On July 25, 2020, a man named Wesley Little showed up at the front door of Vicki Baker, who was a long time resident of McKinney, Texas. Little had a 15 year-old girl with him when he knocked on the door. Only Vicki’s daughter, Deanna Cook, was home at the time. She recognized Little because he had previously done some work at the Baker residence. When they showed up Deanna knew that Little was on the run with the girl after seeing a post about it on Facebook that same morning. Deanna quickly claimed that she needed to go to the store and left, calling her mother and the police.
Vicki, Deanna, and the police met at a local Walmart where the police were given the code to gain access to the house. During a standoff with Little, the police used SWAT gear and a BearCat (an armored vehicle) to knock down the back yard fence, and then fired over 30 canisters of tear gas through the windows of the house. They knocked down both doors and caused extensive property damage to the house. The tear gas canisters broke through drywall, and very window needed to be replaced. A hazmat team was needed to clean the entire house because of the tear gas. Much of the family’s property was destroyed. The family dog was left deaf and blind from the explosions. Fortunately, in this case law enforcement succeeded in rescuing the girl, but not before the Baker residence was effectively destroyed. That’s all well and good, but what about the Baker home, which was now destroyed?
The aftermath, from an insurance litigation perspective, involves the issue of who ended up paying for all of the property damage to the home. Ms. Baker had the house under contract for sale and was moving to Montana. As a result of the damage, the prospective buyers backed out of the deal. Worse yet, Baker’s insurance company denied her claim because the damage was caused by the police, a government agency. They only paid to cover the cost of damage caused “directly” by Little. Many homeowners’ insurance policies exclude losses that are the result of action by government agencies and public authorities, such as breaking in, confiscating, destroying, or seizing property and the like. Sometimes there is an exception to this exclusion when a government agency is attempting to prevent a fire from spreading. In Vicki Baker’s case, however, she was left with only one option—pursuing the McKinney Police Department.
Baker filed a Notice of Claim with the city of McKinney, only to have it denied in a letter which stated that, “the officers have immunity while in the course and scope of their job duties.” Baker filed suit in federal court for the Eastern District of Texas, arguing violations of the takings clause of the Texas Constitution, and a federal takings claim under the Just Compensation Clause of the Fifth Amendment to the United States Constitution. The city argued for a blanket ruling that destruction to private property resulting from the exercise of valid police power cannot constitute a Fifth Amendment taking under any circumstances. But Baker argued that a taking may occur in situations other than through the traditional eminent domain power. Thus, in this case, liability under the Fifth Amendment turns on a purely legal issue: whether a taking can occur where the government’s destruction of property was done pursuant to a valid exercise of its police power. Initially, Federal judge Amos Mazzant granted Baker’s partial summary judgment, holding that City was liable under Fifth Amendment and Texas law, entered judgment following a jury verdict in the homeowners’ favor, and denied the city’s motion for a new trial. On appeal, however, the 5th Circuit Court of Appeals reversed Judge Mazzant, declaring that the Takings Clause did not require the city to compensate homeowner for damaged or destroyed property, because this was an active emergency to prevent imminent harm to persons during a standoff with an armed fugitive within the home. The 5th Circuit determined the City was not liable because it was necessary for police officers to damage or destroy her property in order to do their job. Vicki Baker filed a Petition for Certiorari to the U.S. Supreme Court on July 2, 2024.
The Petition for Certiorari to the Supreme Court touched off a firestorm of debate over the ability of citizens to seek just compensation for destruction of property under the Fifth Amendment. Multiple Amicus Curiae briefs have been filed, urging the court grant review of the case and reverse the Fifth Circuit. They argue that the “necessity exception” adopted by Fifth Circuit threatens to swallow the just compensation mandate of the Takings Clause. Amici include the Pacific Legal Foundation and law professors from Vanderbilt, Pepperdine, and the University of Hawaii. It remains to be seen if the U.S. Supreme Court will grant review.
SUBROGATION INVOLVING INVERSE CONDEMNATION
While the role of subrogation in the Baker case above is limited because the homeowner’s policy denied coverage, the concept of inverse condemnation and governmental takings plays a big role in property damage subrogation across the country. This is true even in situations where one might not expect any subrogation potential under such a theory. In one subrogation case handled by MWL, a catastrophic loss occurred when much of the San Francisco Bay area and Alameda County (“County”) were struck by a strong storm system which had moved on shore the preceding afternoon. The storm had been preceded by several days of rainy weather which resulted in wetter-than-usual ground conditions in most areas of the state. Nearly four inches of rain fell in a 24-hour period. It was argued that this was the equivalent of a 100-year flood in this area, although we later argued that it was only a 10-year storm. Needless to say, there was significant damage throughout the area, including flood waters which backed up through drains located on different portions of the 52-acre lot owned by Bay Cities Auto Auction, a Cox Enterprise entity. Thousands of cars were stored on the property, and more than 2,210 vehicles suffered severe water damage, resulting in more than $4 million being paid by Transportation Insurance Company and its excess carrier.
