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Black Swans

Welcome to the ARkStorm

A 45-day superstorm floods California and dishes out economic catastrophe.   
By: | August 3, 2015 • 9 min read

The rain starts from light gray skies with modest winds. California farmers desperate for water look up from their work and raise their faces to the sky, thankful for the drops of moisture on their faces.

What the grateful farmers don’t know is that jets of warm, moist air that originated over the North Pacific have formed a massive storm system — what scientists call an atmospheric river — that is getting set to dump catastrophic amounts of precipitation on California.

First the rain comes in spurts. Then it pours and pours and keeps on pouring.

It’s more than enough to water parched almond trees and cotton fields. It’s enough to wipe those groves and fields away.

The story is that Noah built an ark to survive rain that fell for 40 days and 40 nights. This is what happens here and then some. No exaggeration.

Week after week, the rain comes relentlessly. After three weeks of solid rain, accompanied by hurricane-force winds, much of the state’s infrastructure and its flood control systems start to give way.

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California’s first responders and flood control systems are prepared for storm and flood events that might come every couple of hundred years at maximum. They are not prepared for this.

The first major landslide — the first of tens of thousands — occurs at the picturesque community of Fort Bragg on the Mendocino Coast, where dozens of properties are crushed on the ocean side rocks below the town’s cliffs.

Soon, the news media report that the levees that hold back the Sacramento River from businesses and residents in the area’s delta towns are failing. Evacuations are hampered by flooded roads.

A video produced for the U.S. Geological Survey depicts a hypothethical but scientifically plausible storm impacting California.

Flooding swamps San Francisco, Los Angeles and heavily populated San Diego and Orange counties. The state’s capital, Sacramento, suffers a repeat of what it went through in 1861, when its streets were impassable and the governor had to be transported to his inauguration by boat.

The van of a family trying to drive away from the town of Pittsburg in the Sacramento River delta is swept into the surging river. A young couple and their three children are lost.

Dozens of migrant farm workers in California’s Central Valley are drowned before anyone knows they’re gone. They owned no vehicles in which to make their escape. As usual, it’s the poor who suffer the worst.

Flood waters in the Central Valley are at 10 feet and rising and will crest at 20 feet. It won’t be long before the valley is an inland lake 300 miles long and 20 miles wide. Floating on the surface of that massive lake are the bloated, decaying carcasses of thousands of cattle, poultry and swine, swept out of the largest agricultural center in the country and drowned by the storm.

Interstate 5 within the state is under water. Trucks bearing tens of millions in retail goods can’t get where they need to go. It will be weeks before I-5 is passable and it will require millions of dollars in repairs.

The ocean movement from the storm takes many of Southern California’s most treasured structures and smashes them.

The gorgeous terra cotta-roofed seaside racetrack grandstand at Del Mar — founded by Bing Crosby and some of his friends — is heavily damaged by the sea. The piers at Manhattan Beach, Hermosa Beach and Venice Beach are torn to pieces.

The flooding overwhelms coastal wastewater plants. Those residents who live along the concrete-lined Los Angeles River who weren’t forced out by the rain are driven out by sewage, as it erupts out of hundreds of manholes, turning the manmade river into a giant sewer.

The Terminal Island pumping station located between San Pedro and Long Beach is cut off by the floods. Abandoned by its 70-plus employees, raw sewage spews from it and runs untreated into the Pacific Ocean.

Chastened by its failures during the flooding in New Orleans after Katrina, the federal government moves much more quickly than it did in 2005 to support overwhelmed local and state emergency responders.

National Guardsmen and U.S. Army soldiers can help evacuate residents and hoist sandbags. They can’t, however, offer financial disaster recovery assistance.

As a result of this 45-day storm, there is more than $400 billion in property damage and an additional $325 billion in business interruption losses.

No more than $30 billion is recoverable through private or public insurance.

When the waters recede, more than 170 California cities and towns are insolvent, unable to cover the costs of the services they required and hamstrung by drastically reduced property and income tax collections.

Deaths number in the thousands.

The state’s agricultural economy, once the biggest in the world and already damaged by years of drought, teeters on collapse.

Goodbye Disneyland. Goodbye Rodeo Drive.

Welcome to the ARkStorm.R8-15p22-24_01ArkStorm3.indd

The Modeling

What we describe is no apocalyptic fantasy. Rain and wind in these amounts came to California in December of 1861 and didn’t leave until the following February.

Geologists studying ocean sedimentation off of the coast of California determined that atmospheric rivers have dropped this much rain on California — or more — on at least six occasions.

