Times Picayune Report on Flooding Lawsuits

A recent report discusses a number of potential lawsuits as a result of Hurricane Katrina.

Rocky course awaits flooding lawsuits

Insurers, ArmyCorps of Engineers,Levee Board sued
When a city with one of the nation's most active and sophisticated plaintiffs' bars got hit by the costliest disaster in U.S. history, it was inevitable that lawsuits would begin to fly like shingles off a wind-whipped roof.

After all, if litigation managed from New Orleans wrested billions of dollars from the tobacco industry, the rewards from suits related to Hurricane Katrina are potentially even greater, given that damage by conservative estimates tops $40 billion in New Orleans alone. Lawyer fees also have the potential to be high, though some attorneys have said they plan to waive them.

But however colossal the errors of judgment that led to the levee failures and flooding, none of the obvious lines of attack guarantees easy victory.

In the passel of litigation working its way through the courts, the prime defendants are of two varieties, both with pockets even deeper than Big Tobacco: the home insurance industry and the federal government -- or, more precisely, the Army Corps of Engineers. Both will arrive in court girded with extraordinarily thick armor.

Smaller fish in the frying pan include the Orleans Levee Board and companies it hired to design and build the levees according to corps specifications, but tort lawyers say the chance of wringing significant amounts of money from these targets is slim. That's because the board and the companies that built the levees have limited insurance, and under the statute of limitations, more than a decade after their work was completed it may be too late to sue engineering firms that worked on the projects.

An act of God?

The private insurers have been catching flak ever since they advised clients that comprehensive homeowners policies do not cover flood damage. That, they say, is what the federal flood insurance program is for. But $250,000 limits on the standard flood insurance policy and the limited number of people carrying that coverage mean many people who relied on homeowners policies are left with no coverage at all, and people who carried flood insurance face settlements for far less than it will take to rebuild.

A group of lawyers led by Joseph Bruno have filed a class-action suit saying post-hurricane damage resulted not from flooding, defined as an act of God, but from man-made negligence committed by whoever designed and built the failed levees. In a class action, which must be approved by a judge, a single plaintiff or small group of plaintiffs file suit on behalf of all other people who might have been similarly victimized. The remedy sought by Bruno, who was part of the team that successfully sued Big Tobacco on behalf of Louisiana smokers, is a declaratory judgment that comprehensive homeowner policies must be interpreted to cover the damage done by flooding touched off when the levees were breached.

Former Levee Board President Robert Harvey, a high-profile personal injury attorney, has taken a slightly different tack against the insurance firms in a suit he filed on behalf of himself and seven others whose New Orleans properties were damaged by flooding from the 17th Street Canal. The suit claims State Farm, the largest private insurer in Louisiana, and several other insurers arbitrarily refused to pay for water damage caused by a sudden break in the 17th Street Canal floodwall even though their policies don't describe such an event as an excluded loss. The suit also accuses the Levee Board of violating its duty to discover and fix the levee break or warn residents about flood risk.

Army Corps exemption

Other attorneys are targeting the Army Corps of Engineers, but there, too, is a rock in the road at least as large as the exemption of flood damage from private homeowners policies. The same legislation that put the corps in the levee-building business, a year after the severe Mississippi River floods of 1927, specifically immunizes the corps from suits arising from levee failures.

That doesn't mean the government never comes through with compensation for flood victims. It did so when the Teton Dam in Idaho failed in 1976, and again after the Grand Forks, N.D., disaster in 1997, but the money was appropriated by an act of Congress not in settlement of a legal judgment.

To break past the corps' immunity, lawyers have come up with an array of strategies. In a federal suit brought as a class action, Bruno says the corps failed through negligence to tell the public that a contractor hired to build the floodwall above the 17th Street Canal levee in 1993 reported soil stability problems. Without that information, the suit says, property owners were deprived of the chance to take added steps to protect against flooding. An engineer for the now defunct construction company, however, has said the firm did not see the soil stability problems as a flood risk.

Another suit brought by Harvey against the Levee Board, which does not enjoy the corps' immunity, was filed as a class action in Civil District Court and then moved to federal court. In it, he and fellow trial lawyer Darleen Jacobs say fault for the flooding that damaged their real estate and that of two other plaintiffs lies entirely with the board. It negligently designed and built the floodwalls and failed to properly test their ability to withstand the high water that knocked them down, they say.

Ironically, Harvey is suing the Levee Board over floodwall projects that were built while he was on the board from 1992 through 1996, a ticklish situation that means he may have to play both witness and attorney in the case.

Levee Board attorneys are trying to get Harvey disqualified as a plaintiff in the case, but Harvey begs to differ with them. "Being a witness doesn't mean I can't be a plaintiff," he said.

Given the likely difficulty of winning the cases, one lawyer who spoke on condition of anonymity conceded that a plausible outcome might be to get federal agencies and private insurers to contribute to a fund from which payments to uninsured flood victims would be made under court supervision. One precedent for such an arrangement would be the settlements that a court-appointed special master awarded survivors of people who died in the Sept. 11, 2001, terrorist attacks.

$40 billion in damage

In responding to the lawsuits, the Levee Board says it acted only to carry out the wishes of the corps, which designed and supervised construction of the levees and paid 70 percent of their cost, leaving the Levee Board to pay the remaining 30 percent and maintain the structures after they were built.

