Reconsidering strict liability in light of recent California wildfires

In 1965, the California Supreme Court decided the landmark case Albers v. County of Los Angeles, 62 Cal. 2d 250 (1965), which established the strict liability standard generally applicable today in cases involving the doctrine of inverse condemnation. This strict liability standard holds that the California Constitution requires just compensation be paid whenever private property is taken or damaged for public use, even in the absence of foreseeability or fault.

Shortly thereafter, Professor Arvo Van Alstyne authored a series of six seminal articles for the California Law Revision Commission in 1967-1971 covering a range of issues relating to inverse condemnation. In the second installment of that series entitled "Modernizing Inverse Condemnation: A Legislative Prospectus," 8 Santa Clara Lawyer 1 (Fall 1967), Professor Van Alstyne outlined general policy criteria meant to form an "agenda of salient considerations that are relevant to the devising of a rational body of inverse condemnation law."

More than half a century later, these inverse condemnation principles outlined by Professor Van Alstyne still ring true and are perhaps more salient today than ever in light of the challenges of catastrophic wildfires currently confronting the state. Reweighing these principles against today's circumstances, catastrophic wildfires constitute a crisis that suggests the current application of strict liability to wildfire damages under Albers should be revisited.

The California Constitution does not inherently mandate an unyielding right of just compensation in all possible instances. As Professor Van Alstyne cautioned in his article, "Acceptance of full liability for all such property injuries could conceivably multiply governmental liabilities and the costs of their administration to a fiscally crippling degree, discouraging essential as well as merely desirable public improvements and regulatory programs." Thus, the application of inverse condemnation principles by courts necessarily involves the imposition of rational limitations. Where such rational limits of inverse condemnation liability "cannot be ascertained with reasonable economy of effort or defined with reasonable precision," Professor Van Alstyne argues that "a measure of legislative arbitrariness in prescribing the limits of compensability may well be justified as an approximation of fairness."

We as a state made a policy decision long ago that all residents throughout California (including those located in wildfire-prone areas) deserve electricity in their homes and that utilities must endeavor to achieve such comprehensive access. This ideal and other modern policy initiatives (such as reducing greenhouse gas emissions from electricity generation) are pitted against the finite ability of residents to pay the cost of electric utility service. When applied to today's wildfires, it is in this context that the existing strict liability standard for inverse condemnation can push utilities into fiscally crippling situations.

While the pending bankruptcy of Pacific Gas & Electric Company dominates the headlines, an even better real-world illustration of the potential of the existing inverse condemnation regime to cripple the provision of essential government services is the much overlooked experience of Trinity Public Utilities District. That utility, whose total assets approximate $50 million, has received about $136 million in pending claims related to the 2017 Helena wildfire, the cause of which was determined to be a tree branch falling on the utility's power lines. Even if it is ultimately able to spread the cost of liabilities among its customer base as theoretically contemplated under the current inverse condemnation strict liability framework, in reality the sheer amount of the possible liabilities relative to the utility's assets presents an intractable financial challenge, exacerbated by the fact that it serves one of the poorest counties in the state in Trinity County.

If stories like this are the new normal in California given the prevalence of catastrophic wildfires, then perhaps the calculus struck in balancing competing policy considerations the court used in Albers to arrive at the strict liability standard is no longer appropriate for today's world. Additionally, controversy over the applicability inverse condemnation's cost-spreading rationale when applied to investor-owned utilities further raises questions about whether the strict liability standard is appropriate.

Reevaluating the Albers standard is not without precedent. The California Supreme Court previously carved out an exception to the Albers strict liability standard for instances involving flood control improvements in Belair v. Riverside Cty Flood Control Dist., 47 Cal. 3d 550 (1988) and its progeny. In those cases, a plaintiff's recovery in inverse condemnation requires proof that the failure of the public improvement was attributable to some unreasonable conduct on the part of the public entity. In deciding Belair, the California Supreme Court struck a balance between the principle on one hand that "a public agency that undertakes to construct or operate a flood control project clearly must not be made the absolute insurer of those lands provided protection" and the recognition that "the damage potential of a defective public flood control project is clearly enormous" on the other.

The influence of Professor Van Alstyne's articles on the California Supreme Court in Belair is undeniable -- other articles in his series are cited repeatedly throughout the court's opinion and the dissenting opinion. While inverse condemnation cases involving wildfires may not have a corollary to the esoteric underpinnings in water law that were present in Belair for flood control improvement cases, there is nonetheless a compelling argument that for catastrophic wildfires, the existing strict liability standard fails to strike the right balance of competing policy considerations.

Therefore, whether by judicial action or legislative efforts, the Albers strict liability framework should be reevaluated against today's realities using the principles outlined by Professor Van Alstyne over 50 years ago. The Commission on Catastrophic Wildfire Cost and Recovery recently voted to recommend replacing the current strict liability standard for electric and water utilities with a fault-based negligence standard. It will be interesting to see what changes, if any, the Legislature or governor may attempt to pursue. 

The views expressed herein represent those of the author and not necessarily those of Nossaman LLP or its partners or employees.