Takings and the Fifth

However, a recent U.S. Supreme Court case may provide subrogated carriers with an alternative recovery approach: inverse condemnation. When the government causes or contributes to a flood, it may acquire the affected land—called “taking”—and, therefore, be subject to the constitutional requirement that it pay fair compensation. In these cases, insurance carriers should consider inverse condemnation actions as an alternative.

A Growing Storm

Storms and floods are increasing in severity, and only the government has the resources to mount an adequate defense. In a recent article in LiveScience, Climate Nexus’ Marlene Cimons quoted MIT’s Kerry Emanuel, who stated, “Climate change is causing a greater number of intense storms. The total number of storms has remained constant, but the proportion of high-intensity events has gone steadily upward in most parts of the world. Scientific models and real-world observations both suggest that the frequency of intense storms is going up.”

In A Comparative Look at Public Liability for Flood Hazard Mitigation, Dr. Jon A. Kusler, Esq., states, “Despite the expenditure of more than 200 billion [dollars] nationally for dams, dikes, levees, and other flood control structures, flood losses continue to rise.” Superstorm Sandy caused in excess of $50 billion in damage, and Congress
provided $60 billion in aid. The Center for American Progress states that the federal government spent $136 billion total from fiscal year 2011 to fiscal year 2013 on disaster relief.

The government’s role in all things related to water is undisputed. In an October 2012 report for the Congressional Research Service, Nicole T. Carter reports, “While local and state entities maintain primary flood responsibilities, the federal role is significant. The federal government constructs many levees, floodwalls, and coastal dunes in partnership with local project sponsors….The principal federal agency involved in federal flood management investments and activities and flood-fighting is the U.S. Army Corps of Engineers.”

The Obama administration’s 2013 budget includes $4.731 billion in discretionary funding for the U.S. Army Corps of Engineers’ (USACE) civil works program. Through the USACE, the federal government owns and operates nearly 700 dams and “help(s) decision makers identify water resource problems, conceive solutions to them, and compare the importance of the inevitable conflicting values inherent in any solution.”

The USACE designs, inspects, and sometimes builds bridges, waterways, and streambeds and participates in irrigation and flood control studies and projects. It is involved with every major water project in the U.S. Other involved agencies include the U.S. Department of Agriculture’s Natural Resources Conservation Service, the Department of the Interior’s Bureau of Reclamation, the Tennessee Valley Authority, the International Boundary and Water Commission, the U.S. Geological Survey, and the National Weather Service.

Action Against the Government

Notwithstanding the government’s intimate and extensive involvement in water resource planning and implementation, it usually has legal immunity from liability for flood claims. This is not to suggest that the government is responsible for every flood, but there are cases in which it may have responsibility, and aggrieved landowners and their insurers should have their day in court. Most flood cases against the government are dismissed on preliminary motions based upon immunity. As an alternative, an inverse condemnation claim under either the Fifth Amendment to the U.S. Constitution or a state’s constitution should be considered. Generally, the government is not immune from liability for constitutional violations.

The Fifth Amendment requires the government to pay “just compensation” if it takes private land for the public good. If the government needs private property, it can use its power of eminent domain to take the land and pay the owner just compensation. Eminent domain is typically exercised in a condemnation proceeding in which the government sues a landowner for title to the land. The court then decides if the taking of the land is for the public good and, if so, what the fair market value of the property is.

On the other hand, in an inverse condemnation action, the property owner sues the government for inadvertently and adversely affecting the value or use of property. The government does not need or want the property but does something (in our case, causes or contributes to a flood) that has compromised the land’s use or value, which may be a compensable taking. For example, the government’s operation of a dam or reservoir causes downstream flooding and property damage and may constitute a taking of the downstream property, requiring the government to pay the owner for the land. Or a government regulation might require or prohibit certain land use, which could constitute a taking of the property. While the government action may be well-meaning and even beneficial to some, if it adversely affects the value or use of an individual’s property, it may be a compensable taking. A property owner or a property insurer, if the damage is a covered loss, can bring an inverse condemnation action to recover the value of the property.

Unlike a traditional condemnation case in which the government sues the landowner, in an inverse condemnation case, the landowner sues the government for taking the land. The landowner is the plaintiff, and the government is the defendant. The claim is referred to as inverse condemnation because the parties are turned around, so to speak. A taking implies a permanent deprivation of the owner’s right to the land. If the government’s actions constitute a taking, then “just compensation” is required; the government pays the plaintiff. Inverse condemnation cases are authorized by the Fifth Amendment. Many state constitutions have similar provisions, so the landowner has to decide when and where to bring the condemnation claim.

