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This article was originally published in the Subrogator, a publication by the National Association of Subrogation Professionals, Winter 2007, Page 37. © Copyright 2007 by NASP. All rights reserved. Republished by Butler with permission from NASP.
The word “hurricane” originates from the Spanish word, “Huracán,” for the ancient Mayan “storm god.” No doubt the Mayans suffered frequently from Huracán’s wrath. But unlike the Mayans, recent storms have led insurers to vigorously pursue subrogated hurricane claims. This article will explore issues associated with the successful pursuit of subrogation claims arising from hurricanes.[1]
A tropical cyclone is a large storm that develops over warm tropical or subtropical waters. It has a closed circulation of air that rotates counterclockwise in the Northern Hemisphere with a maximum sustained wind speed of at least 74 mph. Hurricanes depend on a warm sea surface to provide energy for their intense rains and high winds.
A hurricane typically has a spiral cloud structure in its outer rain bands that can extend as much as 300 miles from the center. The outer rain bands create short periods of gusty winds and heavy rains. Viewed from space, a hurricane has a central dense overcast of clouds with a hole at the center called the “eye.” Within the eye, the winds are generally light, and the rain is minimal or non-existent. The most intense part of a hurricane is found in the “eye wall,” a rapidly rotating ring of cumulonimbus clouds immediately surrounding the eye. Areas on land that experience the eye wall are usually the locations with the most destruction.
Wind speeds at any location in a hurricane fluctuate continually. The standard averaging period for wind speed in a tropical cyclone is one minute, commonly referred to as the “sustained wind speed.” The standard duration for a gust is three seconds. As a rough rule of thumb, the three-second gust in a hurricane is about 1.25 to 1.30 times the value of the sustained wind speed.
Because frictional drag from the Earth’s surface removes energy from a tropical cyclone, wind speed is lowest near the surface and increases with altitude. The standard height for measuring surface wind speed is 10 meters, or about 33 feet. Sustained wind speeds at the top of tall structures can be notably higher.
Maximum sustained wind speed and central pressure are typically used as measures of intensity of a hurricane. The maximum sustained wind speed and central pressure are closely, but not perfectly correlated. Few locations actually experience the maximum sustained wind speed of a hurricane. Therefore, although a region may be affected by a major hurricane, not all locations will necessarily experience hurricane force winds.
Hurricanes are categorized in intensity using the Saffir-Simpson scale. The scale was developed to provide a general expectation of property damage and storm surge caused by a hurricane. The scale is summarized in Table 1. A hurricane is considered “major” if the category (“Cat”) is three or higher. Table 1 shows that some hurricanes are far more destructive than others of the same category. The loss of life and property depends greatly on the location of landfall. For example, a Cat 2 making a direct hit on Houston will create much higher property losses than a Cat 4 that makes landfall on the sparsely populated coastline north of Tampa.
Table 1. Saffir-Simpson Hurricane Intensity Scale
|
Category |
MAXIMUM SUSTAINED WIND SPEED (MPH) |
TYPICAL DAMAGE & MAXIMUM STORM SURGE |
RECENT EXAMPLES AT U.S. LANDFALL |
|---|---|---|---|
|
1 |
74—95 |
Damage primarily to vegetation, unanchored mobile homes, poorly constructed signs. Minor pier damage. Surge generally 4—5 feet. |
Gaston (2004), Cindy (2005) |
|
2 |
96—110 |
Some roof, door & window damage. Considerable damage to mobile homes, piers, signs & vegetation. Surge generally 6—8 feet. |
Frances (2004) |
|
3 |
111—130 |
Some structural damage to small residences & utility buildings with minor amount of curtain-wall failures. Large trees blown down. Mobile homes & poorly constructed signs destroyed. Surge generally 9—12 feet. |
Ivan (2004), Jeanne (2004), Dennis(2005), Katrina (2005), Rita (2005), Wilma (2005) |
|
4 |
131—155 |
More extensive curtain-wall failures & some complete roof failures on small residences. Trees & all signs blown down. Complete destruction of mobile homes. Extensive damage to doors and windows. Surge generally 13—18 feet |
Charley (2004) |
|
5 |
156 or higher |
Complete roof failure on many residences & industrial buildings. Some complete building failures with small utility buildings blown over or away. All shrubs, trees, & signs blown down. Complete destruction of mobile homes. Severe & extensive window & door damage. Surge generally over 18 feet. |
Andrew (1992) |
Another important factor is the size of the hurricane. Katrina was a very large, Cat 5 storm while over the Gulf of Mexico. Although Katrina’s wind speeds diminished as it approached the coast, its “wind field” was so large that a very powerful storm surge was generated, causing a large area of destruction. In contrast, Dennis, which struck just east of Pensacola, was a much smaller storm and did not have the same widespread destructive effect as Katrina, even though its sustained wind speed was essentially the same as Katrina. Thus, the Saffir-Simpson scale is a useful, but imperfect means of estimating the destructive force of a hurricane.
