versa. A reliable expert can helpseparate viable subrogation cases from those that should be closedso that resources are not wasted. Frivolous flood cases are toocomplicated, expensive and time consuming. Our flood experts aretrial and litigation tested. The best experts combine strongacademic credentials with practical, problem solving skills. Aboveall they must be able to educate non-scientist judges and juriesregarding the nuances of floods. They must guide the fact finderthrough what appears to be a natural disaster to evaluate potentialhuman intervention. In any trial, the jury must trust the lawyersand experts. This is especially true in flood cases because of theextensive use of experts and the complexity of the issues. Mostflood trials involve facts regarding the location, depth andmovement of water. Usually there are at least two versions of thesefacts and the jury tends to believe the factual version offered bythe expert they trust. If an expert is evasive or hesitant or inany way appears to be hiding or shading the truth the jury will notbelieve him. And once an expert has lost the jury's trust itaffects every decision the jury makes regarding his testimony.

A typical flood case needs the expertise of a hydrologist and/ora hydraulics expert and possibly a weather expert or meteorologist(in addition to damage experts all subrogation cases require). Itis essential to understand and explain how much rain fell over whattime period, how it was distributed and transported through thewatershed and impediments to the free flow of the water.

The government has studied waterways and watersheds and preparedthousands of Flood Insurance Studies and Rate Maps for thousands ofcommunities. Based upon this information, we can predict how a rainstorm should affect a waterway. If the water is deeper thanexpected then something may have changed or something besides rainmay have affected the water's depth. The hydrologist was importantin this case as he was able to explain how much rain fell and whenand how water levels at one location affected the levels in otherplaces. He was also able to apply sophisticated mathematicalhydraulic models to illustrate how culvert dimensions affect waterlevels and flow. We also used a computerized graphic which depictedthe creek and adjacent properties with actual photos of the flooddamage and conditions along the creek. This gave the jury aperspective and understanding of how things were related and whatcaused the flood. In this particular case the water backed upstream which is counterintuitive as water typically does not runuphill. The graphic helped us demonstrate how and where the backupoccurred.

Q: What was the significance in proving this was,in fact, not a '200-year rainstorm'?

A: The size of a particular storm has severalimplications for flood litigation. The Act of God defense requiresa large, unpredictable storm. The size of a storm also dictates theexpected flow in the creeks and rivers and allows the experts topredict the surrounding water levels; bigger storms create moreflow and higher water levels. Often there is no physical evidenceregarding water levels and mathematical models must be used toapproximate the conditions at the time of the flood. The expertscan extrapolate general conclusions from limited known conditionsregarding water levels, flow or rain fall.

The Act of God defense assumes that plaintiff's damage wascaused by the flood but the storm was so big, unpredictable anduncontrollable that the defendant could not have prevented thedamage. Plaintiff usually argues that the storm was not so big,unpredictable or uncontrollable and that the defendant's negligencein combination with the storm caused the flood. The categorizationof a storm or a flood as a particular annual “return period,” 100,200, 500 years, etc. is misleading. It does not mean that thestorm or flood is to be expected every so often but is amathematical calculation or probability of such a strom occurring.If the parties get into a legitimate dispute about the size of astorm then the plaintiff has probably succeeded in casting doubt onthe storm's size.

On the other hand, if there is irrefutable evidence regardingthe size of the storm then plaintiff's approach will be different.In this case, the defense was two-fold; that this was a largeuncontrollable storm that was an Act of God and the floodwas caused by stream obstructions unrelated to the defendant'sproperty. This is a difficult position; either a storm and flood isan Act of God or it was caused by stream blockage. It is verydifficult to ask a jury to evaluate a flood as an Act of God and onan alternative cause theory.

While the defense did present expert metreoroligicalevidence that this was probably a 200-year storm, the plaintiff'sexpert and other defense experts previously said that this was notsuch a large storm. The plaintiff also presented convincinganecdotal non-expert testimony from local people who said thatthere had been other storms as large as this one. Notwithstandingthese other large storms, plaintiff's insured's property neverflooded until the defendant's culvert became obstructed. The jurywas not convinced that this was an unpredictable Act of God nor didthey believe that the volume of water was as claimed by thedefense.

Peter G. Rossi is a member in the Philadelphia, Penn. officeof Cozen O'Connor's subrogation and recovery department. He may bereached at [email protected].