Takings claims have relevance to flood subrogation litigation but present unique issues because of the transitory nature of flooding. The land floods, the flood damages the insureds’ property, the waters recede, and the damaged property (real and personal) is restored to the owner and often repaired. The government will claim that the flood caused temporary rather than permanent damage to the land and is therefore not a taking or constitutional violation. Under these unique circumstances, the damage to the property might be categorized as temporary and arguably not a compensable taking. However, the courts have determined that in some circumstances these “temporary” intrusions can be takings under the Fifth Amendment.

A Supreme Case for Recovery

Against this backdrop, the recent unanimous U.S. Supreme Court decision in Arkansas Game and Fish Commission v. United States expanded the situations in which a flood can be a compensable taking. The court evaluated the temporary nature of flooding and when a flood is a taking.

In Arkansas Game, the Supreme Court said that (1) temporary but repetitive flood claims may be compensable under the Fifth Amendment; and (2) each situation is unique and must be decided on a case-by-case basis, so there are few bright lines to guide us. The Court emphatically rejected the government’s argument and the lower court’s categorical conclusion that temporary flood claims can never be takings under the Constitution. Arkansas Game is an affirmation of property owners’ rights and may offer subrogated carriers a viable alternative.

On the one hand, the Supreme Court concluded that a temporary event can be a taking, but at the same time, it did refer to repetitive flooding. The question of whether or not a single flood event is a taking was not decided, but the Court listed several factors to consider and implied that there are no single factors that are conclusive but that all relevant factors should be considered in determining if a taking occurred.

This opens the door to Fifth Amendment subrogation flood claims. The factors listed by the Court to consider include: the length of time of the government intrusion; the degree to which the flooding is intentional or foreseeable; the character of the land; the owner’s reasonable investment-backed expectation for the land use; and the severity of the government’s interference.

These factors do not present new or novel issues for the claims professional but may require a slight reorientation of the subrogation investigation. The insured will be best suited to provide most of the relevant information, and the retained hydrologist can fill in the blanks. Such things as the history of flooding at the loss location, the specifics of the particular flood, including the causes and contributing factors, the foreseeability of the flooding relative to the government’s actions (e.g., was the flooding intentional?), and the manner in which the flood impacted the insured property, including its impact on the owner’s investment expectations for the property, are some of the issues to be considered.

An inverse condemnation action has several benefits compared to a traditional negligence claim. A takings claim is in the nature of a strict liability claim; the plaintiff needs only to prove that the government took the land without paying. The proof is a little simpler and will focus on the government’s actions (did the government take the property?) rather than on the character of those actions (was the government negligent?). Negligence defenses such as immunity, contributory and comparative negligence, foreseeability, and breach of duty are not applicable (except in California). The plaintiff need not show that the government was negligent, just that the government took the plaintiff’s land.

Any action by the government or a government agency that causes or contributes to a taking may be the subject of a Fifth Amendment claim such as maintenance and operation of a dam, floodway, reservoir, or levee or the design, implementation and construction of a flood-control project. Inverse condemnation may also apply to privately owned public utilities. There are no complicated notice requirements for Fifth Amendment takings claims such as those required by the Federal Tort Claims Act and most municipal tort claims acts—many of these acts require notice of claim within 90 days and have shorter statutes of limitations. Fifth Amendment claims have a six-year statute of limitations. State constitutional claims depend upon the state’s statute of limitations. Jurisdiction for Fifth Amendment claims is in the U.S. Court of Federal Claims in Washington, D.C. Be aware that constitutional claims are not simply repackaged negligence claims. If a claim is actually a negligence or tort claim, it is not a constitutional taking and will be dismissed. Plaintiffs sometimes have a choice of jurisdictions: state or federal.

Most states have some provision either constitutional, statutory, or by case law for inverse condemnation claims. In fact, many state constitutions provide language that is broader than the Fifth Amendment. This means that a plaintiff may have a choice of forums: federal or state court. A state, county, or local governmental agency can simultaneously violate the state and federal constitutional restrictions regarding taking property without just compensation.

When and where to raise these claims is complicated by various constitutional principles and strategic decisions regarding choosing a forum for a lawsuit. However, a takings claim should be considered by a subrogated carrier whenever government (or even a quasi-government, such as a privately owned utility) action affects the value or use of insured property.

 Considering the problems with negligence claims against the federal government, the viable alternatives are limited. Constitutional takings litigation is one alternative that should be considered. Although there are many complicated nuances, the proof is straightforward, and the factual issues are limited and should be fairly easy to flesh out. None of the traditional tort defenses are available to the government in this litigation. The Supreme Court has removed one road block, the temporary flood, but the path must be carefully navigated. Inverse condemnation is a reasonable alternative that should be evaluated.