Flooding is the number one natural peril in the U.S.—even more devastating than wildfires and storms. Since 2011, there have been over $100 billion in insured losses from flood events around the globe. Over the past three decades, Matthiesen, Wickert & Lehrer, S.C. has been on the forefront of subrogating catastrophic flooding and other natural disasters. We recovered $11 million from a major U.S. railroad company arising out of the Great Midwest Flood of 1993 involving the flooding of 1,369 brand new Subarus, and more than $2.5 million from the state of California and local government near Alameda County in the El Nino flooding along coastal California in 1998. We were one of the first firms with boots on the ground following Hurricane Katrina and have consulted with insurers and government entities concerning the pandemic of the flood insurance gap represented by the 95% of single-family homeowners in the country who do not have any form of flood insurance. Flooding is the nemesis of the insurance industry, and we are the nemesis of flood damage insurance claims. Our goal is to turn back the hands of time as though the loss never occurred.
MWL has partnered with forensic hydrologists, geologists, and hydraulics experts to locate and pursue culpable third parties responsible for losses that many other simply chalk up to “Acts of God.” We have jointly published articles attempting to train the insurance industry in the science behind subrogating catastrophic flood losses. It is grueling and time consuming, but the results are undeniable.
Following the historic six to eighteen inches of rain which blanketed much of Breathitt County, Kentucky this past July, MWL has been closely following the investigation and working on identifying subrogation potential. A new class action federal lawsuit has now been filed by owners of property below a strip-mining operation owned and operated by two strip mining operators—Blackhawk Mining and Pine Branch Mining—arguing that their failure to safely operate their mines resulted in the excessive flooding and catastrophic damages. Defense lawyers will argue that the record-breaking rains would have caused significant damage in and of itself; but it is our intention to show that human activity can and often does have an exacerbating effect on otherwise natural events known as “Acts of God.” The lawsuit is claiming that debris, sediment and even fish, escaped silt ponds used by the companies to collect excess water and sediment and ended up damaging the plaintiffs’ property as a result. As is often the case in flood subrogation, the challenge isn’t to show that the flooding occurred; but rather, to show that the defendants’ actions contributed to the worsening of those damages. This type of subrogation litigation is not for the faint of heart.
The claims history of most domestic insurance carriers is littered with billion dollar claims as a result of catastrophic losses caused by natural disasters. When God sends a hurricane, tornado, flood, or naturally occurring fire, the resulting losses can be enough to put many insurance companies into receivership. With no third parties or obvious subrogation potential, these mammoth claim payments often disappear permanently. Acts of God such as these reveal a celestial tortfeasor who is both judgment proof and beyond reach by summons and subpoenas. However, rather than throwing in the towel, these losses present tremendous recovery potential for the proactive claim professional. It is said that opportunity is missed by most because it is dressed in overalls and looks like work. Nowhere is that adage truer than when it comes to subrogating natural disasters. If a carrier is willing to invest the time and effort necessary to investigate third-party potential in the face of disaster, it is possible to turn tragedy into triumph.
Subrogation involving Acts of God are almost invisible at first. Such was certainly the case in the aftermath of the Hurricane Katrina flooding. There were numerous examples of decision-making in the New Orleans area which illustrated a lack of local government concern about specific hazards to private residents. Local officials often resisted proposals to protect their communities from storms because they did not want to pay their share of federal projects. Levy districts opposed hurricane protection floodgates at the mouths of the city’s drainage canals, leading to the construction of walls along the canals which failed in Hurricane Katrina. In the 1980s, the Federal Insurance Administration (“FIA”) launched a subrogation suit for more than $100 million against Jefferson, Orleans, and St. Bernard Parishes, contending that these Parishes caused the FIA to pay excessive flood insurance claims by failing to maintain levies and failing to enforce elevation requirements for new construction. This inaction on the part of the Parishes led to buildings being flooded and their owners seeking compensation from the National Flood Insurance Program (NFIP). The courts ruled in FIA’s favor and ordered the Parishes to improve their levy maintenance and enforcement practices. The City of New Orleans also did not update its 1970 comprehensive plan for almost 30 years. When it got around to this in 1999, its New Century New Orleans Land Use Plan made absolutely no mention of the extreme flood hazard facing the city, ways of mitigating the hazard through land use, and building regulations or how the city might recover from an event such as Hurricane Katrina. As was the case with the state, city, and county in the they tend to prioritize things and view natural hazards as a minor problem that takes a back seat to more pressing issues such as unemployment, crime, housing, transportation, and education.
Subrogating flood losses remains a complicated issue which requires the diligence of subrogation professionals and their interaction with subrogation counsel and hydrology experts. Recognition of subrogation potential remains the biggest obstacle in successful subrogation of flood losses. Potential subrogation usually cannot be recognized unless you understand and speak the language of hydrology and are willing to invest the time and resources necessary to flush out third party liability. Subrogation opportunity, like most other opportunities, is missed by most people because it is dressed in overalls and looks like work.
Even more so than in slip and fall premises liability cases, the immediate (translated: sometimes within a day or two if not hours following a loss) recognition and investigation into high water marks, eyewitness testimony, and documentation of debris is critical to turning tragedy into triumph. When it comes to natural disasters, subrogation recovery almost always appears impossible. In reality, however, quite the contrary is true. Flood waters, just like pieces on a chess board, never lie. The behavior of water is predictable. It is affected by gravity, seeks its own level, and follows the contour of the Earth’s surface – whether natural or man-made. As a result, with the use of a qualified hydrologist, subrogation counsel can accurately map, mimic, and image the exact behavior of the flood waters, before, during and after the flood event. This ability to prove what happened to the water means that we can accurately point to the effect that man-made objects, construction projects, barriers, and other obstacles had on the water, and show precisely how the specific flood damage being subrogated was affected or caused by these man-made conditions. It is, therefore, critical that the subrogation professional have a working knowledge of and understand the behavior of water and the science behind hydrology. The subrogation professional’s distinct advantage is that while God may send the rain, what happens to the flood waters once they reach Earth is almost always affected by physics and man.
If you are willing to make the investment into uncovering and pursuing subrogation potential in the face of Acts of God which result in claim disasters, it is very possible to turn tragedy into triumph. If you are hit with a significant natural disaster claim, consider engaging MWL to conduct subrogation investigation and evaluation on the loss. The smallest of investments could mean complete erasure of a significant loss for your insured and a good year for your subrogation department.
Katherine Sandoval is a partner at MWL and oversees the Santa Ana, California branch office. She oversees the firm’s wildfire and natural disaster subrogation department. If you have any questions regarding this article or subrogation in general, please contact Katherine Sandoval at [email protected].