CONSTRUCTION LAW A Case Study of Hurricane Katrina Responding to and Sandy Claims Catastrophic

By Aaron R. White, Storm Losses Frank Di Grande, and Michael S. Beach

Court decisions resulting Since the turn of the millennium, the insurance industry from Hurricanes Katrina has learned significant and valuable information from and Sandy have further claims associated with major catastrophes, including defined policy terms and Hurricane Katrina in 2005 and Hurricane Sandy in 2012. Hurricane Katrina and Hurricane Sandy ations greatly affected the scope of losses the rights, responsibilities were the costliest and the third-­costliest sustained by the residents and busi- natural disasters in U.S. history, respec- nesses of the geographic areas hit by and obligations of insurers tively. Since 1970, half of the 15 costliest the hurricanes. natural disasters in the United States have This article analyzes the critical mete- and their policyholders. occurred in the past 10 years. Hurricanes orological information causing these two Katrina and Sandy were caused by what catastrophic hurricanes, as well as the experts consider meteorological anoma- important legal precedent developed after lies, compared with predictable and known each weather event. This forms the basis weather threats. Some of the more fre- from which insurers now predict cata- quently occurring meteorological events, strophic weather events, underwrite cov- including Katrina and Sandy, affected areas erage, and handle and consider special of the country previously thought to be rea- circumstances based on changes in condi- sonably protected by geographic, natural, tions—including previously unanticipated and manmade barriers. or under recognized risks that may cre- The meteorological patterns of Hur- ate ambiguities in the way that insurers, ricane Katrina and Hurricane Sandy insureds, and the courts, interpret insur- deviated from the norm, and these devi- ance policies.

■ Aaron R. White is a shareholder at Boyle, Shaughnessy & Campo, P.C., in Boston, whose prac- tice focuses on business litigation, the representation of legal and real estate professionals and their professional organizations, private and public corporations, including land developers and construction contractors, international insurance and reinsurance companies, and the nation’s largest international environmental services corporation. He is the chair of the DRI Con- struction Defect Specialized Litigation Group. Frank Di Grande is the vice president of Property Claims for Privilege Underwriters Reciprocal Exchange (PURE Insurance) in White Plains, New York. He has more than 25 years in the insurance industry. Michael S. Beach is the national property director/vice president/executive general adjuster at McLa- rens in Glen Ellyn, Illinois. He joined McLarens in 1990 and specializes in large property damage and construction claims.

52 ■ For The Defense ■ February 2017 © 2017 DRI. All rights reserved. The Situation Room southern tip of Florida, passing across and the entire Mississippi Gulf Coast, including Recent catastrophic natural disasters, some into the warm waters of the Gulf of Mexico. towns such as Waveland, Bay Saint Louis, greater than ever historically recorded, Katrina next strengthened over the warm Pass Christian, Long Beach, Gulfport, have caused insurers to develop systems waters of the Gulf of Mexico. Originally Biloxi, and in Alabama, Bayou La Batre. to assist to manage risk and exposure, forecasted to strike land along the Flor- The storm surge peaked at 28 feet in Saint through the use of tactical, ground zero, or ida panhandle and Alabama, the forecast Bay Louis, Mississippi, and towns such as situation rooms, as front line tools. Most, later in the day on August 26, 2005, shifted Pass Christian, and 13 feet as far away as if not all, insurers have established inter- the track to the west, placing Louisiana, Mobile, Alabama, the highest storm surge nal divisions responsible for predicting, and its largest city, New Orleans, directly in Mobile since 1917. monitoring, and advising about poten- in the path. The change in Katrina’s track tially catastrophic events, including hurri- caused states of emergency to issue in Lou- canes, tornados, torrential rainfalls, floods, isiana, Mississippi, and Alabama, which snow storms, and periods of deep freeze. placed significant focus on the potential Recent catastrophic Through the use of technology, many insur- direct strike on New Orleans, a city with ers are developing procedures for providing an approximate population of 1.3 million natural disasters, advance notice, instructions, and warnings residents in its greater metropolitan area. to their insureds through Twitter, Face- On August 27, 2005, Katrina was up- some greater than ever book, e-mail, text message, and automated graded to Category 3 intensity, and it be- phone messages. The notices and warn- came the third major hurricane in the historically recorded, ings provided to insureds include informa- season. Soon afterward an eye-wall replace- tion about potential catastrophic weather ment cycle disrupted the intensity of the have caused insurers events that may affect the insureds’ respec- maximum winds and doubled the radius tive geographic locations. of the storm. Early on August 28, 2015, Ka- to develop systems to These tactical and situation divisions trina was upgraded to a Category 4 hurri- also assist insurers to highlight and pin- cane with maximum sustained winds of 145 assist to manage risk and point geographic areas of potential concern miles per hour. By 7:00 a.m. on the 28th, Ka- and allow the insurers to cross-­reference trina became a Category 5 hurricane with exposure, through the those areas with the locations of their cus- maximum sustained winds of 175 miles per tomers. This assists the insurers to evalu- hour and gusts of 215 miles per hour, with use of tactical, ground ate potential risk, but also to mobilize, in central pressures as low as 902 nbar. At the advance, claim and adjusting teams, and to time, Katrina’s minimum pressure was the zero, or situation rooms, prepare them for adjusting these potential fourth most intense on record (surpassed catastrophic events. Many of these insurers later in 2005 by Rita and Wilma). as front line tools. also use the tactical and situation divisions On the afternoon of August 28, Katrina to communicate with their insureds imme- was positioned 180 miles from the mouth diately after significant weather events to of the Mississippi River with tropical force Statistics and Damages ensure their safety and to initiate the claim winds extending 230 miles from the cen- FEMA estimates that the total damage for process when necessary. ter of the storm and hurricane force winds Katrina was $108 billion, resulting in the extending 105 miles from the center. “costliest hurricane in U.S. history.” Deaths Hurricane Katrina Katrina made its second landfall, first related (directly or indirectly) to Katrina The Federal Emergency Management along the Gulf Coast, near Buras-­Triumph, totaled 1,833, with more than 1,500 occur- Agency (FEMA) maintains that Katrina Louisiana, at approximately 6:00 a.m. on ring in Louisiana. More than half of the was “the single most catastrophic natural August 29, 2005, as a Category 3, with deaths in Louisiana were of individuals disaster in U.S. history.” hurricane-­sustained winds of 125 miles per over the age of 74. hour. At landfall Katrina’s hurricane winds Meteorological History extended 120 miles from center. Katrina Private Insurance Payments The 2005 hurricane season was one of proceeded up the eastern Louisiana coast- Insurance companies have paid an esti- the most destructive and busy hurricane line, and communities in Plaquemines, Saint mated $41.1 billion on 1.7 million different seasons in history. Hurricane Katrina Bernard Parrish, and Saint Tammy Parrish Katrina-­related claims for damage to vehi- was an extremely destructive Category 5 were severely damaged by storm surge and cles, homes, and businesses in six states. hurricane, which began its deadly path strong winds in the eye wall. The eye wall Sixty-three percent of the losses occurred on August 23, 2005, near the Bahamas. eventually grazed eastern New Orleans. in Louisiana and 33 percent occurred in According to the National Hurricane Cen- Because Katrina was so large, highly Mississippi. By 2007, 99 percent of the 1.7 ter (NHC), Katrina first strengthened off of destructive eye-wall winds and strong million personal property claims had been the east coast of Florida, becoming a trop- winds on the northeastern side of the storm settled by insurers. Courtesy of Insurance ical storm and then making landfall at the pushed record storm surges onto shore into Information Institute (2010). The efficiency

