Bill Deron bought a 100-acre tract next to a creek outside the City of Houston. Deron planned to build a subdivision where some of the homes abut a creek. The other homes would sit about 15 feet higher than the creekside homes. Deron disclosed to the creekside buyers that they needed flood insurance. But he did not tell any other home buyers to purchase flood insurance. Hurricane Harvey dumped so much rain on the neighborhood that all of the homes in Deron’s neighborhood flooded. Homeowners soon learned that the entire neighborhood sat in a floodplain. Did Deron have a duty to disclose whether the development or any part thereof is in a floodplain or even do something more? What about the government entity who approves the development?
What is a Floodplain?
To understand the liability associated with building in the floodplain, it is important to understand what the relevant floodplain is. Floodplains in a given area vary in width depending upon the size of the flood. Generally, when considering the liability of building in a floodplain, the floodplain that is considered is known as the “base floodplain.” The base floodplain is the floodplain for a 100 year flood. The base floodplain is divided into two components: (1) the floodway and the flood fringe. The location of the base floodplain and the floodway are depicted on Flood Insurance Rate Maps (“FIRM”) published by the Federal Emergency Management Agency. No new construction is allowed within the floodway without a study and certification from a licensed professional engineer stating that there will be no rise in floodwater caused by the construction.
Developers and Builders’ Potential Liability for Flood Fringe Building
Construction can occur in the flood fringe subject to the meeting of certain requirements. FEMA, as part of the National Flood Insurance Program (“NFIP”), sets building standards that must be met such as flood proofing and elevating. Local governments often have their own requirements, the most common of which is to include additional freeboard over and above FEMA’s elevation requirements. The major source of liability to the design professional is when he or she fails to design a development in accordance with these regulatory requirements. The lack of disclosure of a development’s location relative to the floodplain is generally not an issue at this stage. The FIRM maps are readily available, and even if the maps are ignored by the developer and its design professional, the lender, out of concern for protection of its collateral (flood insurance is not available for properties that do not meet the NFIP requirements) would likely verify whether the development was in a floodplain. Further, local building officials will be verifying the location and nature of the proposed development prior to construction through the permitting process.
Developers and builders generally have the duty to pass on the information they learned from the design professional to purchasers of the subdivided property. The old doctrine of caveat emptor, or “buyer beware”, has been chipped at through the years with added exceptions by courts and legislatures. Previously, developers and builders had no duty to disclose the existence of a flood hazard, they simply could not mislead or make misrepresentations with respect to it. But now many jurisdictions require that builders and developers disclose known information related to flood hazards and drainage problems. Some jurisdictions have even adopted regulations and ordinances requiring that developers and builders investigate flood and drainage hazards and disclose such information to subsequent purchasers. Further, in the context of residential construction, most jurisdictions recognize an implied warranty of habitability that can leave developers and builders liable to purchasers of newly constructed homes that suffer flood damage.
However, many states have a statute of repose that prohibit causes of action against the constructor of improvements within a certain number of years after completion of the construction, even if the plaintiff is injured (or discovers the injury) much later. In Texas, for instance, the statute of repose is 10 years. That means the plaintiff must bring a lawsuit within 10 years from the date of construction or the claim is generally time barred. As one can imagine, the statute of a repose is a formidable shield in the context of floodplain construction given that the flood hazard is a flood that will statistically occur, on average, only once in 100 years. The statute of repose, is not, however, a silver bullet. There are often exceptions to the repose period. For instance in Texas, the statute of repose does not bar claims based on willful misconduct or fraudulent concealment.
Is the Government Liable?
There is a growing trend to hold the government entities that allowed the construction in the floodplain to take place liable for damage to neighboring properties. Creative plaintiffs have attempted to sue government entities based on theories of liability ranging from an uncompensated taking to a civil rights violation to negligence. For example cases see Professional Liability For Construction in Flood Hazard Areas written by Jon Kusler. Texas courts are ready to impose a duty upon government entities to address flooding due to development. The Texas Supreme Court, in the narrowly decided case of Harris County Flood Control District and Harris County v. Kerr, held that a property owner stated a cause of action for an uncompensated inverse taking against a county and a flood control district where new development was approved without addressing increased runoff resulting from the development.
Tilting the Scales in Your Favor
As described above, developers can be held liable for mistakes made by others. Disclosure, while important to diffusing many sources of potential liability, is not a complete solution to avoid of liability. Before constructing in a floodplain, developers must thoroughly vet its design professional and builder (or contractor if the developer will be the builder). Further, the developer must have appropriate contractual provisions in place to limit exposure to purchasers and ensure a full liability transfer from developer to those who are actually responsible for any damage associated with flooding. Likewise, homeowners should spend time investigating whether their future home is in a floodplain in case their lender fails to catch it. If your home is in a floodplain, you should seriously consider purchasing flood insurance.