In re Katrina Canal Breaches Consolidated Litigation

The U.S. Army Corps of Engineers is a branch of the U.S. military and one of the world’s largest public engineering, design and construction management agencies.  Among its many responsibilities are designing, building and operating flood control projects throughout the United States.  As an agency of the U.S. Government, the Corps can, in limited circumstances, be held civilly liable for damage caused by its actions.  In light of the recent floods and disasters throughout American, it is important to consider under which circumstances the Corps can face liability for its projects.

Judge Stanwood Duval, of the U.S. District Court for the Eastern District of Louisiana found the Corps liable under the Federal Tort Claims Act for certain damages caused by Hurricane Katrina, because of the Corps’ grossly negligent maintenance and operation of the man-made shipping channel known as the Mississippi River Gulf Outlet (“MRGO”).  In re Katrina Canal Breaches Consolidated Litigation, November 19, 2009.

The MRGO is a shipping channel build to decrease the maritime shipping distance between the Gulf of Mexico and New Orleans by about sixty miles.  One of the key levees bounding the MRGO is the Reach 2 levee, which protects the St. Bernard Parish, located south east of New Orleans.  The Corps designed and built the MRGO between 1957 and 1968.  The Corps did not design the MRGO to be a static, unchanging waterway.  On the contrary, because of the sedimentary conditions of the location, the Corps foresaw that over time serious degradation to the MRGO would take place, such as sloughing of the banks due primarily to wave wash, and the degradation of foreshore protection.

In subsequent years, the Corps took no action to ameliorate the ongoing degradation, because the sole focus of its mandate was to guarantee the navigability of the channel.  The Corps observed the degradation, and by the late 1980s had concluded that one of the levees had been negatively impacted.  The Corps however, refused to repair any of the serious erosions of the MRGO unless funding through local participation would be obtained.  This funding never materialized.  In his opinion, Judge Duval expressed disgust that funding questions took precedence over the safety of the entire region. 

The failure to address the degradation, allowed the MRGO to expand to three times its original width, completely eroding its banks.  When Hurricane Katrina hit the region, there were no banks to protect the Reach 2 levee from front-side wave attack, which resulted in cataclysmic failure.  The entire St. Bernard Parish was flooded, and standing water reached between five to twelve feet.  Over a year later, most of the inhabitants had not returned to their homes.  

The court found that once the MRGO was constructed by the Corps, the Corps had a duty to maintain it so as not to expose the levee system, and consequently the inhabitants of the region, to harm.  The cause of the levee’s breach and, therefore, the flood damage in St. Bernard Parish, was the Corps’ negligent failure to maintain and operate the MRGO.  If foreshore protection had been provided in a timely fashion, then the Reach 2 levee may have been able to withstand the waves.

Ordinarily the United States government is protected from liability regarding flood damage by Section 702(c) of the Flood Control Act of 1928.  However, because of the Supreme Court’s 2001 ruling in Central Green Co. v. United States, flood damages are separated into two categories: (1) those for which the government is immune, and (2) damages for which the government is responsible.  In Central Green, a Navy vessel lost control and broke through a levee, causing flood damage.  The negligence of the Navy was the sole cause of the damages, so no immunity existed under the Flood Control Act.  Under this analysis, a court is required to identify the cause of the damage rather than assume that the government is immune based on the sole fact that a flood control project was involved. When flood damage is caused by the government’s negligence, no immunity applies.  Thus, the Corps could not invoke immunity under the Flood Control Act, because the levee’s failure was due to the Corps’ negligent maintenance of the MRGO.

This ruling opens up the government to millions of dollars in liability.  The government will of course appeal this decision.  At this time, there seems to be no evidence that insurers will be directly impacted by this ruling.  However, under certain circumstances insurers have been able to file suit against the government and seek recovery of money paid to their insured under a subrogation theory.  Rule 17(a) of the Federal Rules of Civil Procedure provides that “Every action shall be in the name of the real party in interest.”  An insurer-subrogee who has substantive equitable rights qualifies as a real party in interest and may sue the United States in its own name.  In United States v. Aetna Casualty & Surety Co., the seminal case establishing an insurer-subrogee’s rights, an employee of the U.S. Federal Reserve Bank was injured as a result of the negligence of a U.S. Post Office Department employee. Aetna insured the U.S. Federal Reserve Bank against liability for workmen’s compensation and duly paid its insured’s claim.  Aetna then commenced an action against the United States for compensation for the amount paid. 

The U.S. Supreme Court found that Aetna had a substantive equitable interest, in allowing the insurer-subrogee to commence action against the United States.  This decision has been cited in numerous cases, which have confirmed an insurer-subrogee’s rights.  On March 25, 2010, the parties to In re Katrina appealed to the Fifth Circuit U.S. Court of Appeals.  The appeal is still pending.  If the Government’s liability for the failure of the MRGO is upheld on appeal, there is a possibility that insurers who paid claims to their insureds for damages caused by Hurricane Katrina, may have some recovery against the Government for recovery of the payment.

Six months after the decision, on May 14, 2010, In re Katrina was discussed in In the Matter of Southern Scrap Material Co., by Judge Feldman of the U.S. District Court for the Eastern District of Louisiana.  The case involved an invoice for $9.3 million paid by the Corps for the emergency removal of 3,868 ton metal dock owned by Southern Scrap Material.  Hurricane Katrina caused the dock to break away from its moorings, partially blocking a crucial waterway. The Corps demanded that Southern Scrap reimburse them for the emergency removal.  The Corps argued that it was entitled to remove the metal dock under the Wreck Act, which empowers the United States to remove wrecks from its navigable waters in order to protect other vessels.

Southern Scrap argued that the payment for the removal of the dock was excessive and raised several defenses.  One on the defenses was based on In re Katrina, with Southern Scrap arguing that the Corps was negligent in maintaining the MRGO.  The Corps’ negligence allowed the storm surge to cause the metal dock to breakaway and partially block the waterway.

The court rejected this argument because the US government’s claim against Southern Scrap wa based on the Wreck Act.  The Wreck Act imposes liability without fault.  Therefore, the Corps’ contributory negligence cannot act as a defense to Southern Scrap’s liability in this matter.  By using this argument the court did not have to discuss the Corps’ negligence, or the merits of the decision in In re Katrina. It appears that we will have to wait for the Fifth Circuit to act, before a court will pronounce on the merits of In re Katrina.

Originally published at:
http://www.internationallawoffice.com/newsletters/Detail.aspx?g=bbb1d66d-c142-48af-872f-4e377c3a05aa