For The Defense ■ February 2017 ■ 53 CONSTRUCTION LAW of the claim process was affected by impassi- Sandy became a hurricane, made landfall miles from the center, and 12-foot-high ble roads, severe utility disruptions, curfews, near Kingston, Jamaica, reemerged a few seas covered a diameter of ocean 1,500 and the displacement of entire communities. hours later into the Caribbean Sea, and miles across. Tropical storm force winds strengthened into a Category 2 hurricane. at landfall were felt in a 1500-mile diam- National Flood Insurance Payments On October 25, 2012, Sandy hit Cuba as a eter. Despite its size, the winds were not The National Flood Insurance Program Category 3 hurricane, then weakened to extreme, and rainfalls were not sizeable paid out $16.3 billion in claims, with $13 a Category 1 hurricane. Early on October compared to other hurricanes. billion being paid for claims in Louisiana. 26, 2012, Sandy moved through the Baha- Sandy’s significant size caused extreme mas. On October 27, 2012, Sandy briefly volumes of ocean water to flood the East weakened to a tropical storm and then Coast, from southeastern Massachusetts restrengthened to a Category 1 early on to the Outer Banks of North Carolina. The October 29, 2012. winds and water caused the catastrophic Insurance companies On October 29, 2012, a banded eye flooding to occur in New Jersey and the redeveloped while Sandy was still over the New York metropolitan area and parts of have paid an estimated Gulf Stream, and convection organized. Long Island Sound. The storm made land- Later on October 29, 2012, Sandy began fall with a storm surge occurring near the $41.1 billion on 1.7 transitioning into an extratropical storm time of high tide along the Atlantic Coast. after the western periphery of the circula- The trajectory of Sandy was influenced by million different Katrina- tion began interacting with a cold front. the “Fujiwhara effect,” which occurs when The storm revolved around an upper-level two nearby cyclonic vortexes orbit each related claims for damage low over the eastern United States, and other and close the distance between the also to the southwest of a ridge over Atlan- circulations of their low pressure areas. to vehicles, homes, and tic Canada that the NHC has described as “highly anomalous.” As a result, Sandy Statistics and Damages businesses in six states. took a turn to the north and northwest, Sandy was the deadliest and most destruc- rather than out into the North Atlantic tive hurricane of the 2012 Atlantic hur- Ocean. After the turn, Sandy again inten- ricane season, and the second-­costliest Effect on New Orleans and the Gulf Coast sified, reaching a secondary peak of 100 hurricane in United States history (behind Torrential rains and storm surge caused by mph (160 km/h). Katrina). Estimates as of 2015 assessed Katrina caused levies to fail and flood 80 Importantly, Sandy’s convection damage to have been about $75 billion, a percent of the city of New Orleans. Seventy diminished while she accelerated toward total surpassed only by Hurricane Katrina. percent of New Orleans’ occupied housing, the New Jersey coast, due to becoming At least 233 people were killed along the 134,000 units, was damaged in the storm. involved with the low to the west. The path of the storm in eight countries. Forty percent of the deaths in Louisiana pressure continued to drop, which indi- were caused by drowning. cated that the system was intensifying Effect on the Northeastern United States More than one million people in the because of baroclinic instability. The NHC In the United States, Sandy affected 24 Gulf region were displaced by the storm. declared Sandy a post-­tropical cyclone at states, including the entire Eastern Sea- At their peak, hurricane relief shelters about 2100 UTC (coordinated universal board, from Florida to Maine, and west housed 273,000 people. Later, approxi- time) that afternoon, while located just across the Appalachian Mountains to Mich- mately 114,000 households were housed in offshore from southern New Jersey. This igan and Wisconsin, with particularly se- FEMA trailers. declaration affected the coverage available vere damage in New Jersey and New York. to thousands of insured parties. About The storm damaged or destroyed at least Hurricane Sandy two and half hours later, the storm made 650,000 homes, and 8 million customers The National Oceanic Atmospheric Asso- landfall approximately 5 miles (8 km) lost power. Its storm surge hit New York City ciation (NOAA) claims that since it began northeast of Atlantic City near Brigantine, on October 29, 2015, flooding streets, tun- recording the size of storms, only one trop- New Jersey. Sandy’s intensity at landfall nels, and subway lines and cutting power in ical storm or hurricane has been larger was originally estimated at 80 mph (130 and around the city. Damage in the United than Sandy. km/h), but the strongest recorded winds States amounted to $71.4 billion. were located offshore, east and southeast Damage was estimated to $29.4 billion in Meteorological History of the center. New Jersey, with 30,000 homes significantly According to data from the National Hurri- When it reached into the cold waters destroyed and 42,000 structures sustain- cane Center (NHC), Sandy developed from of the Atlantic, Sandy transitioned from ing damages. Sandy was responsible for 38 a tropical wave in the western Caribbean a tropical to a non-­tropical system, and deaths in New Jersey. The damage to New Sea on October 22, 2012, quickly strength- as a result and during the process, the Jersey coastal communities was caused pre- ened, and was upgraded to “tropical storm” wind field greatly increased, with gale- dominantly by storm surge. Astronomically Sandy six hours later. On October 24, 2012, force winds extending northeastwards 520 high tides that were caused by a full moon

