Filed Under:Claims, Investigative & Forensics

Subrogating Major Flood Losses: An Act of God or Human Error?

Myth, Meteorology and Mea Culpa

Evaluating claims for subrogation potential is a delicate business. Successfully proving and quantifying damages in court is trickier still. As subrogation attorneys and claims adjusters will attest, doing so often requires a sizeable investment in terms of both time and resources.

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

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

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

Evidence presented by the defense indicated the culvert was cleaned on an annual and as-needed basis. But Rossi presented evidence challenging this assertion. He showed pictures of debris in the culvert immediately after the flood to indicate it was obstructed. Rossi and his team then focused on the design and construction claim, ultimately winning the case.

Central to the case was a costly computerized model, which Rossi used in his opening argument. Here, Rossi talks about other components that helped ensure success in the multi-million dollar subrogation action and what P&C insurers can learn about handling flood claims.

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

A: Maybe for the liability side of the house. Flood cases involve sophisticated legal and technical issues and are very expensive to litigate. The fact of a major rain storm should not preclude settlement discussions nor does it mean that a jury will necessarily find for the defense. In this case there were no meaningful settlement discussions and there should have been. The defense and the liability carriers were convinced that images of flooded streets and waves of water would convince the jury that this was an unpredictable unpreventable Act of God. For the P&C carriers, it reinforces the idea that a disciplined approach to subrogation cases in general and flood cases in particular pays dividends. At the outset this case did not appear to be viable. Local news reports claimed that this was the “storm of the century.” But after the lawyers and experts evaluated the storm and flood, the subrogated carrier saw the potential. The storm was not as big as first thought and previous similar storms did not cause floods at the insured property. Experts who can analyze floods are necessary to give the industry insight into these cases. According to 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, are not unduly influenced by photographs of swirling, rushing waves of water and will consider potential human involvement.

The government has studied waterways and watersheds and prepared thousands of Flood Insurance Studies and Rate Maps for thousands of communities. Based upon this information, we can predict how a rain storm should affect a waterway. If the water is deeper than expected then something may have changed or something besides rain may have affected the water’s depth. The hydrologist was important in this case as he was able to explain how much rain fell and when and how water levels at one location affected the levels in other places. He was also able to apply sophisticated mathematical hydraulic models to illustrate how culvert dimensions affect water levels and flow. We also used a computerized graphic which depicted the creek and adjacent properties with actual photos of the flood damage and conditions along the creek. This gave the jury a perspective and understanding of how things were related and what caused the flood. In this particular case the water backed up stream which is counterintuitive as water typically does not run uphill. The graphic helped us demonstrate how and where the backup occurred.

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

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