Cozen O'Connor Subrogation & Recovery: Inverse Condemnation: Benefits and Drawbacks [Subrogation & Recovery Alert]

Inverse Condemnation: Benefits and Drawbacks

Subrogation & Recovery Alert

March 12, 2015

What is Inverse Condemnation?

Inverse Condemnation law is a doctrine that arises out of the “takings clauses” set forth in state and federal constitutions. Specifically, Article I, Section 19 of the California Constitution prohibits private property from being taken or damaged for public use without just compensation to the owner. The “taking” or “damage” can occur when the public entity causes physical damage to the property with, or without, an actual invasion by the public entity. San Diego Gas & Electric Co. v. Superior Court (1996) 13 Cal.4th 893. Fortunately, the protections afforded by the constitutional provisions are also available to the subrogees of property owners in California. See, e.g., Aetna Life & Cas. Co. v. City of Los Angeles (1985) 170 Cal.App.3d 865.

While Inverse Condemnation law applies to physical takings of property through eminent domain, this article focuses on Inverse Condemnation cases where public equipment/improvements caused damage to properties in the state of California.

Who is Liable for Inverse Condemnation?

The California Court of Appeals held that Inverse Condemnation liability applies to government agencies as well as private utility companies that perform a public function. See, e.g., Barham v. Southern Cal. Edison Co., (1999) 74 Cal.App.4th 744. In Barham, the California Court of Appeals held Southern California Edison liable for Inverse Condemnation because they were “… not convinced that any significant differences exist regarding the operation of publicly versus private owned electric utilities ….” Barham, supra, at p. 753. In 2012, the California Court of Appeals affirmed the Barham decision and further explained its rationale:

As the Barham court noted, if we were to adopt Edison’s position, “we would be required to differentiate between damage resulting from the operation of a utility based solely upon whether the utility is operated by a governmental entity or by a privately owned public utility” but we are “not convinced that any significant differences exist.” For an owner whose property is damaged by the operation of a utility, he or she suffers a disproportionate share of the cost of the public improvement regardless of whether the utility is governmentally or privately owned. We do not believe the happenstance of which type of utility operates in an area should foreclose a property owner’s right to just compensation under inverse condemnation for the damage, interest and attorney fees and should limit the property owner to traditional tort remedies.

Pacific Bell Telephone Co. v. Court of Appeal of California, Second Appellate District, Division One, (2012) Cal.App.4th 1400, 1408, quoting Barham, supra at p. 753.

Elements of Inverse Condemnation in California

One benefit of pursuing an Inverse Condemnation case in California is that it is unnecessary to establish negligence or any fault in order to impose Inverse Condemnation against a private or public utility. Any actual physical injury to property proximately caused by a public improvement as deliberately designed and constructed is compensable under Article I, Section 19 of the California Constitution, whether or not the injury was foreseeable. See, e.g., Aetna Life & Cas. Co. v. City of Los Angeles, supra, at 873; Pacific Bell v. City of San Diego (2000) 81 Cal.App.4th 596, 607. A governmental agency is, therefore, strictly liable, irrespective of fault, where a public improvement constitutes a substantial cause of plaintiff’s damages. See, e.g., Marshall v. Department of Water and Power of the City of Los Angeles (1990) 219 Cal.App.3d 1124, 1139.

A subrogating carrier only needs to prove that physical injury to the property was proximately caused by a public improvement controlled by the public entity. The Court of Appeals explained the burden of proof in California State Automobile Association Inter-Insurance Bureau vs. City of Palo Alto (2006) 138 Cal.App.4th 474:

[W]hether or not the City acted reasonably or whether or not the McKenna sewage backup was foreseeable, is completely irrelevant in determining if the City is liable under the theory of Inverse Condemnation.

Id. at p. 483.