54 ■ For The Defense ■ February 2017 and a rare spring, high-tides cycle, with Many thousands of claims related to in the United States District Court for the highest tides reaching the ocean front Hurricane Katrina in Louisiana were the Eastern District of Louisiana, and and Rariton Bay area and a storm surge of denied due to floods caused by the failure ultimately appealed to the Fifth Circuit 5 to 9 feet. The tide reached 13.3 feet above of manmade levies, where insureds argued Court of Appeals. See In Re: Katrina Canal the lower level in Sandyhook, New Jersey, that flood exclusions in their policies, did Breaches Litigation, 495 F. 3d 191 (5th Cir. and within 45 minutes, collapsed the pier. not contemplate, nor include, floods caused 2007). The claimants asserted that the At the entrance to New York, the New York by the negligence of third parties, including water damage “was not the result of flood, harbor buoy reported breaking seas of 32.5 the Army Corp of Engineers. Because of surface water, waves, [tidal] water, tsu- feet. Estimates suggest that waves reached the timing of the weakening Sandy, many nami, breach, overflow of a body of water, 12 to 24 feet along the ocean front of New insurers denied claims in coastal commu- Jersey, and along Monmouth County most nities affected by storm surge and flood- ocean front barrier island homes were ei- ing where the recorded wind speeds were ther destroyed or moved by storm surge. not as severe as expected, resulting in little Sandy caused $18.75 Statistics Courtesy of the National Climac- wind damage but catastrophic flood dam- tic Data Center (NCDC). age instead. billion in insured property As expected, significant litigation Private Insurance Payments resulted soon after these catastrophic losses, excluding flood Sandy caused $18.75 billion in insured storms. This litigation has assisted insur- property losses, excluding flood insur- ers and their insurers to understand the insurance claims covered ance claims covered by the National Flood coverage, limitations on coverage, rights, Insurance Program, according to Property and remedies available to each party under by the National Flood Claim Services (PCS), a division of Verisk the applicable insurance contracts. Analytics. New York and New Jersey suf- Insurance Program, fered the largest private insurance losses Hurricane Katrina Litigation from Sandy. The most precedent-­setting litigation according to Property to emerge from Hurricane Katrina had National Flood Insurance been the Katrina Canal Breaches Litiga- Claim Services (PCS), a and FEMA Payments tion, Tuepker v. State Farm, and Corban v. More than 2,100 FEMA housing inspec- USAA, discussed more below. division of Verisk Analytics. tors were dispatched to inspect the losses. The National Flood Insurance Program Katrina Canal Breaches Litigation paid approximately $6.4 billion in flood- On the morning of August 29, 2005, Hur- seepage under or over the outfall canal related claims. FEMA and the U.S. Small ricane Katrina struck along the coast of wall or spray from any of the above but was Business Administration have disbursed the Gulf of Mexico, devastating portions water intrusion, caused simply from a bro- nearly $16.9 billion for recovery since Hur- of Louisiana and Mississippi. In the city of ken levee wall.” ricane Sandy made landfall on the East New Orleans, some of the most significant Several of the insurers’ policies con- Coast three years ago. Courtesy of FEMA, damage occurred when levees along three tained the following flood exclusion: http://www.fema.gov/news. major canals—the 17th Street Canal, the We do not insure for loss caused directly Industrial Canal, and the London Ave- or indirectly by any of the following. Claims and Resulting Litigation nue Canal—ruptured, permitting water Such loss is excluded regardless of any Hurricane Katrina and Hurricane Sandy from the flooded canals to inundate the other cause or event contributing con- each occurred under unusual weather pat- city. At one point in Katrina’s aftermath, currently or in any sequence to the loss… terns, and each significantly weakened approximately 80 percent of the city was Water Damage, meaning: before making landfall. Both caused sig- submerged in water. Insurers writing cov- “…Flood, surface water, waves, tidal nificant storm surge, which resulted in erage in the areas inundated by floods, water, overflow of a body of water, or thousands of claims requiring insurers to caused in part by the failure of levies, spray from any of these, whether or not evaluate wind versus flood coverage issues. in large part denied coverage based on driven by wind.” Many more anti-­concurrent cause or effi- flood exclusions included in the policies. Other policies at issue contained the fol- cient proximate cause claims occurred for Insureds argued that their policies’ flood lowing flood exclusion: which insurers relied on engineers to eval- exclusions in this context were ambiguous We do not insure under any coverage for uate each particular claim to determine if because they did not clearly exclude cov- any loss which would not have occurred the wind and flood claims occurred con- erage for an inundation of water induced in the absence of one or more of the fol- currently and were distinguishable. Fur- by negligence. lowing excluded events. We do not insure ther, many of the losses resulting from These significant disputes resulted for such loss regardless of: (a) the cause Katrina and Sandy considered whether in multiparty litigation known as In re: of the excluded event; or (b) other causes ensuing losses triggered coverage. Katrina Canal Breaches Litigation, filed of the loss; or (c) whether other causes

For The Defense ■ February 2017 ■ 55 CONSTRUCTION LAW

acted concurrently or in any sequence uous. But the fact that a term used in cluded coverage for water damage result- with the excluded event to produce the an exclusion “is not defined in the policy ing from the failure of a structure, such as loss; or (d) whether the event occurs sud- itself… alone does not make the exclusion a dam or dike, and discovered that they denly or gradually, involves isolated or ambiguous; instead, [the court] will give had uniformly declared that the inunda- widespread damage, arises from natural the term its generally prevailing meaning.” tion of water falls within the language of or external forces, or occurs as a result of Am. Deposit Ins. Co., 783 So.2d at 1287 (cit- the exclusion. Russell G. Donaldson, Anno- any combination of these. ing La. Civ. Code art. 2047); see also Hen- tation, What is “Flood” Within Exclusion- Water Damage, meaning: dricks v. Am. Employers Ins. Co., 176 So.2d ary Clause of Property Damage Policy, 78 “(1) flood, surface water, waves, tidal 827, 830 (La. Ct. App. 1965). A.L.R.4th 817 (1990 & Supp. 2007) (citing The plaintiffs also maintained that Kane v. Royal Ins. Co. of Am., 768 P.2d 678 because the insurers could have more (Colo. 1989); Bartlett v. Cont’l Divide Ins. explicitly excluded floods that are caused Co., 697 P.2d 412 (Colo. Ct. App. 1984); and The court determined,  in part by negligence, their failure to do so E.B. Metal & Rubber Indus., Inc. v. Fed. Ins. in these policies made the flood exclusions Co., 444 N.Y.S.2d 321 (N.Y. App. Div. 1981)). in light of these definitions, ambiguous because the insurer defend- The court determined, in light of these ants knew about the availability of policy definitions, that the flood exclusions were that the flood exclusions forms that more explicitly excluded floods unambiguous in the context of this case caused in part by man, but the insurers and that what occurred here fit squarely were unambiguous in the they elected not to amend their policies. within the generally prevailing meaning The court rejected the plaintiffs’ arguments of the term “flood.” See Katrina Canal context of this case and that the flood exclusions in the policies Breaches, 495 F.3d at 213. When a body were ambiguous in light of more specific of water overflows its normal boundaries that what occurred here language used in other policies. and inundates an area of land that is nor- The court first applied the general rules mally dry, the event is a flood. Id. This is fit squarely within the of contract construction set forth in the precisely what occurred in New Orleans in Civil Code. La. Ins. Guar. Ass’n, 630 So.2d the aftermath of Hurricane Katrina. Three generally prevailing meaning at 764. Under those rules, the court deter- watercourses—the 17th Street, Industrial, mined that the words of a contract should and London Avenue Canals—overflowed of the term “flood.” be construed by their “generally prevail- their normal channels, and the levees built ing meaning.” La. Civ. Code Ann. art. 2047; alongside the canals to hold back their see also Katrina Breaches Litigation, 495 floodwaters failed to do so.Id. As a result, water, overflow of a body of water, or F.3d at 207. The court relied on dictionar- an enormous volume of water inundated spray from any of these, all whether ies, treatises, and jurisprudence as helpful the city. In common parlance, this event is driven by wind or not…” resources to ascertaining a term’s generally known as a flood.Id. The policies also defined “caused by” as prevailing meaning. Additionally, the court ruled that a levee “any loss that is contributed to, made worse The court indicated that the most is a flood-control structure; its very pur- by, or in any way results from that peril.” straightforward definition came from the pose is to prevent the floodwaters of a Under Louisiana law, ambiguity may American Heritage Dictionary: “An over- watercourse from overflowing onto cer- also be resolved through the use of the flowing of water onto land that is normally tain land areas, i.e., to prevent floods from reasonable-expectations­ doctrine, i.e., “by dry.” American Heritage Dictionary of the becoming more widespread. See 50 AM. ascertaining how a reasonable insurance English Language 674 (4th ed.2000). JUR. 2D Levees and Flood Control §1 (2006) policy purchaser would construe the clause The court also considered the discus- (defining “levee” as “an embankment con- at the time the insurance contract was sion of “flood” in the Columbia Encyclo- structed along the edge of a river to prevent entered.” La. Ins. Guar. Ass’n, 630 So.2d at pedia, which specifically included in the flooding”). Id. By definition, whenever a 764 (quoting Breland v. Schilling, 550 So.2d definition the inundation of water resulting levee ruptures and fails to hold back flood- 609, 610–11 (La.1989)). But “[e]xclusion- from the bursting of a levee: “Inundation of waters, the result is a more widespread ary provisions in insurance contracts are land by the rise and overflow of a body of flood. That a levee’s failure is due to its strictly construed against the insurer, and water. Floods occur most commonly when negligent design, construction, or mainte- any ambiguity is construed in favor of the water from heavy rainfall, from melting ice nance does not change the character of the insured.” Ledbetter v. Concord Gen. Corp., and snow, or from a combination of these water escaping through the levee’s breach; 665 So.2d 1166, 1169 (La.2006) (citing Gar- exceeds the carrying capacity of the river the waters are still floodwaters, and the cia v. St. Bernard Parish Sch. Bd., 576 So.2d system, lake, or ocean into which it runs.” result is a flood. See Katrina Canal Breaches 975, 976 (La.1991)). The court also considered decisions of Litigation, 495 F. 3d at 215. The plaintiffs in the litigation first -con courts outside Louisiana that evaluated The plaintiffs in the case focused on tended that because the term “flood” was whether a flood exclusion similar to the the alleged negligent design, construction, not defined in the policies, it was ambig- ones in this litigation unambiguously pre- or maintenance of the levees as being the

