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Tropical Storm Damage Assessment and Quantification

The following is an excerpt from an Interface Consulting work product issued for use in litigation, arbitration, or mediation (dispute resolution). Names, dates, and other information has been modified for client confidentiality purposes.

 

Smith Health Care v. Northern Star Insurance Litigation

I. Introduction

I.A. Tropical Storm Allison

In June 2001, Tropical Storm Allison released up to 35 inches of rain in and around the Houston and Beaumont, Texas, areas.... The following is a satellite picture of Tropical Storm Allison over the southeastern part of Texas with an accompanying graphic that illustrates Tropical Storm Allison’s path in June 2001.

 

Tropical Storm Allison – June 2001

 

I.B. Smith’s Eight Health Care Facilities

During Tropical Storm Allison, several facilities owned by Smith Health Care, Inc. (Smith), suffered damage as a result of Tropical Storm Allison. The following graphic identifies the eight (8) specific Smith facilities that were damaged during Tropical Storm Allison and the location of those facilities.

 

Smith Health Care Centers Damaged during Tropical Storm Allison

 

Each facility suffered different degrees of damage due to Tropical Storm Allison. The following table identifies....

I.C. Damage to Smith’s Eight Health Care Facilities and the Associated Repair Efforts

Interface Consulting understands that the carriers, Territory Insurance Company (Territory) and NSIC, utilized Richards McDonald (also known as and referred to as “Checkclaim”) and O’Donnell, Morgan & Associates, Inc. (OMA), which obtained the services of Macro Vapor, Inc. (Macro Vapor), to assess the physical damage at the facilities. Checkclaim also obtained the services of Catastrophe Services, Inc. (CSI), to perform certain emergency remediation and drying activities at....

Smith then contracted with Whittington Restoration Services (hereafter WRS) to complete the emergency remediation of the facilities. Smith also obtained the services of Dr. William Curtis of....

To begin the repair process, Smith entered into contracts with Hancock, Joseph & Angelo (HJA) to provide the architecture, engineering, and interior design of the facilities. HJA retained the services of Delta Architects and Engineers, Inc. (Delta), to assist HJA in determining which codes and regulations would apply to the Smith facilities....

…The following graphic identifies the parties and the basic relationships among the parties.

 

Basic Relationships Among Parties

Clear Pond

Clear Pond experienced approximately 10-12 inches of flooding....

Meadowland

Meadowland had a significant amount of flood water enter the facility, approximately three (3) to four (4) inches high in some places…

Meadowlark

The Meadowlark facility was inundated with flood waters....

Seagull

Seagull had relatively less damage than....

Sea Cliff

The Sea Cliff facility had flood waters of up to three (3) to six (6) inches....

Southway

The Southway facility was damaged by the flood waters....

Gold Street

Smith’s Gold Street facility had water from five (5) to six (6) inches deep....

South Valley

Three (3) to four (4) inches of flood water entered Smith’s South Valley facility....

The following graphic illustrates the construction activities associated with each facility.

 

Timeline of Events – All Smith Facilities

 

The following table summarizes the actions Smith has taken or plans to take to repair or replace the facilities....

Interface Consulting has been asked to provide a professional opinion on the following four (4) questions regarding each of Smith’s eight (8) facilities that are the subject of this dispute:

  • What damage was caused by Tropical Storm Allison?

  • What repairs were necessitated by the damage…?

  • What is the reasonable cost…?

  • If, for any facility, the amount to replace the damaged property is less than the cost to repair, what is the…?

I.D. Smith’s Insurance Claim

Smith obtained a primary insurance policy from Territory and an excess insurance policy from NSIC. Smith’s primary policy with Territory had a limit of....

Smith retained the services of Skybridge Consultants, Inc. (Skybridge), to assist Smith in preparing its claim and documenting the expenses it was incurring related to the flood damage. NSIC used Checkclaim, OMA, and others to assist NSIC in adjusting Smith’s claim.

Smith, with Skybridge’s assistance, submitted a claim....

The following graphic summarizes Smith’s claim, as submitted to NSIC in the previously listed categories.

 

Smith Claim

Source Data: …

 

II. The Dispute

NSIC has made payments to Smith relative to its flood damage claims for the facilities totaling approximately....

 

III. Summary of Findings

Our findings have been categorized into the three (3) following issues: damages caused by Tropical Storm Allison, repairs necessitated by Tropical Storm Allison, and the cost of those repairs. We have summarized our findings relative to all the facilities.

Damages Caused to the Smith Facilities as a Result of Tropical Storm Allison

The damages resulting from Tropical Storm Allison are as follows:

  • Each of the Smith facilities suffered significant but....

  • Construction drawings were developed using data provided by both NSIC and Smith....

  • Construction drawings represent the damaged areas depicted in flood maps, moisture surveys, and....

  • Additional damage was revealed....