Although much data is collected on hurricanes, data collection at ground level rarely occurs at a particular location where wind speed information is needed for post-storm analysis and possible litigation. Fortunately, weather radar and satellite observations cover most of a storm, but must be interpreted in conjunction with point measurements of surface wind speed. Knowledge of the structure of hurricanes allows a meteorologist to assemble the data and construct post-storm wind swath maps.
Prior to Hurricane Andrew, most building codes were based on local historical probabilities of “fastest mile” wind speeds at particular locations. However, it became clear to engineers and meteorologists involved in the analysis of winds and wind damage that wind gusts were largely responsible for property damage. The American Society of Civil Engineers consequently revised its minimum design loads for buildings and other structures to be based on three-second gusts that occur with an annual probability of 2% (a once in 50-year event). Building codes have consequently been revised to reflect this change in understanding of how wind damage occurs.
Most importantly for subrogation scenarios, the occurrence of a hurricane, particularly a Category 1 or 2 storm, does not automatically mean that wind speeds exceeded the building code or design loads for a particular structure. Moreover, even major hurricanes, i.e., Cat 3, 4 or 5 storms, do not necessarily produce wind speeds that exceed building code or design loads, especially if the damaged structure is located at the edge of a hurricane’s wind field.
Building codes regulate construction by establishing minimum safeguards. They also establish an adequate level of quality and durability for construction materials. This regulation is intended to represent the “minimum requirements” necessary to achieve an acceptable level of protection of public health, safety and general welfare.
The history of building codes dates back to the rein of King Hammurabi in 2200 B.C.E. Law 229 stated: “If a builder has built a house for a man and has not made strong his work, and the house he built has fallen, and he has caused the death of the owner of the house, that builder shall be put to death.” This is the ultimate performance code, which “encourages” meeting standards.
George Washington and Thomas Jefferson first encouraged the development of building regulations in the United States. By 1915, American enforcement officials met to discuss building problems. Out of these meetings came the formation of three organizations: BOCA, the Building Officials and Code Administrators, was created in 1915, and represented code officials from eastern and midwestern areas of the United States. ICBO, the International Conference of Building Officials, came into being in 1922, representing code officials in the western United States. The SBCCI, the Southern Building Code Congress International, emerged in 1941 to serve in the southeastern United States.
Three distinct model codes eventually appeared. This caused design and construction criteria to become more standardized. Most jurisdictions adopted one of the model codes. These legacy codes were known as the National Building Code, the Uniform Building Code, and the Standard Building Code.
Due to natural disasters like Hurricane Andrew, a coordinated national model building code became necessary. The International Code Council was consequently formed in 1994, and its International Building Code (IBC) was created without regional limitations. The first edition of the IBC was published in 1997. It was patterned on the three legacy codes. In 2000, the IBC was completed and further development of the legacy codes ceased.