56 ■ For The Defense ■ February 2017 cause of the flood, and the court accepted rejected this position, ruling that the plain ory to apply,… there must be two sepa- this as true (for the purpose of assess- language of the hurricane-­deductible rate or distinct perils…. ”); Kish, 883 P.2d ing the motions to dismiss) and the plain- endorsements indicates that they do noth- at 311 (“The efficient proximate cause rule tiffs’ allegation that the canals’ floodwaters ing more than alter the deductible for applies only where two or more indepen- would not have reached their property had damage caused by a hurricane. Id. at 220. dent forces operate to cause the loss.”). In the negligence not occurred. Id. at 215. Nothing in the language of the endorse- the Katrina Canal Breaches Litigation, the This focus, however, ignored the sizeable ments purports to extend coverage for court ruled that there were not two inde- natural component to the disaster: a cat- floods or to restrict flood exclusions; pendent causes of the plaintiffs’ damages at astrophic hurricane and the excess water indeed they do not even include flood or play; the only force that damaged the plain- associated with it. Id. The non-­natural water (other than rain) in the definition component was simply that in certain of “hurricane.” Further, the endorsements areas, man’s efforts to mitigate the effect state that all other provisions of the poli- of the natural disaster failed, with devas- cies apply, indicating that the flood exclu- The efficient proximate tating consequences. Id. Importantly, the sions remain in effect. court indicated that “it is difficult to con- The plaintiffs finally argued that the -doc cause doctrine applies only ceive how an insurer could ever exclude trine of efficient proximate cause was appli- the resulting loss; any natural event could cable to their losses. Id. at 222. Under this where two or more distinct be re-­characterized as non-natural either doctrine, as it is applied in many jurisdic- because man’s preventative measures were tions, when a loss is caused by a combina- actions, events, or forces inadequate or because man failed to take tion of a covered risk and an excluded risk, preventative measures at all.” Id. the loss is covered if the covered risk was combined to create the loss. Any time a flooded watercourse encoun- the efficient proximate cause of the loss. ters a man-made levee, a non-natural com- Couch, supra, at §§101:43–:45, :53–: 55; Id. ponent is injected into the flood, but that The efficient proximate cause of the loss is tiffs’ properties was flood. Id. at 223. To the does not cause the floodwaters to cease the dominant, fundamental cause, or the extent that negligent design, construction, being floodwaters.Cf. Smith v. Union Auto. cause that set the chain of events in motion. or maintenance of the levees contributed Indem. Co., 323 Ill. App. 3d 741, 257 Ill. See Couch, supra, at §101:45. to the plaintiffs’ losses, it was only one fac- Dec. 81, 752 N.E.2d 1261, 1267 (2001); Id. Many of the insurance policies involved tor in bringing about the flood; the peril of at 218. in the litigation excluded “loss caused negligence did not act, apart from flood, to The plaintiffs finally contended that the directly or indirectly by” flood “regard- bring about damage to the insureds’ prop- reasonable expectations of homeowners less of any other cause or event contrib- erties. Id. insurance policyholders would be that uting concurrently or in any sequence damage resulting from man-made floods to the loss.” Id. at 222. This language, Tuepker v. State Farm would be covered, and policy construc- which the district court referred to as an The case of Tuepker v. State Farm Fire & tion required: “ascertaining how a rea- anticoncurrent-­causation clause, has been Casualty Company, 507 F.3d. 346 (2007), sonable insurance policy purchaser would recognized as demonstrating an insurer’s decided three months after theKatrina construe” the clause. However, the court intent to contract around the operation of Canal Breaches Litigation case, further ruled that ‘Louisiana law… precludes use the efficient-proximate-­ cause­ rule. See, e.g., framed the manner with which insur- of the reasonable expectations doctrine TNT Speed & Sport Ctr., Inc. v. Am. States ers may respond to losses caused princi- to recast policy language when such lan- Ins. Co., 114 F.3d 731, 732–33 (8th Cir.1997). pally by storm surges when policies include guage is clear and unambiguous.” 495 F. The court remarked that this case did not anticoncurrent-­causation clauses (ACC). 3d at 206 (citing and quoting Coleman v. present a combination of forces that caused In Tuepker, Katrina completely Sch. Bd. of Richland Parish, 418 F.3d 511, damage and that it therefore was not anal- destroyed the home of plaintiffs-­appellees-­ 522 (5th Cir.2005)). According to the court, ogous to cases where Hurricane Katrina cross-­appellants John and Claire Tuepker. the flood exclusions in the policies were may have damaged property through both Their residence and the property con- unambiguous in the context of the specific wind and water. Cf. Tuepker v. State Farm tained within it were located in Mississippi, facts of this case; thus, it needed not resort Fire & Cas. Co., No. 1:05-CV-599, 2006 WL and insured by defendant-­appellant-­ to ascertaining a reasonable policyholder’s 1442489, 2006 U.S. Dist. Lexis 34710 (S.D. cross-­appellee State Farm Fire and Casu- expectations. Id. at 219. Miss. May 24, 2006). alty Company. The plaintiffs in the Katrina Canal The efficient proximate cause doc- The Tuepkers argued in their complaint Breaches Litigation next asserted that trine applies only where two or more dis- that “…regardless of whether the total because many of the policies contained tinct actions, events, or forces combined damage to Plaintiffs’ insured property was a “Hurricane Deductible Endorsement,” to create the loss. See Pieper v. Commer- caused by hurricane wind, storm surge prox- reasonable policyholders would expect cial Underwriters Ins. Co., 59 Cal. App. imately caused by hurricane wind, or both, those policies to cover damage resulting 4th 1008, 69 Cal. Rptr. 2d 551, 557 (1997) the so-called ‘flood’ exclusion… all whether from a hurricane. Id. at 220. The court (“For the efficient proximate cause the- or not driven by wind,’ is not applicable here