The most muscular academic research in this area of catastrophe modeling is that done by the U.S. Geologic Survey’s Multi-Hazard Demonstration Project (MHDP), a multi-discipline effort involving more than 100 scientists, consultants and public sector officials.

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As we described above, the ARkStorm that the project modeled in 2010 would produce more than $700 billion in property and business interruption losses.

“All of these scenarios are scientifically plausible,” said Dale Cox, the project manager for the USGS Science Application for Risk Reduction, the successor organization of the MHDP. Cox co-founded the MHDP and oversaw the ARkStorm scenario.

“They are not worst case scenarios but they are in general low probability, extreme events. We’re trying to create them so that they will be accepted. If it’s too big, people are going to blow it off and nobody is going to do anything about it,” Cox said.

To create the ARkStorm scenario, the team of scientists under Cox’s direction took the science used for studying earthquake trench faults — looking at where offsets in the fault occurred with carbon dating — and applied that to the deltas and marshes of California’s coast line.

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Laurie Johnson, founder, Laurie Johnson Consulting

What they deduced from that geologic evidence is that atmospheric rivers —  massive storms that collect huge amounts of water from the atmosphere over the Pacific and pour it on California — have occurred and could well occur again.

“The metaphor I like to use is that it’s like turning on a fire hose and pointing it at California and moving it up and down California’s coast line,” said Laurie Johnson of San Rafael, Calif.-based Laurie Johnson Consulting. She previously worked at Risk Management Solutions, the modeling firm.

Prasad Gunturi, the lead for North America-related CAT modeling research and evaluation at Willis Re, said a recent scientific report likened an atmospheric river to taking all of the water in the Amazon River and dumping it in California’s Central Valley.

For this project, Johnson focused on long-term recovery implications. Willis Re’s Gunturi pitched in on economic loss analysis.

“The whole purpose of loss modeling is to come up with a risk management strategy. So if we know what we know now, what could we do and what would be the best investment to make now,” Johnson said.

To model the amount of wind, storm surge and flooding that accompanies an ARkStorm, Cox’s team “stitched” together data from two separate storms: a winter storm that affected predominantly Southern California in 1969, and a 1986 storm that impacted predominantly Northern California.

The team also mapped, for the first time ever, what it would look like if the entire state flooded.

“The whole purpose of loss modeling is to come up with a risk management strategy. So if we know what we know now, what could we do and what would be the best investment to make now.” — Laurie Johnson, founder, Laurie Johnson Consulting

“The team had to build that from scratch,” Johnson said. “Team members worked with FEMA and the state department of water resources to develop a statewide hydrology model and figure out how flooding progressed across river systems and through time statewide,” Johnson said.

Legacies

Using trench analysis carbon dating to study California’s storm history is one of the project’s legacies.

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Bringing the term ARkStorm into public consciousness is another. “It’s something you hear quite commonly now with the media and the weather media. Not because we did it, but … it was a new concept,” Johnson said.

The ARkStorm scenario also showed California’s emergency responders that they were going to have to look at flooding in a whole new way.

Here was a statewide event they had never considered before.

“Central California was once a large inland sea with very low elevations in many spots. I knew that from my geoscience background,” Johnson said.

“But I don’t think people appreciated that in 1861-1862, flooding basically closed the capital, Sacramento; the whole Central Valley became a lake for more than three months. It took more than three months to drain the city,” she said.

“Nobody had looked at the statewide flows,” Cox said.

“California has really good flood fighters. We have really good emergency responders. We are looking at a scenario that would challenge them and that is what we’re trying to do,” Cox said.

Since the ARkStorm report was produced, Cox and some of his teammates have taken its hydrology and meteorology science and applied it at local levels. They’ve presented an ARkStorm scenario to officials in Ventura County.

“It was a really eye-opening experience for them,” Cox said.

Cox has also produced a study, published in January, detailing what would happen to the Lake Tahoe community in the event of an ARkStorm.

Look at these two factors alone.

One: That community takes its drinking water out of Lake Tahoe, untreated for the most part.

Two: Tahoe’s sewage treatment facilities are mostly at lake level. Should an ARkStorm strike, pumping that sewage out of the basin would become impossible.

Also, take into account that the workers who operate those sewage plants live on the other side of the mountain ridges, in more modest communities.

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The snow from an ARkStorm would stop them from getting to their jobs.

“We often talk about The Big One  [a big earthquake on the San Andreas Fault]; this is a bigger event,” said Anne Wein, an operations research analyst with the U.S. Geological Survey based in Menlo Park, Calif.

