Water Agency Liability for Fire Flow Failure The Yorba Linda Water District Experience

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1 Water Agency Liability for Fire Flow Failure The Yorba Linda Water District Experience Presented by: Steve Conklin, Acting General Manager Art Kidman, General Counsel

2 Yorba Linda Water District

3 YLWD SERVICE AREA

4 Pressure Zone Boundaries

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6 System at a Glance Two system sources Nine Ground Water Wells Four MWD connections Total source capacity: 36,000 gpm Fourteen Reservoirs (54mg) Twelve Booster Pump Stations (38,000 gpm)

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8 Area Affected by the Fire YLWD Service Area

9 Burn Area

10 Freeway Complex Fire 30,305 Acres Burned 90% Chino Hills State Park 314 Residences Damaged or Destroyed 112 Homes Destroyed in Yorba Linda

11 YLWD Water System Deliveries on November 15-16, 2008 Average Day: 20 MGD Delivery Rate During Fire: 45 MGD

12 Our Response - (ONLY AT OC 66) Water Supply Increase During Fire GPM (3:30 pm) GPM (1:45 pm) 7616 GPM (11 am) 5376 GPM (9 am)

13 November 2009:Litigation Commenced Against Yorba Linda Water District Plaintiffs: Home Owners and Insurance Companies Concerning: 19 Homes in Hidden Hills 7 in Lower Hidden Hills 12 in Upper Hidden Hills Seeking Unspecified Damages ($100 million range)

14 Hidden Hills Vicinity

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17 Complaints allege liability for: Negligence Inverse Condemnation YLWD Demurrers to Complaints Demurrer: A pretrial motion that says the Complaints are bogus

18 YLWD Demurrers: Negligence Negligence: accident, avoidable if defendant had been careful Firefighter s Immunity: Defense against negligence Government Code Sec Neither a public entity that has undertaken to provide fire protection service, nor an employee of such a public entity, is liable for any injury resulting from the failure to provide or maintain sufficient personnel, equipment or other fire protection facilities. Negligence Dismissed: END OF CASE?

19 YLWD Demurrers: Inverse Condemnation Based on constitutional protection against government seizure of property without payment of just compensation Condemnation aka: Eminent Domain Legal action initiated by government entity Inverse Condemnation aka: Takings Legal action initiated by property owner

20 Inverse Condemnation: Advantageous for plaintiffs No statutory immunities apply No fault: strict liability Attorney s fees: recoverable One drawback: not applicable to personal injury Must prove government action caused the taking

21 Inverse Condemnation: Two Types Deliberate Takings Raising flood gates on a dam vs. Unintended Takings Water main break damages property Common element: Government action: CAUSATION Released the Beast

22 Spring/Summer 2010 OC Superior Court overruled YLWD demurrer and allowed inverse condemnation theory to go to trial Even though YLWD did not cause the fire Judge states: Flood agencies held liable in inverse cases Did not cause the rain. LIABILITY FOR FAILURE TO PROTECT!!!

23 Interim Appeal of Pretrial Order Ordinarily, order overruling a demurrer is not appealable Petitions for Writ of Mandate to: First, Court of Appeal Then, Supreme Court Writs sought to overturn OC Superior Court s ruling against YLWD s demurrer vs. inverse condemnation

24 Petitions for Writ of Mandate Tremendous support for YLWD from water agencies, locally and statewide More than 100 AC briefs/letters in support of YLWD s writ petitions

25 Writ Petitions Not Accepted What did that mean? No precedent set: Denial of writ petition merely leaves trial court ruling standing Trial court decisions are NOT precedential Cases allowed to proceed to trial Appeal remained available after trial Case moved into pretrial discovery and case development

26 ACWA JPIA coverage: $1 million pooled Self Insured Retention (SIR) per occurrence (includes cost of defense) acts as primary insurance Backed by $59 million in excess liability insurance policies Stacked policies: $10 million $10 million $20 million $19 million $ 1 million