The structural criteria in the legacy codes and the IBC all refer to a supplemental source document for technical design criteria. This document was published by the American National Standards Institute until 1978, when the American Society of Civil Engineers (ASCE) took over future development of wind design criteria with its Technical Committee Number 7. The committee’s document has become known as ASCE 7. Today, ASCE plays a major role in the design of structures for wind loads. A thorough understanding of the ASCE criteria, as well as the applicable building codes, is vital to any forensic evaluation of a hurricane loss.
All subrogation professionals want to quickly separate the “bad subro” from the “good subro.” By doing so, the subrogation professional is able to direct her valuable time and resources toward subrogation claims that will effectuate the greatest recoveries in the most cost effective manner. This is especially critical when pursuing subrogation claims arising from hurricane losses.
The “first question” is how large will the “subrogation net” be cast? That is, when confronted with the onslaught of losses arising from the hurricane catastrophe, which losses will be pursued via subrogation, and which ones will not? Subrogation professionals can answer this question from different perspectives. Some subrogation professionals prefer to cast the net wide and deep, preferring to look for every possible subrogation claim that may arise from every reported loss. Others seek to limit the scope of the inquiry, with greater focus on particular losses, usually defined by size and geographical location.
Both strategies have benefits. For instance, some subrogation departments have large staffs, whose efforts can be directed toward a review of “all” subrogation claims that may arise from a hurricane. For these professionals, casting the net “wide” is a logical response. With deep resources, these subrogation professionals are able to turn over every stone, while looking for “good subro.” This also allows for the bundling of smaller subrogation claims with an eye toward global settlements.
Most subrogation professionals, however, work in an environment that does not permit a “wide net.” They simply do not have the manpower or budgets to pursue every claim. These subrogation professionals need to save costs by not pursuing weak subrogation claims, so that when a strong claim is discovered, resources remain available to properly pursue the claim. Saving costs by not pursuing “bad subro” can be just as important as finding a “good subro” case.
Before the storm strikes, subrogation professionals need to be aware of which approach is consistent with their company’s goals. By identifying their approach before the hurricane occurs, subrogation professionals can provide their attorneys, experts, and field adjusters with clear direction, making the effort to find “good subro” easier.
The extent of a hurricane loss can be impacted by a man-made event such as improper design, construction or maintenance of a building. To properly determine if a man-made event is wholly or partially responsible for a loss, detailed on-site and historical research needs to be performed.
Site Visit
An on-site investigation needs to be made, preferably before wreckage is removed. Extensive photographic documentation and measurements need to be taken. Building material components should be identified. The goals of the site visit are to determine the sequence of failure; determine the weather pattern that impacted the structure; and obtain a good set of the building plans.
The site investigation team should include, if possible, an experienced architect or structural engineer. A mechanical engineer, electrical engineer, roofing expert, or curtain wall consultant may also be desirable depending on the nature of the failure. In addition, a meteorologist should be involved to establish the force, duration, direction and timing of the hurricane.
Building History Investigation
The forensic investigation includes identifying those parties involved in ownership, design, construction and maintenance of the structure in question. These parties include the owners, architects, engineers, specialty designers, general contractors, construction managers, trade contractors, and material suppliers. Also, building owners can identify any building additions or maintenance that may have impacted the structure.
The regulatory agency issuing building permits often is invaluable. This source can provide the age of building; the drawings, specifications, permits and inspection history; the name of the architect, engineer and contractor; and the applicable building codes. Other parties can be identified depending on the nature of the loss. This includes specialty inspectors that were hired by the owner or architect; the persons or firms providing program management; the threshold inspector; and the parties who handled the soil investigation and foundation design.
Analysis of the Building Design
After the age of the building and the applicable building codes have been determined, and once building construction drawings have been obtained, a detailed analysis needs to be made to determine if the building was properly designed. This includes the building orientation and siting, relationship to flood plains, foundation design, the main structural frame design, the attached components and cladding making up the building enclosure, and specialty areas of concern.
Analysis of the Building Construction
A determination needs to be made if the building was constructed per the permitted drawings, construction documents, and applicable building codes. This is a critical part of the investigation since many building failures are caused by wind magnitudes less than the building codes anticipated. The forensic investigator must identify where errors were made and determine their impact on the loss. Unfortunately, the design, construction and maintenance of a building can be very complex and involve numerous parties, materials and systems. A building’s failure can also be compounded by multiple design, construction and maintenance errors. The goal of a forensic investigation is very simply stated, but takes a considerable amount of research to achieve.
