Natural disasters are becoming more frequent, more severe, and more destructive. No part of the United States is entirely immune from some combination of tornadoes, fires, droughts, earthquakes, freeze events, and hurricanes. Indeed, 2024’s “extraordinary” hurricane season saw Hurricanes Helene and Milton devastate swaths of the Southeastern United States from Florida to North Carolina.[1] This trend has continued in the early days of 2025 with wildfires in California and winter storms in the South and along the East Coast causing devastation, supply chain disruptions, and, reportedly, tens of billions of dollars in insured losses.
Natural disasters themselves can cause deaths and untold property damage. But an increasing component of casualty risk stems not only from severe weather itself, but also from the ability of America’s vast system of aging infrastructure to respond to that severe weather. Perhaps no single type of vital infrastructure illustrates this dynamic better than the nation’s dams.
The National Inventory of Dams estimates that there are over 92,000 dams nationwide.[2] They are, on average, 63 years old.[3] While 71% of these dams are state-regulated and another 5% are federally regulated, a large portion of the remaining 24%—over 22,000 dams—are privately owned and regulated.[4] Notably, 77% of all dams nationwide are “High Hazard Potential Dams,” a designation that indicates that a dam failure would create a high potential for human loss and could include property damage.[5]
These numbers are even more concerning in the Southeastern United States. Virginia’s dams, for example are, on average, 76 years old.[6] In North Carolina, 32% of all dams are regulated by neither federal nor state governments.[7] Only 3% of Alabama’s dams are regulated.[8] In Mississippi, 88% percent of the state’s 6,000 dams are High Hazard Potential Dams.[9] In Louisiana, that number is 98%.[10]
Hurricane Helene laid bare the damage that dam failures and overtopping events can cause. The storm forced one major power utility to relieve pressure on the Cowan’s Ford Dam near Charlotte, North Carolina by opening the floodgates and flooding several nearby communities.[11] The Lake Lure Dam in Western North Carolina overtopped, causing even more extreme flooding and prompting emergency management services to predict a total dam failure.[12] Like many dams throughout the country, the Lure Dam was built decades ago and was not designed to withstand the type of extreme weather events seen in recent years in accordance with more modern engineering standards.
Of course, harms arising from dam failures extend beyond the Southeast and can result in substantial liabilities and insurance claims. In Hawaii, after the Kaloko Dam collapsed in 2006, causing fatalities and extensive property damage, the state’s Supreme Court held that a commercial general liability (“CGL”) policy covered negligence claims against the dam’s prior owner. C. Brewer & Co. v. Marine Indem. Ins. Co. of Am., 347 P.3d 163 (Haw. 2015).
Property owners residing near dams (and their insurers) also may face dam-related exposures in the wake of natural disasters. For example, in Texas, the San Jacinto River Authority released extreme amounts of water from the Lake Conroe Dam to avoid overtopping during Hurricane Harvey. The resulting water flow destroyed a series of boat slips in a condominium complex. A court ultimately held that the condo association’s property insurance policy covered the loss and that the association’s insurer breached its policy by denying coverage. Playa Vista Conroe v. Ins. Co. of the W., 989 F.3d 411 (5th Cir. 2021). Other recent high-profile examples of aging or defective infrastructure failures include the collapses of the Francis Scott Key Bridge in Baltimore, the I-95 overpass in Philadelphia, and the pedestrian overpass bridge near Florida International University in Miami, all of which led to substantial insurance claims.
To mitigate infrastructure-related risks, dam owners should purchase sufficient insurance coverage for both first party losses and third party liability. Depending on the fact pattern, lines of first party coverage that may apply include commercial property, construction “all risk” insurance, rehabilitation construction insurance, and flood insurance. Third party lines of coverage to consider include commercial general liability, errors and omissions, and directors and officers liability. Further, with the increasing threat of cyber-attacks on critical infrastructure projects, dam owners—especially those who supply electricity to the grid—should ensure they have proper cyber insurance policies with business interruption coverage in place.
Furthermore, property owners near dams should pay particular attention to flood exclusions in their policies because insurers may attempt to rely on them to avoid coverage for flooding attributable to a dam failure. See, e.g., In re Katrina Canal Breaches Litig., 495 F.3d 191, 196 (5th Cir. 2007) (ruling that homeowner and standard commercial property policies did not provide coverage for losses caused by negligent design, construction, and maintenance of levees in New Orleans because they fell within flood exclusions); Kane v. Royal Ins. Co. of Am., 768 P.2d 678 (Colo. 1989) (holding that losses resulting from failure of Lawn Lake Dam, causing water to inundate properties in Colorado, triggered flood exclusions).
Importantly, there is no one-size-fits-all policy for dam owners and operators, and each dam presents its own unique set of exposures based on its age, condition, and location. Moreover, different insurers offer different policy forms, many of which provide substantially different scopes of coverage. Some of the most important coverage issues for dam owners to keep in mind when reviewing policies and purchasing insurance include:
- Asset valuation. Many commercial property policies provide that insurers need not reimburse losses at an asset’s full “replacement cost,” as opposed to the “depreciated cost,” or “actual cash value” unless certain conditions are met. The cost of replacing or repairing an aging dam may substantially exceed its depreciated cost value, so dam owners should work with their brokers to ensure they have sufficient replacement cost coverage in place.
- Code-compliance upgrades. Many commercial property policies also distinguish between: (1) repairs necessary to return the damaged asset to its pre-disaster state; and (2) repairs necessary to bring the asset into compliance with current code requirements. While most commercial property policies will cover the cost to restore the property to its pre-loss condition, some policies do not cover the cost to bring the damaged asset into full compliance with current codes and standards, or only provide limited code-upgrade coverage. Code-compliance coverage may be paramount for protecting against damage to dams and other critical infrastructure built decades ago before modern dam safety standards were in place.