For The Defense ■ February 2017 ■ 57 CONSTRUCTION LAW and in any event, is modified by the ‘Hur- non-­excluded event or peril acts “con- Association Insurance Agency (USAA), ricane Deductible’.” Id. at 348. They further currently or in any sequence” with the both of which were in force at the time that argue that “[t]his ‘flood’ exclusion is ambig- excluded event to cause the loss in ques- the losses were suffered. uous and deceiving when read in conjunc- tion. TheTuepker court further noted that The Mississippi Supreme Court con- tion with… the ‘Hurricane Deductible’.” Id. “any damage caused exclusively by a non-­ sidered whether the Fifth Circuit Court of The Tuepker court determined that the excluded peril or event such as wind, not Appeals erred in its “Erie-­guess” in its deci- policy’s water damage exclusion “accu- concurrently or sequentially with water sions in Leonard and Tuepker that under rately describe the influx of water into damage, is covered by the policy, while all Mississippi insurance contract law “indi- the Tuepkers’ home that was caused by damage caused by water or by wind acting visible damage” caused by both wind and concurrently or sequentially with water, is water in a hurricane was excluded under excluded.” See Tuepker, 507 F. 3d at 354. the contract terms of the homeowner’s pol- Lastly, the Tuepker court evaluated the icies at issue, and whether for a hurricane The omission of the efficient proximate cause doctrine. Id. at loss, the efficient proximate cause is a cov- 356. Under that doctrine, when a loss is ered event. Id. at 607. specific term “storm caused by the combination of both covered The court in Corban noted that “storm and excluded perils, the loss is fully cov- surge is a phenomenon associated with surge” did not create ered by the insurance policy if the covered hurricanes. Atmospheric conditions and risk proximately caused the loss. See Leon- wind forces combine to force tidal waters ambiguity in the policy ard, 499 F.3d at 432. Under this doctrine, if ashore and temporarily inundate areas of a policy covers wind damage but excludes normally dry land.” In Leonard and Tuep- regarding coverage water damage, the insured may recover for ker, both the United States district court damages if it can show that the wind (the and the Fifth Circuit found that “storm available in a hurricane. covered peril) proximately or efficiently surge” was included within comparable caused the loss, notwithstanding that there “water damage” exclusions. See Corban, 20 were other excluded causes contributing to So.3d at 611. The court, quoting theLeon - the Katrina storm surge.” Id. at 352. The that loss, such as flooding. Id. (citing Lititz ard decision, noted that “storm surge” is Tuepker court also noted that its decision Mut. Ins. Co. v. Boatner, 254 So.2d 765, 767 little more than a synonym for a “tidal was consistent with its decision evaluating (Miss.1971)). wave” or wind-driven flood, both of which the similarly worded policies considered TheTuepker court noted that the efficient are excluded perils. Id. The omission of the in the Katrina Canal Breaches Litigation. proximate cause doctrine is the “default specific term “storm surge” did not create Specifically, the court ruled that in inter- causation rule in Mississippi regarding ambiguity in the policy regarding cover- preting an almost identical water dam- damages caused concurrently by a cov- age available in a hurricane and did not age exclusion and applying Mississippi ered and an excluded peril under an insur- entitle the Leonards to recovery for their law, “storm surge” was “little more than a ance policy.” It therefore ruled, consistent flood-induced damages. Leonard, 499 F.3d synonym for a ‘tidal wave’ or wind-driven with its decision in Leonard interpreting at 437–38 (footnotes omitted). As a result, flood,” both of which were perils excluded Louisiana law, that the ACC clause in State the Corban court affirmed the Fifth -Cir by the State Farm policy. Tuepker, 507 Farm’s policy overrode the efficient proxi- cuit’s ruling that “storm surge” is con- F.3d at 353. As a result, the Tuepker court mate cause doctrine. tained unambiguously within the “water concluded that under Mississippi law, the damage” exclusion. The Corban court also water damage exclusion was valid and Corban v. USAA found that “storm surge” is plainly encom- that the storm surge damaged the Tuep- The Mississippi Supreme Court also consid- passed within the “flood” or “overflow of kers’ home. ered whether the policies issued by insurers a body of water” portions of the “water The Tuepker court next analyzed the excluded storm surge resulting from hur- damage” definition, and no other “logical applicability of the ACC clause. Id. The ricane fell within water damage exclusion, interpretation” exists. Martin, 998 So.2d Tuepker court considered another Fifth whether an ACC clause excluded coverage, at 963. Circuit decision in which it ruled that a and which facts are to be considered by TheCorban court next evaluated USAA’s Nationwide Mutual Insurance Company parties evaluating claims for coverage that ACC clause. The court ruled that this was ACC clause, which was similar to that in these provisions may affect. See Corban v. consistent with the loss settlement provi- the State Farm insurance policy in this United Services Auto. Ass’n, 20 So.3d 601 sion of USAA’s policy giving the option to case, was not ambiguous under Mississippi (2009). Magruder S. and Margaret Corban USAA to pay for the cost to repair or restore law. Leonard v. Nationwide Mutual Ins. incurred losses caused by physical dam- the property to the condition “just before Co., 499 F.3d 419, 430 (5th Cir. 2007). Both age to their Long Beach, Mississippi, resi- the loss,” and defined “replacement cost” as clearly state that excluded losses—here, dence during Hurricane Katrina on August the “cost, at the time of loss.” Id. any loss which would not have occurred in 29, 2005. Id. at 605. The Corbans had pur- The court also next considered USAA’s the absence of one or more of the excluded chased a homeowner’s policy and a flood argument that the policy excluded losses events—would not be covered even if a policy from United Services Automobile caused by perils that may coexist. Id. In

