Insurer Won’t Have to Pay to Avert Next Flood

CHICAGO (CN) - Homeowners who sustained flood damage at their Indianapolis subdivision can sue their insurer for compensation but not for a judgment large enough to prevent future floods, the 7th Circuit ruled.

In 2003, heavy rains flooded several houses in the Courtyard Homes at Sycamore Springs, located on a flood plain of the White River.

The flooding was traced to reductions in the number of retention ponds and increased demands on the community's stormwater system caused by the developer's addition of additional duplex homes.

The homeowners association sued Courtyard in state court, and the developer tended its defense to Continental Casualty Company. But Continental denied coverage, finding that the deliberate reduction in stormwater systems relieved their duty to insure.

The homeowners and Courtyard settled the state suit for $335,000, only $35,000 of which could be collected from Courtyard. The rest had to be collected from insurance.

U.S. District Judge Larry McKinney in Indianapolis ruled for Continental on completely different grounds.

The association had not asked for compensatory damages, McKinney determined. Rather, it had asked for steps to prevent future flooding hazards.

"In other words, the association wanted a subdivision better than the one Courtyard had built, not recompense for injury caused by the rain on November 1, 2003," according to the federal appeals court, which affirmed on July 22.

Since neither the parties nor the state judge tried to apportion the damages to determine appropriate compensation, the three-judge appellate panel said the award must be vacated.

The association's argument that monetary damages could not be considered prospective relief was unavailing.

"Money can be used to make tomorrow's improvements as surely as it may be used to reimburse yesterday's losses," Chief Judge Frank Easterbrook wrote for the court. "The choice between money and equitable affects who does the work, not what work will be done."

While declining to answer whether the developer was to blame for the flooding, the court seemed to tip its hand. "It is easy to see how the unanticipated outcome of a calculated choice can be an 'accident,'" Easterbrook wrote. "The designers and builders of the Titanic knew exactly what kind of steel they were using in its hull, but they did not appreciate how brittle the steel would become in cold water and thus did not anticipate what would happen when it scraped against an iceberg."

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