The City of Palo Alto court categorically rejected the city’s contention that plaintiffs had to prove how or why the loss occurred, stating as follows:

In finding the proof of causation insufficient because of a failure to establish the “how and why” of the blockage, the trial court asked for too much. In order to satisfy such a standard of proof, one would have to prove with particularity the mechanism of the backup. But our Constitution does not require that. It only requires proof of a substantial cause of the damage, indeed was said by our Supreme Court in Bel Air … a substantial cause and effect relationship which excludes the probability that other forces alone (italics in original) produced the injury.

Id. at p. 484. (Emphasis added).

Once plaintiffs prove a substantial cause and effect relationship, excluding the probability that other forces alone caused the loss, the burden shifts to the public entity to prove that other forces alone caused this loss.

Defenses to Inverse Condemnation Cases

Public entities commonly assert two defenses in Inverse Condemnation cases in California: 1) Cantu-public use defense; and 2) The rule of reasonableness standard.

“Public Use” Defense

The offending utility company/public agency will argue the public use element of inverse condemnation cannot be met pursuant to Cantu v. Pacific Gas and Electric Co. (1987) 189 Cal.App.3d 160. In Cantu, PG&E was contracted by a private developer to dig a trench that would extend electrical service to 16 homes within the private development. Heavy rain subsequently saturated the hillside, causing it to collapse onto plaintiffs’ homes and render them uninhabitable. The trial court held PG&E liable for Inverse Condemnation pursuant to evidence showing that the trench contributed to the landslide; however, the Court of Appeals reversed the decision because the trench was dug pursuant to the private contract between PG&E and the private developer:

The trench installed here was designed to fulfill an individual need. This is unlike the construction of permanent transmission towers or power poles or telephone poles which are designed to transmit electricity over a much greater area and which would exist even if these plaintiffs were not customers.

Cantu, supra at p. 164.

Despite the court’s narrow holding, many defendants argue that the Cantu holding applies to public improvements, transformers and power lines because they only serve particular buildings, particular homes and/or particular subdivisions. Fortunately, these arguments when used in this context can be countered by showing that the improvements, transformers and/or power lines are part of the overall power distribution system whereas Cantu was meant to be narrowly applied to improvements that were designed to fulfill an individual need.

“Rule of Reasonableness” Standard

Some agencies also argue that plaintiff must demonstrate that the agency acted unreasonably to establish Inverse Condemnation liability. This rule of reasonableness standard is typically applied in the context of floods caused by improperly operating levees and dikes. See, e.g., Pacific Bell Telephone Co. v. Southern California Edison Co., (2012) 208 Cal.App.4th 1400. The doctrine is derived from the common enemy doctrine, which provided that an upper riparian owner is privileged to protect against the common enemy of floodwaters. See, e.g., Bunch v. Coachella Valley Water Dist. (1997) Cal.4th 432, 439, 440-441. The test specifically provides that “[n]o party, whether an upper or a lower landowner, may act arbitrarily and unreasonably in his relations with other landowners and still be immunized from all liability.” Locklin v. City of Lafayette (1994) 7 Cal.4th 327, 351. When making this determination, the court applies the six Locklin factors:

  1. The overall public purpose being served by the improvement project;
  2. The degree to which the plaintiff’s loss is offset by the reciprocal benefits;
  3. The availability of the public entity of feasible alternatives with lower risks;
  4. The severity of the plaintiff’s damage in relation to risk-bearing capabilities;
  5. The extent to which damage of the kind the plaintiff sustained is generally considered as a normal risk of land ownership; and
  6. The degree to which similar damage is distributed at large over other beneficiaries of the project or is peculiar only to the plaintiff.

Gutierrez v. County of San Bernardino (2011) 198 Cal.App.4th 831, 844.

The Court of Appeals for the Third Appellate District recently applied the Locklin factors and upheld the trial court’s decision that the City of Redding was not liable for Inverse Condemnation when their storm drain overflowed and flooded plaintiff’s property. See, e.g., Biron v. City of Redding (2014) DJDAR 5410. Considering these cases, proving Inverse Condemnation against a public utility can be more difficult in cases where flooding is caused by mechanisms designed to protect the general public from harm (levees, dams, etc.).

