Well, I didn't get all the details, but there was some kind of "fine print exclusion" that let the insurance company off the hook. Sounded like them not being liable for covering an event more serious than had been recorded in the 150-odd years known drainage infrastructure had been in place. As sort of "we don't cover things we didn't believe were possible" exclusion.
This person did not have Federal flood insurance because the location is not in a 500-year floodplain.
I think the "mistake" purveyors of crypto made/make is to disregard the vagaries of human nature. Just because the systems are trustless doesn't eliminate cheating and greed from the equation.