58 ■ For The Defense ■ February 2017 doing so, the Corban court reviewed the not be used to divest the insureds of their Hurricane Sandy Litigation meaning of the term “concurrently.” Id. right to be indemnified for covered losses. A significant amount of litigation result- USAA argued that this policy excluded See Martin, 998 So.2d at 963; Wall, 127 So. ing from Hurricane Sandy between insur- losses caused by perils that may coexist. at 300 (if “[t]he two clauses of the policy ers and their policyholders related to The court examined the policy to deter- are so conflicting that they cannot stand the wind versus flood debate. Insurers mine if this assertion was supported by together-­one must give way to the other; learned lessons from the Mississippi and its language. The term “concurrently” was and, under the principles stated, the pro- Louisiana courts, which interpreted the defined as “1. Occurring at the same time. vision most favorable to the insured must meaning of “flood,” “water damage,” and 2. Operating in conjunction. 3. Meeting or be upheld.”). ensuing losses. As noted in the meteo- tending to meet at the same point: Conver- The Corban court next evaluated the gent.” Webster’s II New College Dictionary ACC clause, ruling that it applies only if at 234; see also Black’s Law Dictionary at and when covered and excluded perils 363. The Corban court ruled that the exclu- contemporaneously converge, operating Ultimately, a battle sion applied only in the event that the perils in conjunction, to cause damage resulting act in conjunction, as an indivisible force, in loss to the insured property. Id. at 616. of the experts has and occurring at the same time, to cause direct If the insured property is separately dam- physical damage resulting in loss. Id. The aged by a covered or excluded peril, the will occur, with insurers Corban court again accepted the Fifth Cir- ACC clause is inapplicable. Id. If damage cuit’s interpretation of Mississippi law and is caused by a covered peril, the insured is bearing the heavy burden noted that it would apply the ACC clause to entitled to indemnification for the covered exclude coverage. loss because the insured’s right to recover to prove that the losses are The Corban court next considered for the loss has vested. Id. Conversely, if whether the “in any sequence” provi- the damage is caused by an excluded peril, excluded under the flood sion of the exclusion affected coverage. the insured is not entitled to indemnifica- The court ruled that the phrase “in any tion for that uncovered loss. Id. As a result, exclusion of the policy. sequence” means “sequentially.” Id. The a finder of fact must determine which term “sequentially” was defined as “1. losses, if any, were caused by wind, and Forming or marked by a sequence, as of which losses, if any, were caused by flood. rological information above, Sandy was notes or units.” Webster’s II New College Id. For example, if the property first suf- largely considered a tropical storm when Dictionary at 1008; see also Garner, A Dic- fers damage from flood, resulting in a loss, it made landfall in New Jersey. The storm tionary of Modern Legal Usage at 795 (“‘[s] and then wind damage occurs, the insured surge was significant along the Eastern equential’ means ‘forming a sequence can only recover for the losses attributable Seaboard, inundating communities from or consequence.’ ”). Id. The court noted to wind. Id. southern Massachusetts to Delaware. The that the term “in any sequence” was con- Accordingly, the Corban court con- storm surge contributed to many claims tained within an exclusionary clause for cluded “that the ACC clause has no appli- of inundation of homes caused by storm “water damage” losses. Id. at 615. Because cation for losses caused by wind peril. An sewer backups, and it damaged infrastruc- “loss occurs at that point in time when insurer may not abrogate its duty to indem- ture, including utilities. Damage to elec- the insured suffers deprivation of, physi- nify for such loss by the occurrence of a trical and natural gas utilities in parts cal damage to, or destruction of the prop- subsequent, excluded cause or event, a posi- of New York City and New Jersey caused erty insured[,]” this term could not be used tion advanced by amicus Nationwide.” fires, which in cases such as Breezy Point, to divest an insured’s right of indemnity The lessons learned from the Mississippi Queens, destroyed 122 homes. Many liti- for a covered loss, as such an interpreta- Supreme Court’s ruling in Corban have gated cases remain on trial dockets in New tion conflicts with other provisions of the implications for the application of ACC York and New Jersey, and recent written USAA policy. clauses in future catastrophic weather-­ decisions affect the coverage issues being The Corban court therefore concluded related losses. Insurers and their experts challenged in the cases. that the “concurrently” and “in any must carefully evaluate the available sequence” provisions “irreconcilably con- weather data to determine if the covered Amtrak v. Arch Specialty Insurance flict” with the “in any sequence” language, losses occurred before, concurrent with, Hurricane Sandy inundated many of the thereby creating an ambiguity. In Mis- or subsequent to non-­covered perils. Ulti- transportation systems in the southern sissippi, a court is required to construe mately, a battle of the experts has and will portion of New York City with water due an “equally reasonable” interpretation of occur, with insurers bearing the heavy bur- to storm surge. The height of the storm ambiguous policy provisions in favor of den to prove that the losses are excluded surge left tunnels vulnerable to floods. the non-­drafting, insured party (the Cor- under the flood exclusion of the policy. In the case National Railroad Passenger bans). Wall, 127 So. at 299. As a result, Each claim requires heightened scrutiny Corp. v. Arch Specialty Insurance Com- the Corban court concluded that the “in due to the multitude of factors involved in pany et al, 124 F. Supp. 3d 264 (2015), any sequence” language in the policy may the coverage analysis. the U.S. District Court for the Southern

