London Insurers Win Chicago Flood Appeal

August 20, 2001

The decision on August 10th by the 7th Circuit Court of Appeals in favor of Lloyd’s and other London-based underwriters found them not liable for an additional $100 million in settlement payments arising from flooding in downtown Chicago in April 1992.

The court’s ruling established that the insured, Great Lakes Dredge & Dock Co., effectively canceled a $60 million second layer excess policy and replaced it with $10 million in coverage, and was not entitled to a double recovery on a $40 million first layer excess policy. It was entitled to payments only on the original $1 million primary policy, the $40 million and the $10 million on the rewritten secondary policy.

The severe flooding was caused by the collapse of a portion of an old tunnel system underneath the city, which was then inundated by water from the Chicago River. Great Lakes was found liable for the damages, as it had driven a series of pilings into the riverbed, which weakened the tunnel structure, resulting in the collapse six months later.

Great lakes was taken over by another company after it implanted the pilings, but before the flooding. The new parent canceled the original $60 million excess policy, and took over as named insured on the $40 million excess policy. Following numerous lawsuits it sought payment on both first tier coverages, and the entire $60 million, but the court determined that the event which triggered the flooding occurred subsequent to the readjustment of the policies, and allowed only the claims totaling $51 million.

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