Finance Brown Bag Seminar: Dr Lorilee Medders

Legal, Economic, & Societal Impact of Inverse Condemnation Actions Against Public Water Systems and Utilities

The doctrine of inverse condemnation requires just compensation to be paid when private property is taken or damaged for public use. One critical aspect that sets apart the doctrine of inverse condemnation from tort-based claims such as negligence is the strict liability standard, which is generally applicable to inverse condemnation claims except in narrow exceptions. Strict liability requires any injury to real property substantially caused by a public improvement is compensable, regardless of whether the injury was foreseeable or whether the public entity was negligent. Two California appellate court opinions have extended the doctrine of inverse condemnation to investor-owned electric utilities. While appellate review of the application of inverse condemnation to privately-owned public utilities that bear some responsibility for takings has not yet occurred, courts have continued to move forward in applying the doctrine of inverse condemnation to water utilities and failure to protect cases.

Recently, there has been a proliferation of legal claims under the theory of inverse condemnation seeking to hold water suppliers liable based upon a failure to protect in relation to wildfires. The general factual allegation in these lawsuits is that a public water system’s water infrastructure is rendered unable to provide sufficient water pressure to its water protection infrastructure, resulting in firefighters being unable to stop a wildfire and contributing to wildfires damaging or destroying the plaintiffs’ properties. What is perhaps most notable about these claims is the lack of any allegation that the water providers had any responsibility for the initial start of the wildfire. Essentially, plaintiffs have alleged that water suppliers should be held liable under a theory of inverse condemnation for property damages caused by a wildfire that admittedly the water supplier had no role in starting. As striking as the liability is the disallowance by regulators in some cases for investor-owned utilities to recover these liability costs via the rate base.

We examine this issue by exploring the legal and socio-economic consequences of these developments as well as the insurance-specific challenges public utilities may face as the legal environment continues to evolve. The developing environment for water providers and other utilities is a forced cost-spreading (and arguably cost-shifting) of catastrophe risk to entities that are already cost-sharing via investments in infrastructure and innovation to ensure economic and environmental sustainability. Faced with fast-moving wildfires that can span vast areas of the wildland-urban interface, the prospect of incurring liability for wildfire damages under inverse condemnation can be devastating for a public utility, especially if it is not allowed to recoup such costs. The societal consequence is that this possibility further challenges public water suppliers in meeting goals of closing the existing infrastructure investment gaps and providing safe and affordable drinking water to all.

Dr Lorilee Medders

Dr Lorilee A. Medders serves as the Joseph F. Freeman Distinguished Professor of Insurance (since August, 2017) as well as the Director of the Honors Program (since July, 2018) for the Walker College of Business at Appalachian State University. Immediately prior to joining Appalachian State University, she served on the risk and insurance faculty at Florida State University (FSU), and as Director of the Florida Catastrophic Storm Risk Management Center in FSU’s College of Business (2009-2017). Lorilee also previously served on the risk and insurance faculty for Georgia State University (1999-2008) and on the finance faculty for Georgia Southern University (1994-1998).

In addition to her academic appointments, Dr. Medders is a member of the Grants & Research Evaluation Team for the U.S. Department of Homeland Security’s Critical Infrastructure Research Initiative and serves on the Board of Directors for the American Association of Water Distribution and Management and as its academic advisor. While on faculty at FSU, Lorilee chaired the Florida Commission on Hurricane Loss Projection Methodology, and served by appointment from the State of Florida as its Statistics Expert Member. She has also served multiple research, teaching and service organizations as board member and officer.

Dr. Medders has keen interests in global risk challenges, catastrophe risk finance and economic resilience. Her work in these areas spans from the study of individual decision making to that of international markets. She has presented and published numerous papers on these subjects and others in academic and industry forums, winning multiple awards internationally for her work.

Lorilee received her Bachelor of Science in Commerce and Business, magna cum laude, from The University of Alabama in 1990 and her Ph.D. in Business Administration – Risk and Insurance from Georgia State University in 1995. She completed additional postgraduate work in the economics of risk and uncertainty and decision sciences/ statistics. For more information, or to contact Dr. Medders, please see https://finance.appstate.edu/directory/lori-medders-phd.