“What struck me was the evacuation being similar in size to a hurricane. We forget that this can happen in California,” Wein said.

BlackBar

Additional 2015 Black Swan coverage:

R8-15p26-28_02Bomb.inddTo Clean Up a Dirty Fight

A dirty bomb detonated in Manhattan could make a ghost town of the most populous city in the U.S.

R8-15p30-32_03Carrington.inddThe Darkness of the Sun

A fast-moving geomagnetic storm blasts the North American power grid, leaving a large swath of the Northeastern U.S. temporarily uninhabitable.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Pharma Under Fire

Opioids Give Rise to Liability Epidemic

Opioids were supposed to help. Instead, their addictive power harmed many, and calls for accountability are broadening.
By: | May 1, 2018 • 8 min read

The opioid epidemic devastated families and flattened entire communities.

The Yale School of Medicine estimates that deaths are nearly doubling annually: “Between 2015 and 2016, drug overdose deaths went from 33,095 to 59,000, the largest annual jump ever recorded in the United States. That number is expected to continue unabated for the next   several years.”

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That’s roughly 160 deaths every day — and it’s a count that’s increasing daily.

In addition to deaths, the number of Americans struggling with an opioid disorder disease (the official name for opioid addiction) is staggering.

The National Institute on Drug Abuse (NIDA) estimates that 2 million people in the United States suffer from substance use disorders related to prescription opioid pain relievers, and roughly one-third of those people will “graduate” to heroin addiction.

Conversely, 80 percent of heroin addicts became addicted to opioids after being prescribed opioids.

As if the human toll wasn’t devastating enough, NIDA estimates that addiction costs reach “$78.5 billion a year, including the costs of health care, lost productivity, addiction treatment, and criminal justice involvement.”

Shep Tapasak, managing principal, Integro Insurance Brokers

With numbers like that, families are not the only ones left picking up the pieces. Municipalities, states, and the federal government are strained with heavy demand for social services and crushing expenditures related to opioid addiction.

Despite the amount of money being spent, services are inadequate and too short in duration. Wait times are so long that some people literally die waiting.

Public sector leaders saw firsthand the range and potency of the epidemic, and were among the first to seek a legal reckoning with the manufacturers of  synthetic painkillers.

Seeking redress for their financial burden, some municipalities, states and the federal government filed lawsuits against big pharmaceutical companies and manufacturers. To date, there are more than 100 lawsuits on court dockets.

States such as Ohio, West Virginia, New Jersey, Pennsylvania and Arkansas have been hit hard by the epidemic. In Arkansas alone, 72 counties, 15 cities, and the state filed suit, naming 65 defendants. In Pennsylvania, 16 counties, Philadelphia, and Commonwealth officials have filed lawsuits.

Forty one states also have banded together to subpoena information from some drug manufacturers.

Pennsylvania’s Attorney General, Josh Shapiro, recently told reporters that the banded effort seeks to “change corporate behavior, so that the industry can no longer do what I think it’s been doing, which is turning a blind eye to the effects of dumping these drugs in the communities.”

The volume of legal actions is growing, and some of the Federal cases have been bound together in what is called multidistrict litigation (MDL). These cases will be heard by a judge in Ohio. Plaintiffs hope for a settlement that will provide funding to be used to help thwart the opioid epidemic.

“From a societal perspective, this is obviously a big and impactful issue,”  said Jim George,  a managing director and global claims head with Swiss Re Corporate Solutions. “A lot of people are suffering in connection with this, and it won’t go away anytime soon.

“Insurance, especially those in liability, will be addressing this for a long time. This has been building over five or six years, and we are just now seeing the beginning stages of liability suits.” 

Basis for Lawsuits

The lawsuits filed to date are based on allegations concerning: What pharma knew or didn’t know; what it should have known; failure to monitor size and frequency of opioid orders, misrepresentation in marketing about the addictive nature of opioids; and false financial disclosures.

Opioid manufacturers, distributors and large drugstore chains together represent a $13 billion-a-year industry, meaning the stakes are high, and the pockets deep. Many have compared these lawsuits to the tobacco suits of the ’90s.

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But even that comparison may pale. As difficult as it is to quit smoking, that process is less arduous than the excruciating and often impossible-to-overcome opioid addiction.

Francis Collins, a physician-geneticist who heads the National Institutes of Health, said in a recorded session with the Washington Post: “One really needs to understand the diabolical way that this particular set of compounds rewires the brain in order to appreciate how those who become addicted really are in a circumstance where they can no more [by their own free will] get rid of the addiction than they can get free of needing to eat or drink.”