But even if the courts ultimately decide that the board and the firms that assisted it are liable for flood damage, their assets are dwarfed by the estimated $40 billion cost of compensating affected residents, according to a plaintiffs attorney.

That is why all eyes have turned to the corps, backed, at least theoretically, by the full faith and credit of the U.S. Treasury. The challenge is to find wrongdoing other than the apparent engineering failure itself on which to base a claim for damages.

"The damage is not due to the breach of the levee," Bruno said. "The damage is due to the failure to disclose, and that, I believe, does not fall within the immunity."

Another reason the corps can't use the immunity shield, he said, is that in light of questions about stability of the soil beneath the 17th Street Canal project, the corps should have known the canal could overflow but failed to fulfill an "affirmative duty" to make the government buy flood-prone property adjacent to the waterway or acquire rights to use the land for flooding.

The corps has yet to respond to either of the suits against it, but based on its defense against similar lawsuits in the past, it is certain to invoke its immunity.

Most residents whose properties were damaged by flooding in the hurricane didn't have flood insurance. And some of the 27 percent of property owners who did buy the coverage say the program's $250,000 per-claim maximum won't cover the cost of repairing or rebuilding their homes. Homeowners could buy more than $250,000 worth of flood protection, but many say they were never told about that option.

'Pollution' claim fails

In rating the chances of his lawsuit against the insurers, Bruno pointed to the Gaylord Chemical Co. case in which carriers were forced to pay millions of dollars in damages over a 1995 rail car explosion at the firm's Bogalusa plant that sent a noxious gas cloud over the surrounding area.

The insurance companies said the emission was "environmental pollution" that was exempt from coverage under their policies. A district judge and an appeals court, however, concluded the exemption didn't apply, and the state Supreme Court refused to hear the case, thereby letting the lower court rulings stand.

Insurers fighting the Katrina flooding class-action case filed by Bruno and others in Baton Rouge have asked U.S. District Court Judge Frank Polozola to throw it out on summary judgment -- that is, without a trial.

Double coverage

In trying to collect from the corps, lawyers face a second hurdle in addition to the immunity passed in 1928, the Federal Tort Claims Act, a 1940s law. The law gave Americans the right to sue the federal government for damages -- except when the damage resulted from the government simply exercising normal discretion in choosing among alternative courses of action.

"So the question would be if you jump over the corps' immunity, could you jump over the discretionary function exception," Bruno said.

The answer is yes, in the view of trial lawyer Daniel Becnel, part of the legal team that secured a $172 million settlement of the deadly 1988 explosion at Shell Oil's Norco refinery.

"Let's say they (corps officials) designed it and designed it improperly, but if they . . . didn't follow through watching how it was being built, that's breach of a fiduciary relationship with not only the contractor but also the people," said Becnel, who filed one of the first post-Katrina flood cases in federal court.

"It's kind of like an intentional tort: You knew it was going to happen, and so you're responsible," he said.

Seasoned mass disaster attorney John Cummings gave a stem-winding speech in front of the New Orleans City Council in early December offering to sue the corps on the city's behalf.

Cummings, a developer and one of the city's largest landowners, said that although it's true that a long line of court rulings have upheld the corps' immunity from lawsuits over levee breaches, "it doesn't necessarily mean our citizenry should fold its tents."

"That immunity is waived if a governmental agency fails to follow its own laws, rules and regulations," he said. If that happened, the agency can be sued "like the driver of a car that rear-ends you."

As the lawsuits against the corps move toward trial, plaintiffs' attorneys will continue their search for evidence to show that the agency was warned that if the 17th Street Canal floodwalls were built as designed, flooding would result, said Cummings, whose big cases include the Norco explosion and the deadly 1980 fire at the MGM Hotel in Las Vegas, as well as a piece of the tobacco litigation.

Cummings, whose City Council appearance occurred during the period of drift before the Bush administration renewed its pledge to appropriate billions of dollars for hurricane recovery, is candid in saying that the lawsuits are in part a threat that he hopes will goad Congress to continue generosity on Louisiana's behalf.

Cummings has been advising many lawyers representing plaintiffs in the pending flood damage cases but so far has not signed on as attorney in any of them.

He has suggested the city should filed a multibillion-dollar lawsuit against the government for faulty levee construction that rose to the level of a "criminal act" and led to the city's flooding after Katrina.

The proper place to bring that lawsuit, Cummings said, would be in Washington at the U.S. Court of Claims. The court couldn't compel the government to pay New Orleans any money, but it could set a damage figure and assess blame, leaving it to Congress to decide whether to pay, he said.

"It is important for the U.S. Congress to realize that but for the actions of the U.S. government and the corps of engineers, the flooding would not have occurred," Cummings said. "That's what we have to keep in front of the American people."

A precedent that shapes Cummings' thinking is the congressional response to the mid-1976 Teton Dam break. Collapse of the then-new dam unleashed floodwaters that swamped several communities, killed 14 people and left 25,000 homeless. Three months later, Congress passed a law to compensate every victim of the $1 billion disaster, regardless of what caused the dam to fail.

But comparable largesse for Katrina's victims is not likely, in the opinion of University of Virginia political science professor Larry Sabato.

"The needs of New Orleans, Louisiana, in general, plus Mississippi and a part of Alabama, are so great that most people can at best expect very partial compensation and help from the feds," Sabato said. "The current emphasis on congressional overspending -- which is coming from the right and the left -- also hurts the residents' cause."

To view the online report please click on the following link.

Rocky course awaits flooding lawsuits

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