Catastrophes

I’m on a business trip in South Texas, just in time to experience the joy of Hurricane Dolly.

Naturally, there are all sorts of stories in local media hyping the breeziness of the day.  For example, consider this ABC report:

Cities and counties in the Rio Grande valley were preparing Tuesday night as officials feared heavy rains could cause massive flooding and levee breaks.

Texas officials urged residents to move away from the Rio Grande levees because if Dolly continues to follow the same path as 1967’s Hurricane Beulah, "the levees are not going to hold that much water," said Cameron County Emergency Management Coordinator Johnny Cavazos.

So, it’s been almost three years since Katrina..and we aren’t being a bit more proactive about levees and storms?

Seen in the Orlando Sentinel:

Gov. Charlie Crist and the Florida Cabinet had told the state’s risk managers to find potential buyers for as much as $11 billion in bonds that would be needed to pay claims if the state is racked by a Katrina-sized hurricane.  But with financial markets in tatters, state money managers say they’ve struck out.

"The terms that we are getting are just outrageously expensive," said Jack Nicholson, director of the state’s hurricane catastrophe fund.

Translation: The state now will hope for the best.

[If a massive storm were to strike Tampa or Miami] Florida would have to sell bonds to help insurers pay claims. But with about $8 billion in cash and the expectation the state could sell a maximum of $10 billion in bonds, officials fear a possible $11 billion shortfall.

Mother Nature has responded via the National Hurricane Center thusly:

A STRONG TROPICAL WAVE IS LOCATED OVER THE EXTREME EASTERN ATLANTIC
OCEAN NEAR THE WEST COAST OF AFRICA...AND IS ACCOMPANIED BY A BROAD
AREA OF SHOWERS AND THUNDERSTORMS AND PERHAPS A WEAK SURFACE LOW.
ENVIRONMENTAL CONDITIONS COULD ALLOW FOR SOME SLOW DEVELOPMENT OF
THIS SYSTEM DURING THE NEXT COUPLE OF DAYS AS IT MOVES WESTWARD AT
ABOUT 15 TO 20 MPH.

I know.  It’s not that impressive a tropical outlook…but it’s somewhat ironic that the first hiccup in the Atlantic in about a month would come just as Florida decides to cross its fingers again this year.

Let’s see, it was almost 3 years ago that Joe Average American learned about the plight of American levees in the Great Flood of New Orleans in the wake of Katrina.

Have we learned anything about the importance of planning for catastrophic situations when it comes to American levee systems?

Seen at the Wall Street Journal (subscriber link):

The federal government predicts that 27 levees could potentially overflow along the river if the weather forecast is on the mark and a massive sandbagging effort fails to raise the level of the levees, according to a map obtained Monday by the Associated Press.

True, this year’s flooding is unprecedented in the afflicted areas.  However, you begin to wonder if some more thought needs to be given to flood modeling in disaster planning.

Buried in the news about the ongoing Midwest flooding, however, is also this gem from ABC:

Despite a massive effort to repair and upgrade flood defenses since Hurricane Katrina, storm surge could pour over levees in New Orleans if a strong Category 2 or higher hurricane strikes the city, the National Oceanic and Atmospheric Administration said Monday.

While the forecast uses what officials say is the most accurate and complete picture yet of the region’s levee heights, they said they weren’t surprised by findings that reaffirm the area surrounding New Orleans is among the nation’s most hurricane-vulnerable. The forecast released Monday represents the first time the yearly storm surge predictions have used levee heights based on global positioning system technology.

So, how much has been spent to bring the New Orleans levees back to what was thought to be the barely-adequate standard of withstanding a Cat 3 storm?

One development in the wake of Hurricane Katrina was the creation of “Katrina cottages” — cheap, easy-to-build housing intended to be a viable, attractive alternative to FEMA trailers as a form of post-disaster housing.

There have actually been problems with coastal Mississippi towns not wanting the cottages because they’re “too nice”.

Well, they’re so nice that apparently Lowes is selling blueprints to various models of Katrina cottages for $700 per set of 6 (waived, if you buy construction supplies from Lowes).

By now you’ve probably heard plenty about the 7.9 earthquake in the Sichuan Province of China — over 13,000 people dead, schools collapsed, chemical leaks…and it was felt over 1000 miles away.

The New York Times has a map available to provide a bit of scale around the potentially devastated area.

