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Settlement Is Not Admission of Guilt in New Orleans Flooding during Katrina

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Recently, the New Orleans Advocate reported on how most efforts to win legal claims for flood damage during Katrina have failed. Key cases against the Army Corps of Engineers, the architect and contractor for the failed levees, were undercut by successive court decisions that found the federal agency legally immune from liability.

The reporter also wrote on how U.S. District Judge Stanwood Duval approved a $20 million settlement involving federal class-action lawsuits that claimed sloppy work by the Orleans, Lake Borgne Basin and East Jefferson levee districts contributed to levee breaches during Hurricane Katrina.

We must point out, however, that the reporter inaccurately called the settlement a "victory" for the plaintiffs. This is not the case.

From the outside looking in, we sure can understand how a settlement might give an illusion or an appearance of the defendant taking responsibility.

In fact, Pulitzer Prize-winning journalist Bob Marshall has also pointed to the same $20 million settlement with the local New Orleans area levee districts over shoddy maintenance as evidence that the districts bore at least partial blame for the 2005 disaster. His editor Steve Beatty wrote in an email, "as the lawsuit settlement shows, the boards appear to have taken responsibility."

However, in a case like this, a settlement is not evidence of wrongdoing. And a judge does not have to believe a plaintiff's contentions have merit to approve a settlement.

The settlement money came from insurance proceeds resulting from policies the levee districts held on the levees. So naturally, one might wonder why the insurance companies would pay if the claims are not true. Here's why.

Insurance companies have a risk of being found in bad faith for refusing a bona fide settlement offer within or at policy limits. Explained more simply, if an insurer refuses to pay a proposed settlement they could potentially become liable for the full amount of any future settlement or a judgment even if it exceeds their policy limits.

The total damages claimed by the plaintiffs for the levee and floodwall failures designed and built by the Army Corps of Engineers were many billions of dollars. In this case, the insurers each had the choice to pay $5 million or roll the dice and possibly end up bankrupt. (Twenty million divided by four because a post Katrina flood authority was also named in the suit.) If the insureds win, they save the $5 million each minus the legal expenses of a trial. And if they lose, the insurer could potentially face a possible bad faith judgment for billions of dollars.

It's not hard to see why a rational insurer would choose to settle. In other words, the insurance companies have no choice.

Bill Kohlmann, a property casualty insurance broker in New Orleans with more than 30 years of experience, offered up this observation on the issue:

"If they win, it will still cost them the cost of defense, which would be millions each, and if they turn down a settlement offer within policy limits, then they could be liable for many billions if they lose. It's a no-brainer for the insurance companies to settle in a case like this, even if they believe that the allegations are without merit."

Now let's look at this from the standpoint of the plaintiffs.

The $20 million awarded was a pittance compared to the claimed damages. If the plaintiffs believed they had such a good case, would they have settled for so little given the reported vast assets of the levee board defendants?

Well, the answer to that is "maybe." The attorneys for the plaintiffs get paid from a $20 million award. Going to trial will cost them a fortune. And if they win, will they really be able to seize assets from the levee boards? Probably not.

So, a rational attorney might settle for $20 million even if they they had a strong case. In other words, in a case like this, the settlement reflects legal strategy on the part of both defendants and plaintiffs. To try to infer from the settlement that the pre-Katrina levee districts were at fault or conversely that the plaintiffs had a weak case is just plain nonsense.

Put very simply, a $20 million settlement, given to those with expectations of at least $20 billion, would be roughly equivalent to getting 2 pennies on an expectation $20.

John Ruskin, who is a New Orleans attorney with advanced degrees in engineering, weighed in with this:

"The absence of a judge or jury decision based on trial evidence opens an opportunity for aggressive pundits to find "proof" in the mere existence of a settlement. I prefer the sedate view that the proof is in the evidence."

In closing, we concede that folks who are not attorneys or insurance agents might consider a settlement an admission of wrongdoing either wholly or partially. We hope we have shown that the 2009 settlement by federal Judge Stanwood Duval in a class action lawsuit that claimed sloppy work by the levee districts contributed to levee breaches in 2005 is neither proof of culpability nor acceptance of responsibility by the pre-Katrina levee districts.

A settlement is just that, and nothing more.

The original version of this opinion piece appeared in The Advocate.

H.J. Bosworth, Jr., lead researcher for levees.org, contributed to this article. Levees.org's mission is to collect and disseminate the vetted facts about the New Orleans Flood of 2005 because the survivors deserve them. The non profit has over 25,000 supporters and chapters in five states.

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