The investigation of a subrogation case arising from a hurricane loss is not much different than the pursuit of any construction related subrogation case. It is important to promptly gather and document the loss so that, if appropriate, a strong legal claim can be presented. However, there are several important nuances.
First, the public authorities often limit access to locations that have sustained significant storm damage. The public authorities are concerned about security after a catastrophic loss. Thus, subrogation professionals must arrange for access to the loss site.
Before arriving at the loss site, the investigative team should acquire background information concerning the loss. This information can be obtained from newspapers, television, and various Internet sites. Privately retained meteorologists can also provide preliminary evaluations of wind speeds and storm surges. Although early data is not precise, it provides a guidepost about the storm and the expected damage to structures.
An effort should be made to contact individuals who were on site at the time of the storm. These individuals can provide personal accounts of how the storm affected the property. They can explain whether a “mini-tornado” or other weather anomaly occurred, which could explain why one property survived the storm and another catastrophically failed. These “eyewitness” and “ear-witness” accounts also provide gripping testimony that is most persuasive.
The investigation team should take advantage of information that is readily available. Local newspapers will have photographs and anecdotal stories, which can be extremely valuable. The “survivor stories” printed in the newspapers can later be used to support or refute critical fact questions that arise during litigation.
Significant attention should be paid to the acquisition of photographic evidence. If the budget permits, aerial photographs should be taken. Aerial photographs provide “comparative evidence,” demonstrating how some buildings survived the storm, whereas other buildings failed. The loss site should also be videotaped to demonstrate the catastrophic failure. Moving pictures are more vivid and captivating than still photographs. News agencies sometimes videotape losses, too. An effort should be made to acquire their footage.
Focus on “structural” failures as opposed to “cosmetic” failures. Most building codes address structural failures to the building envelope. By comparison, “cosmetic” items are not usually addressed in the building code. For example, awnings, sheds, and standard shingles are not considered part of the building’s envelope. Therefore, the investigative team, when coordinating the subrogation loss, should identify those structural elements that failed during the hurricane.
It is also extremely important to identify those contractors or design professionals who were potentially responsible for the failure. In depth interviews and document reviews need to occur quickly. This is because of the need to provide reasonably prompt notice to any potential tortfeasors. The goal is to avoid claims of spoilation.
The investigation should address the dates when construction work was performed and the nature of the work. Gather copies of contracts and other records that may address the work that was performed and the terms for the work. The forensic team should visit the Building Department in order to obtain copies of all records that are pertinent to the mechanism of failure.
Questions may arise concerning the general maintenance and condition of the subject building before the loss. These questions should be explored with the insureds and their maintenance personnel. Whenever possible, maintenance records should be collected. All parties will be interested in knowing the condition of the subject building before the loss.
At the end of the day, significant efforts should be made to visit the loss site, document the scene, and communicate with all potential tortfeasors. Once these steps are completed, the handling of the hurricane-related subrogation claim becomes much like any other claim in terms of evidence gathering, preservation and presentation.
Similar to any subrogation claim, one must always address the applicability of various “bars” to recovery. For instance, many construction contracts have subrogation waivers. These waivers can also be included in lease agreements and service agreements. One must also explore the possibility of contractual or statutory limitations on liability and damages, as well as judicially created bars to recovery like the “Economic Loss Rule.”
However, the most important potential bar to a subrogated hurricane claim is the statute of repose. Generally speaking, statutes of repose address the “outer limit” as to when a legal claim can be made against the tortfeasor for a particular loss. Statutes of repose provide a “window” for when potential claims can be made against contractors and design professionals for errors committed during construction.