Looking at the map, and some of the descriptions, I can’t help but think — in terms of magnitude and geographic scope, doesn’t this sound a little like the New Madrid quakes of 1811-1812?

True, in terms of human tragedy, there’s no comparison — the central part of North America was very sparsely populated at the time, while over 15.4 million folks felt the Dujiangyan quake “strongly”.  But still… folks in St. Louis and Memphis…and property insurance underwriters and actuaries…ought to take a moment to contemplate the “what if’s”.

Seen at ABC News:

The Army Corps of Engineers can be held liable for flood damage caused by a “hurricane highway,” a navigation channel that is believed to have funneled Hurricane Katrina’s storm surge into the city, a federal judge ruled Friday.

The Corps of Engineers had argued that it was immune from liability because the channel is part of New Orleans’ flood control system. The law says the federal government cannot be sued if something goes wrong with a flood control project such as a levee, reservoir or dam.

Judge Stanwood Duval dismissed that argument, saying the Mississippi River-Gulf Outlet, or MRGO, was clearly a ship channel and not a flood control project.

You may recall that plaintiffs are seeking $3,014,170,389,176,410 in damages from the Corps.

As a result of the 2004 and 2005 hurricane seasons, many Americans became familiar with FEMA trailers—the little white structures driven in after a catastrophe, to provide basic shelter to area residents whose homes had been destroyed.

Unfortunately, FEMA trailers have problems. They’re extremely cramped, somewhat dehumanizing, rather susceptible to wind damage, emit toxic fumes…and oh yes, we found out the hard way that they have to be stored properly, or they become useless. (Witness the large trailer-park of unusable FEMA trailers in Arkansas.)

Not surprisingly, folks have been looking for alternatives.

One of the more interesting alternatives has been the “Mississippi cottage”, which was mentioned recently in the New York Times:

The only units FEMA says it is planning to test are the Mississippi Cottages, which have tin roofs, small porches and are colored like Easter eggs — rose-hip pink, malted mint, cloudless blue. The cottages are on wheels, but the larger models can be put on permanent foundations. All are equipped with appliances, beds, a table and chairs, ceiling fans, even pots and pans, and cost an average of $32,000 apiece to build.[...]

With its built-in closets and spacious kitchen cupboards, their cottage feels like a mansion, said Vicki Ladner Meshell and her husband, Rickey, whose apartment in Long Beach was washed away by Hurricane Katrina’s storm surge.[...]

The Mississippi Emergency Management Agency has installed more than 2,000 of them throughout southern Mississippi, and plans to put in 3,500.

But local governments in Mississippi have resisted the cottages. They fear people who get cottages will simply live in them and not rebuild their houses, said Mike Womack, executive director of the Mississippi Emergency Management Agency.

“They’re too nice,” he said. “I’ve heard this over and over again.”

“They’re too nice”?!!

So we have an area, which is suffering from lack of affordable housing, a need to keep workers in the area both to staff recovering businesses and to help with reconstruction, a need to reduce stress in difficult recovery process, and problems with “demand surge” prompted by a lot of pressure to reconstruct as quickly as possible.

“Too nice” seems like a rather foolish concern under such circumstances.

A couple of blogs I follow have mentioned that the May issue of Popular Mechanics includes a feature called, “10 Pieces of U.S. Infrastructure We Must Fix Now”. I’ve seen the feature mentioned in the context of Atlanta’s water shortage, but the entire list is actually rather interesting to me (not surprising, given my interests):

• Circle Interchange, Chicago
   
• Brooklyn Bridge Approaches, New York City
   
• Industrial Canal Locks, New Orleans
  (Ships can wait 36 hours for clearance to transit, creating a drag on the efficiency of the Port of New Orleans. PM doesn’t mention that survivors of the Lower Ninth Ward would like to see the canal itself fixed by being filled in….)
   
• Atlanta’s water system
  (PM estimates 18% of the daily water consumption in ATL is the result of leaky water mains)
   
• Alaskan Way viaduct, Seattle
   
• Lake Okeechobee dike, Florida
   
• Dover Bridge, Bonner County, Idaho
  (Northern Idaho bridge for US95, scores 2 out of a possible 100 in sufficiency rating.)
   
• Wolf Creek Dam, Kentucky
  (Kentucky River dam deemed in enough danger of collapse that TVA reduced the water level behind it, to reduce flood risk to downstream towns, including Nashville.)
   