For The Defense ■ February 2017 ■ 59 CONSTRUCTION LAW

District of New York evaluated an insur- process, which removed millions of gal- of any other cause or [e]vent contributing ance coverage dispute between plaintiff lons of water from the tunnels, left behind concurrently or in any other sequence of National Railroad Passenger Corporation “chlorides” from the brackish water, but it loss.” The court ruled that Amtrak’s argu- (Amtrak) and various defendant insur- did not remove the chlorides from the ERT ment faltered at each step. First and fore- ance companies (the insurers) that arose and NRT. Id. most, the interpretation of “flood” that in the aftermath of Superstorm Sandy. Amtrak alleged that the chlorides that Amtrak advanced could not be reconciled The allegations in the Amtrak’s complaint remained in the tunnels combined with with the plain language of the policies. indicated that it purchased a set of all-risk the surrounding environment to cause Id. Multiple courts have found that storm property insurance from the insurers, as additional damage, described by Amtrak surge “is little more than a synonym for a as a “chloride attack.” See id. According ‘tidal wave ’ or wind-driven flood.”New to Amtrak, “the damage process” brought Sea Crest, 2014 WL 2879839, at *3 (quot- about by the chloride attack “requires a ing Bilbe v. Belsom, 530 F.3d 314, 317 (5th The court ruled that combination of chlorides, humidity and Cir.2008)) (Katrina litigation). oxygen.” Id. In addition, the court evaluated the insurers are not “charged As part of its damages claim, Amtrak plain meaning of “flood” as defined by first sought to replace the existing track bed Merriam–Webster’s Collegiate Diction- with reading all the policies in each tunnel, which allegedly incurred or ary 1233 (10th ed. 1997), to include “tidal would incur chloride damage with a “direct wave” as both “an unusually high sea wave issued” that define flood fixation” system.Id. at 268–69. According that sometimes follows an earthquake” to Amtrak, while the existing track bed and “an unusual rise of water alongshore coverage, “but only the “necessarily” produces an “uneven walk- due to strong winds.” Id. at 271. Second, way surface,” direct fixation, which “lay Amtrak’s consultation of other policies to terms of their own policies.” [s] the rails in a concrete bed instead of prove the meaning of the policies in issue ballast,” “would create a continuous, level was inappropriate. Id. Under New York walking surface in the event of an emer- law, extrinsic evidence should not be con- well as other non-­defendant insurers, for gency.” Id. at 269. sulted unless an ambiguity exists. See, the policy period spanning December Second, Amtrak sought to replace the e.g., W.W.W. Associates, Inc. v. Giancon- 2011 to December 2012. Collectively, the entirety of the benchwalls within the tun- tieri, 565 N.Y.S.2d 440 (1990). The court insurance policies provided a maximum nels. Id. The benchwalls, which run along ruled that insurers are not “charged with of $675 million. Id. the sides of the tunnels from “portal to por- reading all the policies issued” that define The policies issued to Amtrak defined tal,” are structures within the tunnels that flood coverage, “but only the terms of their “flood” in one of two ways. The majority of “house ducts that contain electrical wir- own policies.” Id. The court ruled that dif- the policies defined flood to mean “a rising ing, equipment, cables, and other essential ferences among policies, therefore, cannot and overflowing of a body of water onto equipment,” and they serve as a means of be used to show a “meeting of the minds” normally dry land.” A smaller number of egress from, and access to, trains during of the parties to the policy under consid- insurers defined “flood” to mean a tempo- emergencies. Id. eration. See id. rary condition of partial or complete inun- The court first found that the defini- The Amtrak court next evaluated dation of normally dry land from tions of the term “flood” unambiguously Amtrak’s “ensuing loss” argument. Id. at (1) the overflow of inland or tidal waters encompassed inundation of normally dry 273. Amtrak argued that even if the sub- outside the normal watercourse or land that was caused by storm surge. Id. limit applied to some of Amtrak’s losses natural boundaries Storm surge, as the parties agreed, pushed arising from Superstorm Sandy, loss result- (2) the overflow, release, rising, back-up, water beyond its usual borders and onto ing from the chloride attack constitutes runoff or surge of surface water; or normally dry land. Id. The court noted that “ensuing loss” that was beyond the reach (3) The unusual or rapid accumulation “indeed, Amtrak concedes that the ‘collo- of the flood sublimit. “Ensuing loss” is a or runoff of surface water from any quial’ use of the word ‘flood’ encompasses term of art in insurance law, and policies sour[ce]. the type of inundation that Amtrak’s tun- allowing for such loss provided coverage Id. nels sustained during Superstorm Sandy.” when, as a result of an excluded peril, a cov- According to the court, Sandy gener- Id. at 270. ered peril arises causing the damage. Id. at ated a “storm surge” that drove water from Amtrak engaged in a comparison of the 274; see also Platek v. Town of Hamburg, 24 the East and Hudson Rivers onto the shore definitions of flood contained in the pol- N.Y. 3d 688, 695 (2015) (quoting 2 Ostrager and led to the inundation of Amtrak’s tun- icies. The policies defined flood as “sur- & Newman, Insurance Coverage Disputes nels under the East River (referred to as face water, flood waters, waves, tide or tidal Sect. 21,04[h] at 1721. Put differently, ensu- the East River Tunnel or “ERT”), its tun- waters, sea surge, tsunami, the release of ing loss occurs when an insured sustains nel under the Hudson River (referred to as water, the rising, overflowing or breaking “a new loss to property that is of a kind not the North River Tunnel or “NRT”), and cer- of defenses of natural or manmade bodies excluded [or subjected to a sublimit],” Id. at tain other Amtrak property. Id. at 267. The of water or wind driven water, regardless 696, 3 N.Y.S.3d (internal quotation marks

60 ■ For The Defense ■ February 2017 omitted), and that is “collateral or subse- bed and benchwalls. Id. Each of Amtrak’s • flood, surface water, waves, tidal quent” to the excluded or sublimited loss. insurance policies includes a “demolition water, overflow of water from a body See Narob Dev. Corp. v. Ins. Co. of N. Am., and increased cost of construction” clause of water, or water borne material from 219 A.D.2d 454, 631 N.Y.S.2d 155, 156 (1st (the DICC clause) that provided a limited any of these, including when any such Dep’t 1995). right to coverage for undamaged property. waters or water borne material enters The court ruled that the distinction The insurers argued that 49 U.S.C. and backs ups or discharges from Amtrak drew between “water damage” Sect. 24902(j) exempted Amtrak from any overflows from any sewer or drain and “chloride damage” was artificial, “State or local law from which a project located outside of or on the exterior especially in the context of a sublimit that would be exempt if undertaken by the of a fully enclosed dwelling. applied to “flood.” For loss to constitute Federal Government or an agency thereof “ensuing loss” from flood, the flood must within a Federal enclave wherein Federal cause some sort of damage, which, in jurisdiction is exclusive.” Id. at 278. The turn, creates a separate damage-­causing court ruled that neither Amtrak’s observa- A recent report issued agent that brings about “ensuing loss.” Cf. tion that the FRA had, in the past, referred Platek, 24 N.Y.3d at 695 (explaining that to NFPA 130, see id., nor its speculation by Swiss Re cautions the classic example of “ensuing loss” is that the FRA may require compliance at loss resulting from a fire caused by dam- some unknown time in the future, cf., that Hurricane Sandy age from an earthquake). Here, the dam- e.g., Sullivan Decl. ¶ 13 (vaguely predict- age from the flood did not give rise to a ing that Amtrak “expects that it will have was nothing more than different type of peril; rather, one aspect to comply with” NFPA 130), was sufficient of the flood of brackish seawater—the to create a genuine issue of fact regard- a harsh reminder that inundation of salt—was left behind, and ing whether Amtrak’s losses “cause[d] the it caused damage. This may have been enforcement of any law, ordinance, gov- more powerful storms— subsequent to the moment of the influx ernmental directive or standard.” Accord- of water, but it was not subsequent to loss ingly, the Amtrak court concluded that akin to the 156-mph caused by the flood. Id. the repairs that Amtrak desired to make Amtrak next argued that its losses arose to the undamaged portions of the track Norfolk-Long Island from three different occurrences. Id. at bed and the benchwalls were not required 276. “Occurrence number one is the water by local ordinances, the FRA, or the ADA, Hurricane of 1821— damage directly caused by the peril of and Amtrak was therefore not entitled to storm surge.” Id. “Occurrences number two coverage for such repairs under the DICC await the Jersey Shore and three” are the chloride damage that clause. Id. at 279. Amtrak suffered at the NRT and the chlo- and other parts of the ride damage that Amtrak suffered at the Spindler v. Great Northern Insurance ERT. In New York, “the meaning of ‘occur- On March 9, 2016, the U.S. District Court Northeastern Seaboard. rence’ must be interpreted in the context of for the Eastern District of New York issued the specific policy and facts of th[e] case.” its ruling in Adam Spindler and Carrie Newmont Mines Ltd. v. Hanover Ins. Co., Spindler v. Great Northern Insurance Com- The trial judge reviewed the magistrate 784 F.2d 127, 136 n. 9 (2d Cir.1986). The pany, 2016 WL 899266 (E.D.N.Y. Mar. 9, judge’s ruling that that damage caused by Amtrak court reviewed the specific—and 2016). In Spindler, the homeowners Adam the “physical collision” of the boats with lengthy—definition of “occurrence” incor- and Carrie Spindler commenced an action the plaintiffs’ property was not contem- porated into each policy and concluded that on August 13, 2013, against Great Northern plated by the surface water exclusion and all the losses claimed by Amtrak unambig- Insurance Company, alleging that Great classified the boat collisions as an “ensu- uously arose from a single occurrence. Id. Northern breached the terms of the Spin- ing loss” that was explicitly covered by the The court ruled that all losses are still part dler’s insurance policy by failing to cover policy. The trial judge reviewed the ensu- of a group of “losses… attributable to sev- a claim they submitted following damage ing loss provision, which provided “cover- eral causes in an unbroken chain of causa- sustained to their property. Id. at *1. Dur- age when, as a result of an excluded peril, tion” that traces back to the same “trigger,” ing Hurricane Sandy, the plaintiffs’ prop- a covered peril arises and causes damage.” and under the second sentence of the def- erty was damaged when two Sea Ray boats, Platek, 24 N.Y.3d at 695. An insurance inition of “occurrence,” these losses must driven by the storm, repeatedly struck their policy may exclude coverage for damage still be grouped together as a single occur- dock, house, and deck. caused by the earthquake, but a subsequent rence. Id. Great Northern relied upon, among fire that was a “but for” cause of the earth- The remaining summary judgment issue other things, the “surface water” exclusion quake would still be covered as an “ensu- addressed by the Amtrak court related to within the policy, which stated: ing loss.” See Lantheus Med. Imaging, Inc. Amtrak’s right to coverage for the cost of Surface water. We do not cover any loss v. Zurich Am. Ins. Co., 2015 WL 1914319, repairing undamaged portions of the track caused by: Storm, continued on page 83