- “Betterments.” Similarly, many commercial property policies expressly exclude or substantially limit coverage for the cost of improving an asset beyond its pre-disaster state after damage caused by a disaster. For example, policies usually fully cover the cost of repairs necessary to return the damaged asset to its pre-disaster state, but not the cost to implement “betterments” to the asset (e.g., increased capacity). However, depending on policy terms and conditions, betterments that mitigate business interruption losses after a disaster may be covered.
- Latent defects and wear and tear. Many commercial property policies contain exclusions for “latent defects,” which courts generally define to mean defects that would not be discovered upon reasonable inspection. See, e.g., Nida v. State Farm Fire & Cas. Co., 454 So. 2d 328, 335 (La. Ct. App. 3 Cir. 1984). Similarly, many policies exclude losses resulting from normal wear and tear to covered assets. Insurers may invoke those exclusions when evaluating coverage for damage to aging infrastructure, even if the damage in question was caused by a natural disaster or some other intervening event that had nothing to do with the alleged defect or wear and tear.
- Ensuing loss. Policies with “latent defect,” “wear and tear,” or similar exclusions often contain an exception for “ensuing loss” allegedly arising from the excluded cause. Ensuing loss provisions make clear that while the cost to repair or replace the defective or impaired property itself is not covered, the cost to repair ensuing property losses to non-defective property is covered. For example, if a latent design defect in a dam’s embankment fails to prevent overtopping during a storm that, in turn, causes damage to the dam’s spillway, then a policy with an ensuing loss provision may exclude the cost to fix the latent defect, but should cover all ensuing property damage loss, including the cost to fix the spillway.
- Concurrent causation issues. After a loss, policyholders and insurers may contest the cause of a loss, with the policyholder arguing that the loss is covered by a covered peril, and the insurer arguing that the loss was caused by a peril that triggers a policy exclusion. Policyholders should point to concurrent causation and efficient proximate causation doctrines and argue that, in the absence of specific policy language stating otherwise, a loss is covered so long as any one of its causes is covered, even if another cause is excluded. Policyholders should nonetheless carefully review their specific policy language, since many policies contain “anti-concurrent causation” exclusions aimed at negating concurrent causation doctrines that would otherwise lead to coverage. See, e.g., National Quarry Services, Inc. v. First Mercury Insurance Company, Inc., 372 F. Supp. 3d 296 (M.D.N.C. 2019). These provisions are not enforceable in all jurisdictions, and the law regarding concurrent causation differs across jurisdictions and continues to develop. Accordingly, it is important to be cautious when asked by an insurance company to ascribe a specific cause to your loss prematurely before the facts are known.
- Number of Occurrences. Most commercial property policies will both limit the total amount the insurer will pay for a single “occurrence” and require a separate deductible to be satisfied before it will pay losses for each “occurrence.” Therefore, the number of “occurrences” at issue may significantly impact coverage. Some policies will explicitly define the term “occurrence,” but many do not. When the term is undefined, state law will control. Many states adhere to some version of the “cause test,” which generally holds that all losses stemming from a single casual event constitute a single occurrence subject to a single policy limit and single policy deductible.
The unpredictability of natural disasters and the complexity, expense, and urgency of large-scale repairs to aging infrastructure after a disaster make plain the need for insurance coverage of these important but vulnerable assets. Equally important is the need for policyholders to select the type of insurance coverage that best protects infrastructure and the neighboring businesses and communities that the infrastructure supports.
McGuireWoods attorneys have substantial experience in both reviewing and negotiating coverage and litigating coverage disputes after they arise to maximize recoveries. They have recovered billions of dollars on behalf of their policyholder clients.
[1] How unusual has this hurricane season been?, BBC, available at https://www.bbc.com/news/articles/cden551l7kko
[2] National Inventory of Dams, Dams of the Nation, available at https://nid.sec.usace.army.mil/#/
[3] National Inventory of Dams, Dams of the Nation, available at https://nid.sec.usace.army.mil/#/
[4] National Inventory of Dams, Managing Dams available at https://nid.sec.usace.army.mil/#/
[5] National Inventory of Dams, Managing Dams, available at https://nid.sec.usace.army.mil/#/dam-basics/managing-dams; Federal Guidelines for Dam Safety: Hazard Potential Classification System for Dams
[6] National Inventory of Dams, Dams of Virginia, available at https://nid.sec.usace.army.mil/#/
[7] National Inventory of Dams, Dams of North Carolina, available at https://nid.sec.usace.army.mil/#/
[8] National Inventory of Dams, Dams of Alabama, available at https://nid.sec.usace.army.mil/#/
[9] National Inventory of Dams, Dams of Mississippi, available at https://nid.sec.usace.army.mil/#/
[10] National Inventory of Dams, Dams of Louisiana, available at https://nid.sec.usace.army.mil/#/
[11] Lake Norman residents recovering from Helene’s flooding, WCNC Charlotte, available at https://www.wcnc.com/article/weather/hurricane/helene/lake-norman-helene-recovery-10-3-2024/275-cd4b6632-17b5-446e-83ce-a09b0149bbaa
[12] Lake Lure Dam ‘high hazard’ and needed repairs at time Helene hit, WCNC Charlotte, available at https://www.wbtv.com/2024/09/30/lake-lure-dam-high-hazard-needed-repairs-time-helene-hit/