Does your disaster response plan include your lawyer? In the aftermath of a natural disaster, recovery from insurers, municipalities, and other parties can itself become a nightmare.

Although damage estimates are still preliminary, Hurricane Katrina is already one of the costliest natural disasters in U.S. history. The images of flooding, building collapses, and fires that streamed virtually non-stop from 24-hour cable news outlets tell only part of the story of Katrina's damage. The hospitality industry was among the hardest hit along the Gulf Coast, with many of their structures either partially or completely damaged by the storm's fury. Now that the flood waters are receding in New Orleans and debris removal has begun at establishments all along the Gulf Coast, important decisions need to he made that will impact the ability of owners and operators to recover their financial losses.

Unfortunately, many owners and operators have not considered including experienced legal counsel as an important member of their disaster response plan. Why include a lawyer? The answer is simple. History has proven that recovery from insurers, municipalities, and other responsible parties must frequently be resolved in the courts--and in many cases, years after the wind, rain, and flooding have stopped. A small cadre of attorneys experienced in insurance, construction, and mold claims have been busy during the past months up and down the Gulf Coast, helping owners and operators assess and document the damage, collect evidence of causation, and marshal forensic experts who may be needed to testify in the inevitable legal battles that will surely follow in the ensuing months and years ahead.

Insurance Coverage for Hurricane Katrina

Unlike many facility owners, the insurance industry has had plenty of experience investigating and handling property losses from hurricanes. In 2004 alone, the industry was required to respond to claims from the "hurricane trifecta" in Florida--Charley, Frances, and Jeanne--as well as Ivan in Alabama. The task of sorting out the cause of Katrina's destruction will involve forensic experts who must apportion damage from a myriad of potential concurrent causes, including flood, wind, rain, looting, vandalism, pollution, fire, power failure, governmental action, mold, further deterioration of property that was inaccessible for weeks, etc. In addition to property damage, business interruption claims could be staggering.

The insurance coverage analysis will likely focus on the "proximate cause" of the damage. Because some causes of damage may be excluded under particular insurance policies, it is not difficult to predict long and expensive legal battles between insureds and their insurers over causation. One commentator has already predicted much litigation over the terms "efficient proximate cause" and "anti-concurrent causation." In the first party context, some courts have adopted the "efficient proximate cause" doctrine, which provides that if a covered peril causes an excluded peril, coverage is available even for damage caused by the excluded peril. For example, if mold is an excluded peril, but wind-driven rain causes mold to grow as a result, then the damage caused by both the wind and rain and resulting mold growth is covered under the policy. However, mold that did not grow as a result of a covered peril (e.g., wind-driven rain) would not be covered. The Louisiana Supreme Court adopted the efficient proximate cause analysis in Lorio v. Aetna Insurance Company, 232 So. 2d 490 (La. 1970), a Hurricane Betsy case.

On the other hand, some ISO insurance forms contain anti-concurrent causation clauses to override efficient proximate cause by precluding coverage for a specified peril, even if caused by an otherwise covered peril. Recently, a Mississippi appeals court analyzed such an anti-concurrent causation lead-in clause in a policy and found no coverage for property damage. See Boteler v. State Farm Casualty Insurance Company, 876 So. 2d 1067 (Miss. App. 2004).

Much effort will be focused on trying to determine whether property damage was caused by wind and rain versus flooding. Typically, private insurance covers wind and rain damage, but not flood damage. Instead, flood insurance is offered by the National Flood Insurance Program (NFIP). As reported by the Wall Street Journal, according to data from the NFIP, only one-fifth of the homes and businesses in Mississippi in the areas most at risk for flooding were covered by flood insurance before Katrina. In Louisiana, the Journal reported that less than half of such properties were covered.

Based upon past hurricane cases, the task of allocating the amount of property damage caused by wind and rain, and thus potentially covered by private insurance policies, versus damage caused by flooding that may be covered under the NFIP, will likely be resolved in the courts. In Urrate v. Argonaut Great Central Insurance Company, 881 So. 2d 787 (La. App. 2004) a restaurant located in Jefferson Parish, LA was damaged from Hurricane Georges in 1998 that made landfall near Biloxi, MS. Part of the restaurant was swept away. The owner had a flood insurance policy issued by Omaha Property and Casualty, which covered damages from flooding and tidal waves. The owner also had a policy issued by Argonaut, which excluded such damage. Each insurer determined the amount of damage it believed was caused by covered perils; however, the owner was unsatisfied and filed suit. The court was forced to make factual determinations as to what caused certain types of damage and allocate the repair costs to each policy.

For example, the court concluded that $35,000 of glass damage was caused solely by wind, and thus covered only under Argonaut's policy. The court disagreed with Argonaut's assessment that its share of business loss was only $9,500 while electricity was knocked out, and instead ruled that the restaurant suffered a business loss for the last quarter of 1998 of $80,000 and attributed 25 percent of that loss to wind damage. The court also determined that the plaintiff suffered a business loss in 1999 in the amount of $70,000 and attributed 15 percent of that loss to wind damage. The Louisiana Court of Appeal affirmed the trial court's decision.

It should be noted that the final resolution of this hurricane loss took six years from the time of the hurricane until the time the Louisiana Supreme Court denied review of the lower courts' decisions.

Further, the importance of an insured protecting itself and documenting damage, and the cause of that damage, was highlighted by the federal court in Southern Hotels Limited Partnership v. Lloyd's Underwriters at London Companies, et. al. (1997 U.S. Dist. Lexis 8384 (E.D., La.). In that case, the Travelodge Hotel in Harvey, LA, sustained wind, rain, and flood damage from Hurricane Andrew in 1992. The hotel was insured by a policy that covered wind and water damage, but flood damage was subject to a $200,000 deductible. The hotel had a separate flood insurance policy of up to $200,000 in coverage from the NFIP. The court stated, "The plaintiff has the burden of proving both the damage and the causal connection between the damage and the covered cause of loss. This proof must be shown by a reasonable preponderance of the evidence, and with some detail and specificity. A mere possibility of causation and damage are insufficient." In analyzing the claim for damage to furniture, the court looked to whether the walls and roof were blown away to determine if the damage was caused by wind-driven rain or flooding.

This case underscores the importance of facility owners and operators doing their homework by retaining experienced legal counsel and forensic construction and mold experts early in their disaster response before critical evidence is destroyed in the salvage and remediation process. These experts can assist the insured in documenting the damage, as well as navigating the tricky causation issues dealing with pre-existing defects, wind, rain, and flooding. In most cases, the insured's policies will actually cover the cost of the insured's investigation.

Alexander Robertson, IV is the senior partner of Robertson & Vick, LLP, in Los Angeles. Mr. Robertson is admitted to practice in California, Nevada, Texas, and Colorado, and has been admitted pro hac vice in Florida, Illinois, New Mexico, and the District of Columbia.

Alexander Robertson, IV, Esq.

Robertson & Vick, LLP