• Sacramento River levees, California
  (Remind me not to write flood cover on the Arco Arena, or on SMF.)
   
• O’Hare

None of those are surprises, and many of them are slated for repairs in the next few years, assuming funding remains available. However, it’s nice to be reminded every once in a while of some neglected priorities.

(How much money have Presidential candidates raised to date for this election cycle?)

David Rosmiller has posted a decision from the Fifth Circuit Court of Appeals on the Broussard Katrina-slab case:

We REVERSE the judgment of the district court entering JMOL in favor of the Broussards. We REVERSE and VACATE the jury’s award of punitive damages. We AFFIRM the district court’s admission of testimony from the Broussards’ expert witness. We AFFIRM the district court’s denial of State Farm’s motion to change venue. We REMAND the case for a new trial.

The Broussards were the State Farm policyholders who brought one of the landmark Katrina slab cases. The judge in the case essentially ruled from the bench that State Farm was liable to pay policy limits since they “failed to prove” the damage wasn’t caused by flood, and let a jury determine punitive damages.

(Yes, I know that a lawyer could wax poetically to point out the technical inaccuracies in that last statement. However, I’m not a lawyer. Net effect was that it was a big slap-down upon State Farm.)

So, with the appellate decision, State Farm looks to get its day before the jury in this case.

As someone who’s been in claims limbo for over six years due to my wife’s car accident, I can empathize with the Broussards over what waiting for the appeal, and now the new trial, must feel like to them.

Hopefully, the aftermath of this and the other Katrina homeowners cases will lead to better coordination between wind and water claims, as well as less of a need to plug extremely paranoid scenarios into the cat models…all of which should mean not-quite-as-astronomic costs for Gulf coast insureds.

So, while the attention of the Mississippi legal and insurance communities has been focused on the Scruggs circus, it looks like a bit of work has still been going on elsewhere in the state. For example, consider
this story at Insurance Journal:

California-based law firm Irell & Manella reports it has won a partial summary judgment on behalf of national gaming operator Pinnacle Entertainment Inc., in an insurance coverage case arising out of Hurricane Katrina.[...]

In August 2005, Pinnacle’s facility in Biloxi, Miss., sustained property damage and business interruption loss.

According to Irell & Manella, two of Pinnacle’s insurers, Allianz Global Risks U.S. Insurance Co. and RSUI Indemnity Co. (together providing more than $100 million of excess coverage), took the position that coverage for all storm surge damage falling within their policy layers was precluded by flood exclusions contained within their policies.[...]

After a two-hour oral argument on the motion, Judge Sandoval took the motion and cross-motions under submission. On March 26, he issued his ruling in Pinnacle’s favor.

The IJ article reads like this is a case of a Mississippi judge rewriting property insurance contracts after the fact. However, while that is an attractive thought to someone in the industry…I don’t think that is actually the case here. IJ skipped over a key paragraph in Irell and Manella’s press release:

According to Pinnacle’s CEO Dan Lee, “Pinnacle has always maintained that it has coverage for flood and other related damage caused by Hurricane Katrina. We specifically bought $400 million of coverage for Weather Catastrophe Occurrences like Katrina, including any resulting flood. We have been extremely disappointed that it has taken a lawsuit to convince our excess insurers of this fact.”

The phrase “Weather Catastrophe Occurrences” is the telling phrase here. A “Weather Catastrophe Occurrence” peril is a feature of some property insurance contracts written by London brokers. It’s my understanding that, at least at the time of Katrina, it was not uncommon for London to exclude Flood but provide coverage for the specific peril of “Weather Catastrophe Occurrence”, which in the case of a hurricane, arguably includes storm surge.

I’ll make an educated guess that the excess property carriers, Allianz and RSUI, issued “follow-form” excess contracts. They probably provided their own exclusions of the flood peril…but didn’t exclude WCO since WCO isn’t a peril you normally see on primary contracts written by American insurers.

The insurers likely tried to argue that the flood exclusion was unambiguous and superseded all other perils. However, I’d bet that either “flood” was not redefined in the excess contracts, or that the judge thought the flood exclusion was ambiguous when it comes to WCO. Ambiguity tends to be interpreted in a manner favorable to the party with the shallower pockets.

Moral of the story: If you’re an excess insurer, you need to be familiar with the language of the forms you’re following, and either price or exclude accordingly.