For The Defense ■ February 2017 ■ 61 Storm, from page 61 Sandy being the third largest hurricane of insurance underwriting and claims at *16 (S.D.N.Y. 2015). Deciding whether loss on record, the majority of New York, handling. Important lessons have been a loss was “ensuing” is necessarily inter- New Jersey, and other Northeast residents learned from two of the most costly cat- twined with a determination of proximate did not experience how devastating a hur- astrophic weather events that the United cause. See Spindler, 2016 WL 899266, at ricane could be.” Id. States has experienced. Court decisions *2. The court relied on the Amtrak court’s In its 21-page publication, Swiss Re resulting from Hurricane Katrina and Hur- ruling that ensuing loss is not a loss that predicts that the Middle Atlantic and ricane Sandy have further defined pol- occurs as a “normal and expected” result Northeast region is vulnerable to storms icy terms and the rights, responsibilities of water damage. See National Railroad that would double Sandy’s damage in and obligations of insurers and their pol- Passenger Corp. v. Arch Specialty Insurance repair costs and economic losses. The icy holders. It has become clear that insur- Company et al, 124 F. Supp. 3d at 264. The historical record indicates that the 1821 ers must consider evaluating each claim on court therefore ruled that “although flood hurricane was a Category 5, with terrify- an individual basis as these weather events waters undoubtedly facilitated the incident, ing storm surges and prolonged periods have the potential to produce insured and two boats breaking free from their moor- of 130- to 150-mph winds: “If the 1821 uninsured losses. Insurers and their pol- ing and colliding with residential property Norfolk-­Long Island Hurricane were to icyholders must rely heavily on indepen- is not normal and expected damage caused happen today, it would cause 50 percent dent engineering analysis of a particular by flood waters.” more damage than Sandy and potentially loss and its specific location to reach their The Amtrak and Spindler decisions had cause more than $100 billion in property respective coverage positions. Repairs to a significant effect on litigation that ensued losses stemming from storm surge and regions affected by both of these storms after Hurricane Sandy, which caused cer- wind damage.” Id. have long been occurring. Consideration tain communities to sustain catastrophic In the report, Swiss Re reports that the must be given to the nature and scope of losses. In large part, the courts interpreted 1821 hurricane is “a compelling reminder the repair, including remedial measures “flood” and “water damage” consistently that Sandy, or at least the loss caused by and the protections required to ensure that with the interpretation of the terms that Sandy, was not that unusual.” In essence, future similar losses do not occur. resulted from Hurricane Katrina. The the report said, Hurricane Sandy was not ensuing loss decisions in Amtrak and Spin- the “big one.” As evidence of this the sta- dler have influenced the coverage analysis tistics relating to the 1821 “Norfolk-­Long in the many fire loss claims that resulted Island Hurricane” indicate that it roared from inundation of electrical likes and rup- through the Mid-­Atlantic and northeast- tured natural gas pipes damaged by struc- ern United States in early September, pass- tural collapse. ing over or near major cities and tourism regions such as the Outer Banks, North The Future Carolina, Norfolk, Virginia, Cape May, A recent report issued by Swiss Re cautions New Jersey, and New York City, making that Hurricane Sandy was nothing more landfall on Monday, September 3, 1821. The than a harsh reminder that more power- report indicates that the 1821 storm moved ful storms—akin to the 156-mph Norfolk- along a Mid-­Atlantic coastline, which then Long Island Hurricane of 1821—await the was mostly an area of small “villages,” Jersey Shore and other parts of the North- including New York City, Philadelphia, and eastern Seaboard. See Swiss Re, The Big Washington, D.C., where hundreds of thou- One: The East Coast’s USD Billion Hurri- sands of people once lived, but which now cane Event (2014) http://media.swissre.com. consists of numerous major cities where Swiss Re predicts that a storm as power- tens of millions reside. Id. ful as the 1821 storm today could swamp As a result of the 1821 hurricane, coastal Atlantic City under a 15- to 25-foot storm communities in North Carolina were surge. Id. According to the report, contrary washed away, the Delaware Bay flooded to predictions by weather experts who indi- Cape May, and on eastern Long Island, cated that Sandy was a 500-year weather the aftermath was described by locals as event, Sandy was more like a 50-year “the most awful and desolating ever expe- weather event, which can be expected to rienced.” Further, the 1821 hurricane was occur in the future. Id. The report breaks so strong that it produced hurricane force down the potential effect of another 1821 winds as far north as Maine. Id. hurricane in South Jersey’s Atlantic and Cape May counties, as well as across the Conclusion Southeast, Middle Atlantic, and Northeast The phenomenal weather occurrences of states. According to the report, “despite the past 15 years have altered the landscape

For The Defense ■ February 2017 ■ 83