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Texas Insurers Should Prepare For Unexpected Floods

Texas Law360
April 25, 2018

By Shannon M. O'Malley
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When Hurricane Harvey headed for Houston, Texans braced for an expected large amount of rain and heavy winds. What they did not expect was the catastrophic flooding that took place in the city.

Houston is a city developed with water in mind. It is about 45 miles from the coast and has a number of bayous, marshes, creeks and other bodies of water to control. And it had flood control measures in place. This is especially true because in 2001, Houston was heavily flooded during Tropical Storm Alison. While the city has also endured other flooding events, its flood control measures were generally expected to work. But as the Texas Tribune recently reported, Houston’s past and current efforts do not go far enough to address the issue.

Many Houstonians affected by Harvey did not have flood insurance because their homes or businesses were not located in designated “flood zones.” As the insurance industry is learning, flood maps are increasingly irrelevant and do not accurately reflect the flood risk faced by Houstonians. The susceptibility of the Houston area to flooding is due to a number of factors, including infrastructure issues, development in 500-year floodplains, and paving over ground that previously worked to absorb rainwater (thereby increasing runoff and overwhelming reservoirs). According to data concerning 500-year flood plains, there is supposed to be only a 0.2 percent chance for flooding each year. But a CoreLogic report issued in 2017 noted that 52 percent of residential and commercial properties in the Houston metro are at “High” or “Moderate” risk of flooding, but are not in a special flood hazard area as identified by the Federal Emergency Management Agency.[1] Because these homes were not in floodplain zones, they did not carry flood insurance when Harvey hit.

To address the floodplain issues, Houston’s city council recently passed a measure to try to minimize future damage to homes and businesses — namely, any new construction or renovations expanding homes by 35 percent or more will have to be elevated two feet above the floodplain. This affects properties in both the 100-year and 500-year flood plains. But this response is arguably a band-aid. It does not address the grandfathered properties that are not required to be raised, or the issue of greater flooding risk in areas previously considered “safe” from flooding.

There has also been discussion of building a third reservoir to help to address the increased runoff caused by development on flood-absorbent grasslands. The two current reservoirs — Addicks and Barker — are about 70-years old and may be at risk of failure. The shortcomings of the current reservoir system were exposed during Harvey when officials were unable to sufficiently contain the amount of water that had built up during the storm. In response, the officials released water, which in turn flooded neighborhoods previously considered protected from flood conditions. 

In the insurance context, if floodplain maps are not a good measure of risk, how can insurers and insureds effectively evaluate the risk of flood loss? The ability to assess accurately the actual risk of flood — particularly in areas that were previously identified as 500-year or even 1,000-year floodplains — is critical to the underwriting process, including insurers’ determination of appropriate limitations of liability and deductibles. Without an accurate tool to assess risk, an insurer may inadvertently face a loss it never anticipated or expected to cover.

Fortunately, there are many tools in addition to floodplain maps that may provide relevant information and assist in assessing risk. The most obvious one, of course, is prior flood losses. Insurers can look to prior losses in the area, including the number and extent of losses to evaluate risk. Also, underwriters can analyze the area’s flood protection measures. This includes evaluating the effectiveness of water run-off measures and local reservoirs. And the condition of the reservoirs themselves should be considered.

Ultimately, under Texas law, flood is flood whether the property is located in a floodplain or not. More particularly, Texas courts recognize that surface water, i.e. water runoff, is considered to be “flood,” which is typically excluded or limited under most homeowners’ policies. Specifically, Texas courts define “surface water” and “floodwaters” as:

Surface water is generally defined as that which is derived from falling rain ... and is diffused over the surface of the ground ... Floodwaters are those which, generally speaking, have overflowed a river, stream or natural water course and have formed a continuous body with the water flowing in the ordinary channel ... Such waters are not divested of their character as surface waters by reason of their flowing from the land on which they first make their appearance onto lower land in obedience to the law of gravity.[2]

Texas courts recognize that the primary characteristic of surface water is that it does not follow a defined course or channel and does not gather into or form a natural body of water.[3]

Because surface water is “water which is diffused over the ground from falling rains or melting snows, and it continues to be such until it reaches some bed or channel in which water is accustomed to flow,”[4] significant rainfalls that occur in areas with issues related to water run-off create greater risks for flood damage.

As noted, courts have distinguished “surface water” from “flood water,” which has been recognized as “those [waters] which, generally speaking, have overflowed a river, stream or natural water course and have formed a continuous body with the water flowing in the ordinary channel.”[5] But most policies define “flood” to include surface water. Therefore, whether property is damaged by water from an overflowing body of water, such as a creek, river, lake, or ocean, or whether it is damaged by surface water, flood exclusions or limitations will typically apply.

Because floodplain maps have recently been demonstrated to be somewhat unreliable, insurers should not rely exclusively upon these designations in underwriting risks. Instead, insurers should reassess the risk for flooding in areas known to have heavy rainfall records, heavy development, aged infrastructure systems and unexpected flood losses. Moreover, governmental efforts to address flooding risks, such as Houston’s new requirement to raise homes, will affect the replacement cost value of properties, including, potentially, code upgrade coverage. Regardless, there should be an expectation that flooding will happen again in Houston.

Shannon O'Malley is a partner with Zelle LLP in Dallas.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


[2] Valley Forge Insurance Co. v. Hicks Thomas & Lilienstern LLP, 174 S.W.3d 254, 258 (Tex. App.—Houston [1st Dist.] 2004, pet. denied).

[3] Texas Woman’s Univ. v. The Methodist Hosp., 221 S.W.3d 267, 278 (Tex. App.—Houston [1st Dist.] 2006, no pet.).

[4] Dietrich v. Goodman, 123 S.W.3d 413, 417 (Tex.App.-Houston [14th Dist.] 2003, no pet.)

[5] Valley Forge, 174 S.W.3d at 258; see also Raburn v. KJI Bluechip Investments, 50 S.W.3d 699, 704 (Tex. App. 2001) (“Flood waters are waters above the regular flow of a stream”); Dalon v. City of DeSoto, 852 S.W.2d 530, 538 (Tex. App. 1992), writ denied (Apr. 21, 1993) (“If the floodwater forms a continuous body with the water flowing in the ordinary channel, or if it temporarily overflows presently to return, as by recession of the waters, it is to be regarded as still a part of the stream.”) (quoting 78 Am.Jur.2d Water § 225 at 670 (1975))

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