In August, Hurricane Harvey directly hit the city of
Houston, leaving substantial wind and flood damage in its wake. Many home and
business owners who avoided flood damage breathed a sigh of relief on August 28
when the immediate threat of flooding seemed to have passed. But for those Houstonians
along the Buffalo Bayou, the worst of the damage was yet to come. In order to
avoid flooding downtown Houston, the U.S. Army Corps of Engineers ordered
“controlled releases” of both the Addicks and Barker Dams, thereby
alternatively flooding thousands of homes and businesses that would have
otherwise been spared. Now the owners of those homes and businesses are looking
for a way to recoup their damages.
U.S. Army Corps of
Engineers Release the Dams
On August 28, 2017, the U.S. Army Corps of Engineers faced
a difficult decision. Hurricane Harvey brought a torrential downpour of rain,
and the Addicks and Barker dams were dangerously swollen with water. The Corps had
two choices: (1) essentially do nothing and leave the dams alone, risking potential
dam failure which could result in thousands of deaths and billions of dollars
in damage or (2) order a “controlled release” of the dams, knowingly flooding
thousands of properties that would have otherwise stayed dry.[1] The
Corps ultimately choose the latter, and thousands of properties were damaged as
a direct consequence of the Corps actions.
Property owners were understandably upset by the Corps’
decision, no matter how utilitarian. Thousands of home and business owners
found themselves knee-deep in water after the bulk of the storm had already
passed. And unless the properties were protected by some form of flood
insurance, that damage was likely uninsured because Texas law defines flood to
include water released from dams and reservoirs. In fact, many flooded homes in
the area were not located in a known floodplain, meaning the homeowners were
not required by lenders to carry flood insurance.[2]
In the aftermath of the flooding, property owners are now
looking for ways to recoup their damages. While some homeowners have already
joined class action suits against the responsible government actors, insurers
would be wise to begin considering their options on subrogating the claims of
flood insurance policyholders.
Property Owners
Bring Proposed Class Actions Against Government Authorities
For those owners whose properties were not located within
any floodplains (and therefore did not have flood insurance), the best recourse
available for their damages will likely be lawsuits against the government
agencies responsible for the releases. As of today, at least two proposed class
actions have been filed against government agencies responsible for
intentionally flooding the dams.[3] In
one of the class action complaints, plaintiffs state that “[w]hile much of
Harris County was flooding, Plaintiffs and members of the Classes had property
that was not flooding as of August 27, 2017.”[4]
The complaint also alleges that it was “[t]he decision to release water [from
the dams that] flood[ed] not only the homes and businesses around the
reservoirs but many homes and businesses downstream.”[5]
The plaintiffs in the class have a long, difficult road
ahead of them if they hope to recover. The bulk of the class action case rests
on a claim for constitutional taking in violation of Section 17 of Article I of
the Texas Constitution, which states that “no person’s property shall be taken,
damaged, or destroyed for or applied to public use without adequate
compensation being made, unless by consent of such person.”[6] In
its response, the city of Houston asserts that the court lacks jurisdiction
over the issue as it retains governmental immunity from the suit.[7]
These class actions will be interesting to follow, as they
have been pled in Texas courts based on the Texas Constitution’s takings clause,
as opposed to the U.S. Constitution’s takings clause. As insurers begin
subrogating their policyholders’ claims, they may find that they will be more
likely to succeed on claims based on the Fifth Amendment of the U.S.
Constitution in Federal courts.
Insurers Should
Look to the Fifth Amendment for Reimbursement of Claims Paid Out
For those property owners who carried flood insurance, coverage
may be afforded for claims stemming from the dam-controlled releases. Of
course, whether the claims stemming from this flooding are actually covered by
flood insurance will depend on the unique language of each individual policy.
Insurers who do cover these losses may choose to seek reimbursement for the
claims they are paying out through subrogation.
If insurers want bring subrogation suits against the
government for its role in the flooding resulting from the controlled releases,
insurance carriers should look to the Fifth Amendment of the U.S. Constitution
for relief. The Fifth Amendment, in relevant part, states “nor shall private
property be taken for public use, without just compensation.”[8]
This language — known as the takings clause — has been the basis for legal
action against government induced flooding before. In Ark. Game & Fish, the Supreme Court of the United States
analyzed whether the controlled release of a dam, authorized by the U.S. Army
Corps of Engineers, which negatively impacted nearby private property, could be
found to be a taking thereby requiring just compensation.[9]
The Court held that government-induced flooding temporary in duration was not
exempt from the takings clause inspection, and could be found to require just
compensation.[10] In
order for a government-induced flood to be a compensable taking, there are a
litany of factors that the Court articulated in order to determine the nature
of the invasion.[11] These
factors include the amount of time the flood invaded the property, the degree
of the foreseeability of the result of the government-authorized action, and
the character of the land at issue with the owner’s reasonable investment-backed
expectations regarding the land’s use.[12]
Looking to Ark. Game
& Fish gives insurers hope that their
subrogated claims may yield results. The case states that action by the Corps
of Engineers can certainly constitute a government taking, as was done in
Houston when the Corps releases the dams. The flooding that resulted from the
releases was known by the Corps, making the issue of foreseeability potentially
easy to prove. Of course, the Government will have a litany of defenses on its side,
including the public necessity defense. The necessity defense gives a
governmental entity immunity from a Fifth Amendment takings claim where there
is both an actual emergency and an imminent danger met by a response that is
actually necessary.[13]
Here, the government will likely argue that the controlled release of the dams
was necessary to avoid the imminent danger of the dam collapsing.[14]
However, if insurers can prove that the dam was not in any real danger of
collapsing, insurers may be able to recoup their paid out claims to the victims
of these controlled releases.
Posted by Bennett Moss
[1] Kiah
Collier, Can flooded-out Houstonians win
lawsuits against Army Corps?, The
Texas Tribune (Sept. 28, 2017, 8:00 PM), https://www.texastribune.org/2017/09/28/will-flooded-out-houstonians-prevail-lawsuits-against-army-corps/.
[2] Id.
[3] Aldred et al. v.
Harris County Flood Control District et al.,
No. 2017-57831, Complaint (80th
Dist. Ct., Harris County, Tex. Sept. 5, 2017); Ross et al. v. San Jacinto
River Authority et al., No.
2017-58385, Complaint (80th
Dist. Ct., Harris County, Tex. Sept. 6, 2017).
[4] Aldred et al. v. Harris County Flood Control District et
al., No. 2017-57831, Complaint
(80th Dist. Ct., Harris County, Tex. Sept. 5, 2017).
[5] Id.
[6] Tex. Const. art. I, § 17.
[7] Aldred et al. v. Harris County Flood Control District et
al., No. 2017-57831, Defendant
City of Houston’s Original Answer (80th Dist. Ct., Harris County,
Tex. Oct. 6, 2017).
[8] U.S.
Const. amend. V.
[9] Arkansas Game & Fish Comm'n v. United States, 568 U.S. 23, 26 (2012).
[10] Id.
[11] Id.
[12] Id.
[13] Trin-Co Inv. Co. v. United States, 130 Fed. Cl. 592, 599 (2017).