WhEN To INVESTIgaTE
strategies for insurance carriers
By Peter G. Rossi
Superstorm Sandy crippled communities, caused billions of dollars in property
damage, and resulted in hardship for thousands of people. Insurance claims have
been pouring in. But how can insurance
professionals make informed decisions regarding investigating flood claims? Which
of the thousands of flood claims should be
investigated for subrogation?
There are several approaches, from investigating all flood claims to investigating none, or only investigating those with
obvious 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, but informed investigation decisions must be made early on.
From a liability perspective, floods are
typically considered Acts of God. The Act
of God defense requires that the flood be
solely caused by unpredictable, uncontrollable natural events without any human
intervention. However, most floods are a
combination of naturally occurring events
and human intervention; for example, a
large rainstorm combined with the property owner’s failure to maintain a bridge,
culvert, or water way. If we can demonstrate
human intervention caused or contributed
to a loss, settlement discussions—
often-times ignored by liability insurers because
of the Act of God defense—can occur.
Read the article “Subrogating Flood Loss:
An ‘Act of God’ or Human Error,” which
begins on page 24, for a case example.
The extremes are simple: Very small
flood claims are rarely reviewed because
of scarce investigation funds and because
large floods are easier to justify. However,
the majority of cases are in between, ranging from $150,000 to $500,000. An incremental investigation approach strategically allocates resources as the case unfolds
and the prospect for recovery rises.
First, use “free” resources. Subrogation
counsel, paid on a contingent fee, should
be fully utilized before hiring costly en-
gineers. Subrogation counsel handling
substantial flood cases understand flood
science. Counsel can gather preliminary
details regarding the storm and flood—
how much rain fell where and when, how
deep the floodwater was or if the area was
Enlisting Engineering Experts
Engineering analysis 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 flood case.
Now you can make an informed deci-
sion regarding a site inspection. The en-
gineer will go to the site and photograph
and measure all relevant areas and ob-
jects, including water marks on buildings,
bridges, and fences. Water marks can es-
tablish water-surface elevations at vari-
ous points on either side (upstream and
downstream) of the loss location, which
can tell us what caused the flood. You
can then determine if a professional site
survey is necessary. A survey will help the
expert understand the water-surface el-
evation as well as landmarks so that accu-
rate measurements and comparisons can
be made and data points identified. This
analysis allows the expert to determine
where the floodwaters came from and
what factors contributed to the flooding.
Peter G. Rossi is a member in the Philadelphia, Pa. office of cozen o’connor’s
subrogation and recovery department. He
may be reached at firstname.lastname@example.org.