27 ACWA JPIA: Inverse Coverage ACWA JPIA provides inverse condemnation coverage Policy Language: Covers unintended takings Excludes deliberate takings Exclusion R: Liability arising out of or in connection with inverse condemnation to the extent that such liability is alleged to, or does, result from deliberate, decision-making conduct by the governing body

28 Moment of Truth: June 26, 2011 All hands Mandatory Settlement Conference including excess insurance carriers ACWA JPIA $1 million SIR exhausted on cost of defense Excess carriers refuse coverage of unintended inverse claims

29 Reality Check for YLWD: Long, expensive and uncertain trial and appeal ahead to vindicate no liability position Potentially catastrophic liability upwards of $100 million POTENTIALLY SELF-INSURED!!! YLWD needed to protect its rate payers!!!

30 ACWA JPIA: ABOVE & BEYOND YLWD and ACWA JPIA commenced litigation against excess insurance carriers seeking defense costs and liability indemnification ACWA JPIA continued to defend YLWD past its SIR limits and took the lead in the fight against the excess carriers

31 Pre-trial battles now raged on two fronts: fire liability case coverage case Still YLWD needed to protect its rate payers!!!

32 May 2012 Global Agreement Settles Fire Liability Case YLWD and ACWA JPIA pay (split 50-50) $10 million to fire plaintiffs YLWD assigns rights of recovery against excess carriers to fire plaintiffs Fire plaintiffs release YLWD from all additional fire related claims

33 Global Agreement (Con t): YLWD and ACWA JPIA retain right to $10 million from first recoveries against excess carriers All parties present mini trial to retired Court of Appeal justice No collusion As to liability As to damages

34 Trotter Judgment: June 2012 YLWD liable under inverse condemnation theory Only as to12 homes in Upper Hidden Hills 7 homes in Lower Hidden Hills dismissed WHY?

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37 Trotter Judgment (Con t) Wire burned by fire caused Santiago Booster Pump Station to fail Ruled to be unintended inverse condemnation Award: $69 million against YLWD for damages, court costs, prejudgment interest and attorneys fees

38 Fire Plaintiffs Joined the Coverage Litigation Against the Excess Insurance Carriers Main Issue: Deliberate or Unintentional Inverse Condemnation Exclusion R: Liability arising out of or in connection with inverse condemnation to the extent that such liability is alleged to, or does, result from deliberate, decision-making conduct by the governing body

39 July 2013 to October 2013 Discovery Battles Continue Cross-motions for Summary Judgment Federal mediator working on settlement in the background

40 October/November 2013 Federal Court Rulings: The Good News: Summary Judgment rulings against excess carries undermine their defenses. Mediation efforts begin to result in serious settlement negotiations. The Bad News: Trial date anticipated for early 2014 was set for late summer. GLOOM!!! Mediation continues quietly

41 May 2014: Mediation Pays Off Coverage Litigation Settled: YLWD and ACWA JPIA recover $10 million from excess insurance companies And conclude participation in the litigation Fire plaintiffs recover $59 million (including original $10 million from YLWD and ACWA JPIA) from 3 of 4 excess carriers Litigation continues between fire plaintiffs and 4 th excess carrier

42 Outcomes: YLWD found liable for $69 million in fire losses to 12 homes Excess insurance providers paid to cover YLWD liability YLWD and ACWA JPIA reimbursed for $10 million paid to facilitate resolution of fire case and avoid catastrophic liability

43 Outcomes (con t): Failure to Protect type takings NOT established as binding legal precedent Firefighters Immunity shown to be vulnerable Blood is in the Water Plaintiffs and their lawyers had a good outcome. Expect more cases.

44 Lessons Learned Don t compromise water system standards in development process In the next fire case, engage expert inverse condemnation lawyers as cocounsel the moment an inverse complaint is filed Check insurance coverage to make sure unintentional takings are covered

45 QUESTIONS? Slide show available at: Click: Presentations

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