Storm Surge in Your Lobby: You Should Have Been Thinking About Hurricane Isaac Months Ago

by McCarter & English: Climate Change & Renewable Energy
Contact

[author: J. Wylie Donald]

12 feet.  Water that deep comfortably inundates the front office's front door and floats the boss's desk.  And that is the predicted maximum storm surge for coastal Louisiana and Mississippi as Hurricane Isaac bears down.   So there are likely to be a few problems in that part of the country by the time the sun goes down this afternoon.  What can be done?  At this late hour, very little unfortunately, other than heading for the hills; here the adage “an ounce of prevention is worth a pound of cure” says it all.

Other than sand bags and plywood sheeting what preventive steps have some taken?  We’d like to focus on some things lawyers and businesspeople can address ahead of time:  modeling, insurance and contracting.

Modeling – Besides wreaking record havoc, Hurricane Andrew in 1992 was the coming of age for catastrophe modelers. As reported by Business Insurance last week, when AIR Worldwide reported an estimated $13 billion in damage to its clients following the storm's passage, reaction ranged from “skepticism to outrage.”   Now modeling is big business and well accepted.  Indeed, modeling was approved by the Maryland Court of Appeals as an appropriate way to make business decisions in January of this year.  See People's Insurance Counsel Division v. Allstate Insurance Co., 36 A.3d 464 (Md. 2012). There is no reason to believe that Maryland’s lead would not be followed elsewhere.

Today the public can get the benefit of some of the modelers’ insight in email alerts from companies’ such as AIR, or simply downloading them from the internet.  Those following Hurricane Isaac were able to learn that its ultimate effect was unsettled: 

Isaac reaching hurricane status tonight leaves 24 hours of time for additional development prior to landfall; within that window, Isaac could reach Category 2 intensity. How much stronger Isaac will become will depend in part on the storm's track—that is, how much time it will spend over the warm waters of the Gulf of Mexico.  Further adding to the uncertainty around Isaac’s forecast intensity is the fact that the storm will be moving over some of the warmest waters it has encountered to date, so a period of rapid intensification that leads to even stronger winds cannot be ruled out.

Subscribers to services offered by modeling firms can assess their exposures long before a hurricane makes landfall and take steps to diversify or minimize risks, can optimize their response to a looming hurricane by shifting production or scheduling a shutdown, and can make time-critical decisions as the catastrophe unfolds with the best data available concerning not only the storm’s effect on one’s own facility, but on the infrastructure and other plants on which one’s facility depends. Including such modeling in business planning leads to improvement of the bottom line.

Insurance – It is well-documented that insurers don’t particularly care for flood risk, including storm surge.  Following Hurricane Katrina dozens of cases sought insurance coverage for storm surge. The courts were not sympathetic; most found flood exclusions and anti-concurrent causation clauses valid and applicable. For example, where homeowners did not purchase flood insurance through the National Flood Insurance Program after being told by their carrier “Your policy does not cover flood loss. You can get protection through the National Flood Insurance Program,” the Fifth Circuit affirmed the trial court’s ruling and stated, among other things, “The omission of the specific term "storm surge" does not create ambiguity in the policy regarding coverage available in a hurricane and does not entitle the Leonards to recovery for their flood-induced damages.”  Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 438 (5th Cir. 2007).  Commercial insureds fared no better.  E.g., Northrop Grumman Corp. v. Factory Mut. Ins. Co., 538 F.3d 1090, modified, 563 F.3d 777 (9th Cir. 2008).

All of which is not to say that flood coverage is not available, but one has to actively seek it out, and pay for it.  This has important implications for supply chain coverage because if one's policy does not cover flood, and one's key supplier (scheduled under the contingent business interruption coverage) is shut down (as happened to many last year with Thailand's epic flooding), then there will be no coverage.  In other words, flood risk must be assessed at all relevant locations, not simply the insured's locations. 

Contracting away risk – Considering storm surge, one researcher has written:  "In many places, only inches separate the once-a-decade flood from the once-a-century one; and separate the water level communities have prepared for, from the one no one has seen.  Critically, a small change can make a big difference, like the last inch of water that overflows a tub."  Ben Strauss et al., Surging Seas 4 (Mar. 14, 2012).  We saw just above that insurance may not be available for a storm surge.  Is there any other path to recovery? 

Some that have purchased properties that have subsequently suffered flood damage have pursued their transaction professionals for the loss based on the theory that there should have been some disclosure.  They have had some success.  See, e.g., Perri v. Prestigious Homes, Inc., Docket No. A-0403-10T1 (N.J. Super. Ct. App. Div. Jan. 13, 2012) (suing broker for flood damage); Stonacek v. City of Lincoln, 782 N.W.2d 900 (Neb. 2010) (suing realtor, developer, engineer and city for ensuing water damage from flood); Loya v. Howard Hanna Smythe Cramer Co., 2009 Ohio 448 (Ohio Ct. App. 2009) (suing realtor for ensuing water damage from flood); Potter v. First Real Estate Co., 844 So. 2d 540 (Ala. 2002) (suing realtor based on flooding); Clay v. Walden Joint Venture, 611 So. 2d 254 (Ala. 1992) (referring to suit against realtor for flood damage).  It is relatively easy, however, to inoculate oneself against that kind of suit:  make the disclosure in the contract.  Realtors and sellers in Norfolk, Virginia apparently already do that. For a more detailed discussion see J. Wylie Donald, Getting Ahead of Storm Surge, Especially in an Era of Climate Change.

Sand bags and plywood sheeting are irreplaceable as a hurricane roars in.  Maybe one should start including other preventive steps as equally necessary in order to avoid the proverbial several pounds of cure.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McCarter & English: Climate Change & Renewable Energy | Attorney Advertising

Written by:

McCarter & English: Climate Change & Renewable Energy
Contact
more
less

McCarter & English: Climate Change & Renewable Energy on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!