Editor's Note: This article has been contributed by Peter G.Rossi, a member in the Philadelphia, Pa. office of Cozen O'Connor'ssubrogation and recovery department. He may be reached at [email protected].

Superstorm Sandy crippled communities, caused billions ofdollars in property damage, and resulted in hardship for thousandsof people. Insurance claims have been pouring in. But how caninsurance professionals make informed decisions regardinginvestigating flood claims? Which of the thousands of flood claimsshould be investigated for subrogation? 

There are several approaches, from investigating all floodclaims to investigating none, or only investigating those withobvious potential such as dam breaks, pipe breaks, or collapses.The best solution is somewhere in the middle—a disciplined,incremental approach. 

Carriers can pursue flood subrogation litigation and win, butinformed investigation decisions must be made early on. From aliability perspective, floods are typically considered Acts of God.The Act of God defense requires that the flood be solely caused byunpredictable, uncontrollable natural events without any humanintervention. However, most floods are a combination of naturallyoccurring events and human intervention; for example, a largerainstorm combined with the property owner's failure to maintain abridge, culvert, or waterway. If we can demonstrate humanintervention caused or contributed to a loss, settlementdiscussions—oftentimes ignored by liability insurers because of theAct of God defense—can occur. Read the article “Subrogating FloodLoss: An 'Act of God' or Human Error,”  for a caseexample. 

The extremes are simple: Very small flood claims are rarelyreviewed because of scarce investigation funds and because largefloods are easier to justify. However, the majority of cases are inbetween, ranging from $150,000 to $500,000. An incrementalinvestigation approach strategically allocates resources as thecase unfolds and the prospect for recovery rises. 

First, use “free” resources. Subrogation counsel, paid on acontingent fee, should be fully utilized before hiring costlyengineers. Subrogation counsel handling substantial flood casesunderstand flood science. Counsel can gather preliminary detailsregarding the storm and flood—how much rain fell where and when,how deep the floodwater was or if the area wasflood-prone. 

If counsel's initial evaluation indicates thatthe flood might have human causes, then an engineer can be retainedfor the limited purpose of surveying background information, thehistory of the community, and source of the flooding. The goal isto determine if the flood was caused by too much rain falling tooquickly, suggesting an Act of God rather than a viable subrogationcase. Most of this information can be gathered online from websitestracking rainfall data, stream gage data (USGS has deployed anationwide system of rain and stream gages), and FEMAflood-insurance studies. FEMA prepares flood studies andflood-insurance rate maps for thousands of communities includingthe smallest waterways.

Enlisting Engineering Experts
Engineeringanalysis of this data is more costly, and setting a “not-to-exceed”budget is recommended. Typically, this stage can require less than$5,000—a modest investment for a substantial floodcase. 

Now you can make an informed decision regarding a siteinspection. The engineer will go to the site and photograph andmeasure all relevant areas and objects, including water marks onbuildings, bridges, and fences. Water marks can establishwater-surface elevations at various points on either side (upstreamand downstream) of the loss location, which can tell us what causedthe flood. You can then determine if a professional site survey isnecessary. A survey will help the expert understand thewater-surface elevation as well as landmarks so that accuratemeasurements and comparisons can be made and data pointsidentified. This analysis allows the expert to determine where thefloodwaters came from and what factors contributed to theflooding.

The last and most expensive step is to instruct the engineer tocomplete a waterway profile. This involves taking actual fieldmeasurements of the waterway and adjacent areas and is done inconjunction with the survey. This will enable the expert to preparea mathematical model (known as a HEC-RAS model) of the waterway.The engineer can calculate and evaluate if changes in dimensions ofthe waterway (width, depth, roughness of the channel) will impactwater-surface elevations at the loss site. This is the essence of aflood recovery case and allows the expert to understand if waterwayconditions such as lack of waterway maintenance or obstructionscaused or contributed to the flood. We have had cases in which theengineer proves that a small change in the waterway causes thewater elevation at the insured property to change. 

A viable flood claim does not necessarily have to attribute allof the flooding to the defendant's actions. Sometimes we canrecover by proving that the defendant's negligence caused anincrease in water levels at the loss location. In the case of ahospital, data center, or financial institution, three additionalinches of water in the wrong place can mean the difference betweenvaluable equipment being damaged or not—the difference between asmall claim and a multimillion-dollar claim. Increasing informationalso increases the insurance professional's ability to make areasoned decision regarding flood subrogation. An incrementalapproach to these investigations is the best way to maximize theinvestment and the decision-making process.