Insurance Coverage Rules for Inverse Condemnation Actions Involving Public Water Systems

By Fuller, Paul | Defense Counsel Journal, July 2019 | Go to article overview

Insurance Coverage Rules for Inverse Condemnation Actions Involving Public Water Systems


Fuller, Paul, Defense Counsel Journal


This article has been substantially updated and expanded from one Mr. Fuller published in the California Public Law Journal, a quarterly publication of the Public Law Section of the California Lawyers Association.

"A legal nexus of overlapping damages, liabilities and triggers"

INVERSE condemnation is a complex legal theory presenting unique, opaque and expansive liability to public water systems. 1 Its gravity is analogous to the Greek mythological Titan Atlas, who was condemned by Zeus to stand at the western edge of earth and hold up the sky on his shoulders. Public water systems face a similar fate, except their strain arises from the weight of a legal theory that is noble in concept yet predacious in practice. This nobleness reflects a constitutionally protected right against unlawful takings of private property by the government 2 without just compensation. The predation represents acute liability from which its targets have few actionable defenses, no governmental immunities, and immense financial exposure.

Public water systems are vulnerable to inverse condemnation actions because unlawful takings encompass diminution in value to real and personal property proximately caused by physical and nonphysical injury from public improvements. Water delivery systems, which qualify as public improvements, are inherently prone to accidental and temporary takings involving uninvited water arising from breaks, leaks, backups, releases, and overflows. This paper encapsulates the problems owners of public water systems face from inverse condemnation. The first section of this article centers on the legal theory's underlying mechanics, available protections, and emerging areas of liability, and the second section examines insurer defense and indemnity obligations for those insurance policies from which such action cloaks as a potential policyholder right.

I. Inverse Condemnation as Legal Theory

A.Constitutional Derivations

The principle of due process creates the risk of liability for those public water systems that violate the takings clause of the federal and state constitutions. The Fifth Amendment to the United States Constitution states "...no person shall be ... deprived of ... property, without due process of law ... nor shall private property be taken for public use, without just compensation." Various State constitutions are even broader; Article I, Section 19 of the California Constitution affirms "private property may be taken or damaged for public use only when just compensation.has first been paid. ." 3 Due process functions as a constitutional lever for imposing strict liability on inverse condemnation actions for public improvements like water delivery systems that create damage to private property. Courts have frequently found that public water systems "may be liable in an inverse condemnation action for any physical injury to real property proximately caused by a public improvement as deliberately designed and constructed, whether or not that injury was foreseeable, and in the absence of fault by the public entity." 4

Water delivery systems are deemed public improvements built for the public benefit. But these water systems are constructed in a way that anticipates tradeoffs. A trespass of uninvited water often occurs as a result of a deliberately designed and constructed water delivery system. In the event of such a trespass, physical injury to real property is a frequent byproduct. The resulting damage is often proximately caused by the trespass, rather than an intervening cause. Should the facts of trespass and damage be established, then inverse condemnation is reasoned to have occurred and strict liability levied. "[D]amage from invasions of water or other liquid effluents often provides the basis for inverse liability." 5 Inverse condemnation and the standard of strict liability extend beyond physical injury from the trespass of uninvited water and similarly comprise nonphysical injury to property, including loss of use, for other intrusive activities linked to water delivery systems. …

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