Inverse Condemnation in Other States   

Succeeding on an Inverse Condemnation case in your state might be impossible, or more difficult than proving a similar case in the state of California. First, the applicable law is unsettled in many states, which might lead to unpredictable results. Next, some states require the plaintiff to prove additional elements in an Inverse Condemnation case. For example, Louisiana requires that plaintiff prove “excessive or abusive conduct” on behalf of the government. Arnold v. Town of Ball (1995) 651 So.2d 313, 318. In New Jersey, a property owner is barred from any claim to a right to inverse condemnation unless deprived of all or substantially all of the beneficial use of the totality of his property. Greenway Dev. Co. v. Paramus (2000) 750 A.2d 764, 767-68 (emphasis added). Ohio does not even recognize Inverse Condemnation. See, e.g., Painesville Mini Storage, Inc. v. City of Painesville, (2009) 2009 Ohio 3656; State ex re. Livingston Court Apts. v. City of Columbus, (1998) 130 Ohio App.3d 730, 740. While you can reference Cozen O’Connor’s 50-state comparative chart to get a brief overview of the law in your state, please research your state’s law before deciding to pursue an Inverse Condemnation matter.

Summary of Inverse Condemnation Law: Benefits and Drawbacks

Benefits

Inverse Condemnation is a constitutionally based action, thus it is not controlled by deadlines that typically regulate government tort claims. In states such as California, there is no standard negligence action against a government entity; instead, a claimant must rely upon statutorily recognized causes of action against a government entity. Stringent notice requirements apply to such claims. Whereas the three-year-property damage statute of limitations applies to an Inverse Condemnation cause of action in California. Please check your state’s law to see if a special statute of limitations applies to Inverse Condemnation claims in your state.

Many states allow for the recovery of attorney’s fees and sometimes expert fees in addition to the potential recovery of pre-judgment interest. Specifically, California Code of Civil Procedure Section 1036 provides the following:

In any Inverse Condemnation proceeding, the court rendering judgment for the plaintiff … shall determine and award … a sum that will, in the opinion of the court, reimburse the plaintiff’s reasonable costs, including reasonable attorney appraisal, and engineering fees, actually incurred because of the … [inverse proceedings] in which the plaintiff prevails on any issue in that proceeding.

Some states require the plaintiff prove that the taking was for a publically funded project or that federal financial assistance was involved to recover attorneys’ fees (e.g., Arizona and Utah). Some states are undecided on the attorney fee issue. States such as Texas hold that attorney’s fees are not available for Inverse Condemnation lawsuits. City of Austin v. Travis County Landfill Co. (2000) 25. S.W.3d 191, 206-07, rev’d on other grounds, 73 S.W.3d 234. Please check your state’s specific law when determining whether attorneys’ fees will be awarded.

In California, Inverse Condemnation is a strict liability action. Depending on the case, you only need to prove that the public improvement caused damage to your property (see exceptions for flood cases, etc.). This means that California Inverse Condemnation cases require less proof than your typical negligence and products liability subrogation cases. The burden for proving Inverse Condemnation is heightened in some states (see number 1 in the drawbacks section below).

Many states do not provide the government right to trial by jury for the liability phase of a pure Inverse Condemnation case. This could lead to a more streamlined trial and help protect against the typical juror bias against insurance companies.

Drawbacks

  1. As mentioned above, some states do not recognize a cause of action for Inverse Condemnation. Some states require plaintiff to prove additional elements. Even California has some exceptions (public use, rule of reasonableness) that might make the case more complicated than it initially appeared.
  2. You must prove that the taking was for a public use. As shown above, proving that the taking was for a public use can be difficult.

Conclusion

Inverse Condemnation can be an extremely effective cause of action against a public utility defendant.


Authors

Philip J. Berens

Member

pberens@cozen.com

(213) 892-7930

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 For additional help with matters involving Inverse Condemnation claims, please feel free to contact any Subrogation attorney at Cozen O’Connor