A claims supervisor for Transportation Insurance Company had attended a recent flood loss seminar MWL had presented, during which we recounted a very similar loss from 1993 involving thousands of new vehicles which had been damaged in Kenosha, Wisconsin during heavy flooding. He recalled we recovered $7,275,000 in that case and asked whether there was any utility in trying to subrogate this natural disaster. As we consistently tell our clients, where there are large catastrophic losses, there is almost always subrogation potential. He referred us the file to conduct some initial investigation.
MWL immediately hired the nationally-renowned hydrology and hydraulics experts, Daryl Simons and Charlie Baggs, out of Fort Collins, Colorado. They quickly went to the site of the loss and began taking site elevations in preparation for a HEC 2 and HEC RAS analysis of the flood. Bay Cities Auto Auction is surrounded by the County’s storm water drainage systems, which are comprised of three lines Line A, Line B, and Line D. These Lines drained in an area of approximately 15-square miles, culminating in a sharp turn into Line A, which runs along the Nimitz Freeway all the way to the Tidegate and San Francisco Bay. We obtained FEMA studies of the area, including a FEMA study which was in the process of being completed at the time of the flood, together with the Alameda County Flood Control District’s Hydrology and Hydraulics Criteria Summary, dated August 1989, which dealt with design capacity of various categories of ditches and other channels in the system in order to accomplish their flood control objectives. The District’s criteria required facilities to be designed to carry the 100-year flood. It appeared, however, that the District had not only never upgraded to the 100-year criteria, it didn’t even maintain the original system to handle its original capacity the 15-year storm. Based on this and some other preliminary work, suit was filed against the Alameda County Flood Control and Water Conservation District, the State of California, and the City of Hayward. The suit alleged causes of action in inverse condemnation, negligence, nuisance, waste, trespass, dangerous condition of public property, comparative equitable indemnity, comparative equitable contribution, and failure to warn. The litigation lasted nearly four years.
Much of the ongoing litigation centered on whether the subject flood was a 10-year storm, as we maintained, or a 100-year storm, as the defendants maintained. The defendants noted that some rain gauges outside of the sub-basin measured a 100- to 200-year storm, while our use of the National Oceanic and Atmospheric Administration (“NOAA”) Atlases 24-hour system showed that this was less than a 10-year storm. The defendants claimed that Bay Cities Auto Auction was not historically subject to flooding, but that the defendants had unnecessarily concentrated extra water into Lines B and D around our insured’s property over the years, and the State had erected a freeway which acted as a dam, except for a small aperture through which the waters of Lines B and D were to pass into what became Line A. Essentially, in order to save money and expedite the construction of the stormwater system, the state and the county cut corners at the expense of our insured. The government’s shortsighted desire to save money caused the flooding precisely at our insured’s property, damaging the 2,210 vehicles owned by our insured.
In California, as in most states, a private property owner can sue the government if they believe that government action has interfered with the use and enjoyment of their property. For example, a property owner might sue if a dam construction causes permanent flooding of their property. Or, as in the Bay Cities Auto Auction case, cutting corners in the planning of a stormwater sewer system in order to save money caused temporary but expensive flooding on our insured’s property.
MWL took a naturally-occurring flood and recovered more than $2.5 million. Both this case and its predecessor in Wisconsin are testaments to the fact that third-party liability doesn’t always jump out at you in the initial investigation of a catastrophic claim. Sometimes, it takes vision and hard work, which may ultimately pay big dividends.
For questions regarding the subrogation of property damage anywhere in North America, contact Nick DeStefanis at ndestefanis@mwl-law.com.
Nicholas J. DeStefanis is a senior attorney in our Hartford, Wisconsin office. Nicholas received his undergraduate degree from the University of Wisconsin-Milwaukee, and his J.D. from the University of Wisconsin in Madison and an advanced law degree, LL.M., from the University of Florida. Nicholas came to MWL with significant subrogation experience in the areas of property loss and product liability, having litigated matters in both state and federal courts. Nicholas is licensed in Wisconsin, where he assists MWL with its growing book of nationwide subrogation litigation.