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk.” — Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

The addiction creates an absolutely compelling drive that will cause people to do things against any measure of good judgment, said Collins, but the need to do them is “overwhelming.”

Documented knowledge of that chemistry could be devastating to insureds.

“It’s about what big pharma knew — or should have known.  A key allegation is that opioids were aggressively marketed as the clear answer or miracle cure for pain,” said Shep Tapasak, managing principal, Integro Insurance Brokers.

These cases, Tapasak said, have the potential to be severe. “This type of litigation boils down to a “profits over people” strategy, which historically has resonated with juries.”

Broadening Liability

As suits progress, all sides will be waiting and watching to see what case law stems from them. In the meantime, insurance watchers are predicting that the scope of these suits will broaden to include other players in the supply chain including manufacturers, distribution services, retail pharmacies, hospitals, physician practices, clinics, clinical laboratories and marketing agencies.

Litigation is, to some extent, about who can pay. In these cases, there are several places along the distribution chain where plaintiffs will seek relief.

Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

Nancy Bewlay, XL Catlin’s global chief underwriting officer for casualty, said that insurers and their insureds need to pay close attention to this trend.

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk,” she said.

“We, as insurers who identify emerging risks, have to communicate to clients. We like to be on the forefront and, if we can, positively influence the outcome for our clients in terms of getting ahead of their risks.”

In addition to all aspects of the distribution chain, plaintiffs could launch suits against directors and officers based on allegations that they are ultimately responsible for what the company knew or should have known, or that they misrepresented their products or signed off on misleading financial statements.

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Shareholders, too, could take aim at directors and officers for loss of profits or misleading statements related to litigation.

Civil litigation could pave the way, in some specific instances, for criminal charges. Mississippi Attorney General Jim Hood, who in 2015 became the first state attorney general to file suit against a prescription drug maker, has been quoted as saying that if evidence in civil suits points to criminal behavior, he won’t hesitate to file those charges as well.

Governing, a publication for municipalities and states, quoted Hood in late 2017 as saying, “If we get into those emails, and executives are in the chain knowing what they’ve unleashed on the American public, I’m going to kick it over to a criminal lawsuit. I’ve been to too many funerals.”

Insurers and insureds can act now to get ahead of this rising wave of liability.

It may be appropriate to conduct a review of policy underwriting and pricing. XL Catlin’s Bewlay said, “We are not writing as if everyone is a pharma manufacturer. Our perception of what is happening is that everyone is being held accountable as if they are the manufacturer.

“The reality is that when insurers look at the pharma industry and each part of the supply chain, including the pharma companies, those in the chain of distribution, transportation, sales, marketing and retail, there are different considerations and different liabilities for each. This could change the underwriting and affect pricing.”

Bewlay also suggests focusing on communications between claims teams and underwriters and keeping a strong line of communication open with insureds, too.

“We are here to partner with insureds, and we talk to them and advise them about this crisis. We encourage them to talk about it with their risk managers.”

Tapasak from Integro encourages insureds to educate themselves and be a part of the solution. “The laws are evolving,” he said. “Make absolutely certain you know your respective state laws. It’s not enough to know about the crisis, you must know the trends. Be part of the solution and get as much education as possible.

“Most states have ASHRM chapters that are helping their members to stay current on both passed and pending legislation. Health care facilities and providers want to do the right thing and get educated. And at the same time, there will likely be an uptick in frivolous claims, so it’s important to defend the claims that are defensible.”

Social Service Risk

In addition to supply chain concerns, insurers and insureds are concerned that even those whose mission it is to help could be at risk.

Hailed as a lifesaver, and approved by the Food and Drug Administration (FDA), the drug Naloxone, can be administered to someone who is overdosing on opioids.  Naloxone prevents overdose by blocking opioid receptor sites and reversing the effects of the overdose.

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Some industry experts are concerned that police and emergency responders could incur liability after administering Naloxone.

But according to the U.S. Department of Justice, “From a legal standpoint, it would be extremely difficult to win a lawsuit against an officer who administers Naloxone in good faith and in the course of employment. … Such immunity applies to … other professional responders.”

Especially hard hit are foster care agencies, both by increased child placements and stretched budgets. More details in our related coverage.

While the number of suits is growing and their aim broadening, experts think that some good will come of the litigation. Settlements will fund services for the addicted and opioid risk awareness is higher than ever. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]