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CHICAGO-Companies that lost millions of dollars of business because of the 1992 Chicago flood may be left high and dry after a recent ruling that the city is shielded from liability for some economic damage claims.
The Illinois Appellate Court ruled late last month that the city of Chicago is protected under the state's sovereign immunity law from compensating businesses for economic damages if they suffered no related property damage in the flood.
The floodwaters that swept through tunnels beneath Chicago's Loop business district caused an estimated $300 million in insured damage. A tunnel that was punctured during construction work in 1991 by Great Lakes Dredge & Dock Co. of Oak Brook, Ill., later collapsed, allowing 250 million gallons of water to rush through the underground system, flooding the subfloors of many adjacent buildings.
Lawsuits filed by businesses and insurers claim the city failed to adequately supervise the construction work by Great Lakes Dredge & Dock.
Last month's ruling does not disallow property claims or economic damage claims against the city if the plaintiff has related property damage.
In its ruling, the appellate court sent the case back to the lower court to resolve the issue of whether city officials had a plan to prevent the flooding and failed to properly execute the plan.
A decision hasn't been made whether to appeal last month's ruling regarding economic damage to the Illinois Supreme Court, according to Aron Robinson, a plaintiffs attorney at Chicago law firm Holstein, Mack & Klein.
Meanwhile, businesses that were forced to close and lost revenue because of the flood have suffered a setback.
Most of the businesses that suffered business interruption losses did not sustain property damage in the flood. Therefore, they have been unable to collect from insurers because business interruption coverage typically does not pay if the policyholder does not have direct property damage.
In addition, some businesses had no such coverage in any case.
"Most small businesses don't purchase business interruption coverage," said Mr. Robinson. "The great majority of claimants may not have had any."
And even if businesses did have coverage to pay business interruption and other losses from the flood, most have had to swallow expenses like deductibles or self-insured retentions, he pointed out.
Members of the class-action total around 480 and are seeking around $48 million, Mr. Robinson said.
Plaintiffs in several suits originally sought more than $400 million from the city and Great Lakes Dredge & Dock Co. but some of the claims have been settled.
The city of Chicago agreed last August to pay $36 million to several businesses and insurers to settle claims related to the flood (BI, Aug. 14, 1995).
Plaintiffs in that case, including American Home Assurance Co., The St. Paul Cos. Inc. and Travelers Corp., which are subrogating on behalf of policyholders, are seeking additional compensation from Great Lakes Dredge & Dock.