Typically, the “window” begins to accrue before the defect is apparent and can drastically reduce the allowable time for filing a legal claim. Statutes of repose, as they apply to hurricane losses, are particularly troublesome because of the infrequency with which hurricanes will strike a specific geographical area. The structure in question is sometimes never tested to its code-mandated failure point until the hurricane actually happens, and the statute of repose has already expired.
Accordingly, it is critical to identify the nature of the claim and the applicable statute of repose. If a claim is outside the window for filing a lawsuit, one can easily dismiss that claim as being “un-subrogatable” and, therefore, a basis exists to move on to the next claim that may have more promising subrogation potential. A complete understanding of a jurisdiction’s statute of repose is a pre-condition to the pursuit of any subrogation claim arising from hurricane losses.
The legal theories for recovery in a subrogation case arising from a hurricane loss are not much different than any other construction defect litigation. However, for these claims, one must review the ASCE 7 and the applicable building codes to determine the wind speeds for which a particular building in a geographical location is required to withstand.
The best subrogation claims arise from violations of building codes dealing with means and methods for construction. Errors with regard to a design that does not meet the building codes can also be pursued. Such subrogation claims, as a general rule, can be pursued through negligence claims or statutory causes of action, if recognized by the particular jurisdiction where the loss occurred.[2] This assumes that the claim is not barred by the local jurisdiction’s application of the Economic Loss Rule.
Often, building codes and other wind standards are part of the contracts issued by contractors and design professionals. For this reason, some of the strongest subrogation claims may be for a breach of contract. Besides, the local jurisdiction’s Economic Loss Rule may require that contract claims be pursued, as opposed to tort claims.
More creative approaches should also be explored, especially if there can be facts to warrant such a claim. For instance, it is possible that a contractor or design professional committed “misrepresentation” or “fraud” in some aspect of the construction. The contractor or design professional could have represented that particular construction items would resist hurricanes of some specific wind speed. Further, misrepresentation and fraud claims can often be used to avoid the impact of certain legal bars to recovery.
Likewise, an effort should be made to review warranties that may have been provided to the owner. Roofing manufacturers, for example, typically warrant that they have inspected a roof, and that the roof therefore fulfills the standards necessary for its warranty.
The most important defense to any hurricane claim is the “Act of God” defense. This legal defense is typically used by contractors and design professionals who argue that the loss is the result of an unforeseeable windstorm.
An Act of God has generally been defined as “an accident produced by physical causes which are irresistible or inevitable, such as lightning, storms, perils of the sea, earthquakes, inundations, sudden death, or illness. This expression excludes all idea of human agency.”[3] It is critical to understand that if any human error added or contributed to the loss, the Act of God defense does not apply.
Significantly, the applicable building codes define society’s reasonable expectations for a structure’s strength. The fact that the building codes address particular wind speeds demonstrates that certain wind-related events, i.e., hurricanes, are reasonably expected to occur; and thus, buildings are suppose to withstand certain storms. It is in this context that the Act of God defense becomes a rather weak defense. The bottom line is that the Act of God defense is important in setting reasonable goals for any subrogation recovery arising from a hurricane loss; but it should not act as a serious bar to pursuing subrogation claims arising from wind damages arising from most Cat 1 or 2 hurricanes, as well as those wind losses occurring at the edge of a Cat 3, 4 or 5’s wind field.
Subrogation claims arising from hurricanes must be pursued in the same jurisdiction where the loss occurred. Judges and jurors also come from that particular geographical location. They often have strong views concerning the storm and its impact on the local area, which are difficult to overcome. The subrogation professional must never forget that local people are going to decide the merits of the subrogated claim. How they feel about the storm, as well as how they may have weathered the storm, can have a significant impact on the ultimate success of the hurricane subrogation claim.
To counter this bias, the subrogation team should present its claim in the context of “reasonable expectations.” Assuming that the geographical area in question did not withstand a catastrophic hurricane well beyond that which was contemplated by the applicable building codes, a forceful case can still be presented. It can be argued that the defendants seek to apply unreasonable expectations. This bias, therefore, should not detract from the pursuit of a subrogated hurricane claim; but it should temper the goals for the amount of the recovery.
Endnotes