Repairs to the Smith Facilities Necessitated by Tropical Storm Allison

The repairs necessitated by Tropical Storm Allison were as follows:

  • Remediation and emergency cleanup and repairs were necessary due to....

  • The interpretations and conclusions reached by the involved parties established the....

  • The repairs required due to Tropical Storm Allison’s damage included replacing....

  • The extent of the damage to the facilities triggered certain code requirements, including the following codes....

  • The Ripple Effect - Smith was forced to perform a significant amount of work to comply with construction-related codes and regulations that would not....

Cost to Repair the Smith Facilities

Our computation of the cost to repair the facilities is as follows:

  • Reasonable expenses necessary to repair the facilities....

  • Costs required to comply with laws and ordinances that regulate the construction or repair of buildings....

  • Costs for debris removal and cleanup....

  • Our computations do not include amounts associated with upgrades or enhancements....

  • We have performed independent take-offs....

  • We have categorized Smith’s claim as follows....

  • The following table provides summarizes Interface Consulting’s findings relative to the cost of....

 

Interface Consulting’s Summary of Findings

 

IV. Discussion of Findings - Damage to the Facilities

IV.A. Methodology to Determine Damage Caused by Tropical Storm Allison

Seven (7) of Smith’s eight (8) facilities that are the subject of this dispute suffered significant damage resulting from Tropical Storm Allison....

…Flood maps for seven (7) of the facilities are reproduced as follows.

 

WRS Flood Maps of the Facilities

 

In an effort to assess the flood damage to each of the facilities....

IV.B. Conclusion

The methodology used by Smith and HJA to determine the damage caused by Tropical Storm Allison and the required remediation of the damage is....

 

V. Discussion of Findings – Repairs to the Facilities

Initially, Smith performed emergency remediation efforts, including drying the facilities. Smith, HJA, and NSIC then identified the readily visible items damaged by Tropical Storm Allison. Additional issues arose during....

V.A. Emergency Remediation Efforts

Smith, in an effort to mitigate the damages caused by Tropical Storm Allison, immediately began emergency remediation activities at the facilities. This included drying and cleaning the facilities and performing repairs to protect the residents and employees....

V.B. Initial Identification of Damage Due Directly to Tropical Storm Allison

As discussed in Section IV of this Report, Smith developed a repair scope of work based on input from its consultant, Skybridge, with the assistance of WRS, as well as on input from NSIC or its consultants. Using this information....

V.C. Identification of Additional Damages during Construction

During the demolition and construction phases, additional items damaged by Tropical Storm Allison were discovered....

V.D. The Ripple Effect – Complying with Current Codes and Regulations

The majority of the facilities were built years ago. Codes and ordinances regulating the construction or repair of nursing homes and other buildings have changed substantially from the time of original construction. As with most facilities, when construction-related requirements change....

Examples of the Ripple Effect

1. Remove and Replace Patient Toilets and Sinks

2. Relocate Privacy Curtain Tracks

3. Replace Hot and Cold Water Piping

4. Redesign and Upgrade HVAC System

5. Update Fire Alarm System

6. Upgrade Electrical System

 

VI. Discussion of Findings – Cost of the Repairs

Smith incurred significant expenses to dry, clean, remediate, demolish, and repair a number of its facilities....

VI.A. Methodology and Assumptions

In an effort to establish reasonable prices to repair the facilities damaged during Tropical Storm Allison in June 2001, we used many different resources. These resources included....

VI.B. Expenses to Repair the Smith Facilities

VI.B.1. Categorization of Repair Costs

VI.B.2. Classification of Costs under the Insurance Policy

VI.B.3. Findings Relative to Repair Costs

Emergency Remediation and Drying

Construction Contract

Change Orders to the Construction Contract

Professional Fees

Other Building Items

FF&E

VI.C. Expenses to Repair Each of the Smith Facilities

VI.C.1. Clear Pond

Smith expended…to perform emergency remediation including drying and cleaning the facility....

…The following table summarizes our findings relative to the cost classifications.

 

Summary of Interface Consulting’s Opinion – Clear Pond

*...

 

VI.C.2. Meadowland

...

VI.C.3. Meadowlark

...

VI.C.4. Seagull

...

VI.C.5. Sea Cliff

...

VI.C.6. Southway

...

VI.C.7. Gold Street

...

VI.C.8. South Valley

...

VI.C.9. Conclusion

The following table summarizes our findings relative to each of the buildings for the previously discussed cost classifications....

VI.C.10. Estimated Facility Replacement Costs

We were asked to analyze the replacement costs of these facilities based on a reasonable per-square-foot construction price....

...Finally, the table identifies the Emergency Remediation, Other Building Items, Professional Fees, and FF&E expenses that would need to be added to the estimated construction replacement cost to compare to the repair costs of the facilities.

 

Smith Facility Replacement Costs*

*...

 

VI.C.11. Actual Facility Replacement Costs

...

 

VII. Signature

 

VIII. Exhibits