Defend Your Takings:
Municipal Liability Pools Can Play A
Key Role In Helping
Members To Protect Their Communities' Health in Environment Takings
Claims
PUBLISHED IN PUBLIC RISK (THE
MAGAZINE OF THE PUBLIC RISK MANAGEMENT ASSOCIATION, OCTOBER
2000)
Authors: Douglas Kendall and Matthew
Garvey
More
and more every year, local governments are being swamped with claims
alleging that various regulations have effected a "taking"
of a landowner's property for which just compensation is owed.
In other words, plaintiffs claim, the state and federal
constitutions demand that the government has to pay them in order to
regulate their property. Such
claims are rarely successful, and are inconsistent with local
government powers to protect health and the environment that have been
exercised since colonial times. Nevertheless,
they pose a serious threat to municipalities—a threat that municipal
liability pools can address through effective insurance coverage that
explicitly covers the defense costs in takings lawsuits.
A few innovative state liability pools, in states such as
Washington, Michigan, Iowa and Minnesota, have covered at least some
takings cases for years. More
and more agencies are adding such coverage annually.
For instance, municipal insurance pools in Arkansas and
Virginia have added takings coverage to their land use liability
packages just this year. The
plans vary greatly. Some
cover both defense costs and damages in a takings case; others cover
defense costs only. Some
set coverage caps, and some experience rate taking and land use costs
to a higher degree than other claims.
It is too early to tell exactly which packages work the best,
and each pool will want to tweak takings coverage to their particular
needs. All pools,
however, would serve their municipal clients well by explicitly
covering the defense costs associated with takings challenges.
Unfortunately,
many state municipal pools still do not cover the costs associated
with takings cases at all. The
most common reasons for excluding them are fear that such coverage
would be costly and the perception that such claims should not qualify
for coverage because they involve intentional acts.
But while a land use regulation or a decision by a local
government is inherently intentional, the agency will rarely, if ever,
expect or intend that the result of the regulation is to effect a
regulatory taking. And,
as we will demonstrate in this article, liability pools can be a much
more efficient way to handle the costs of takings litigation than
allowing each municipality to bear that weight alone.
Why takings law is an important local government issue
Takings
jurisprudence is an area of law of utmost importance to local
governments. Recently,
many property rights groups and opponents of government regulation in
general have aggressively challenged regulations concerning land use.
Constitutional takings provisions are the favorite vehicle for
bringing these challenges, resulting in unprecedented numbers of
takings cases coming before the courts each year.
Landowners are now challenging everything from wetlands
regulations and historic preservation ordinances to the denial of
drive-thru restaurant permits. "For
the last several years, the term "takings" has taken on a
life of its own—to the detriment of municipalities and the interests
of citizens they represent," notes the Michigan Municipal
League's Legal Defense Fund, a pool that provides appellate assistance
to its members.
While
such takings suits have not been very successful in court, they can
nevertheless be costly and frightening to local governments.
Moreover, because the influx is a recent development, many
state courts and local lawyers wind up dealing with many takings
issues for the first time. This can give developers and landowners the upper hand.
It was precisely this concern that led the Arkansas Municipal
League to provide takings defense costs as part of its Legal Defense
Program. Says General
Counsel Mark Hayes: "as these cases were becoming more and more
frequent, local counsels were simply outgunned."
According to Mike Forster, claims manager for the Michigan
Municipal League Liability and Property Pool, pool members would be
"hamstrung" without coverage.
Takings
coverage has thus become an essential element in fulfilling the
mission of many municipal organizations.
"A main goal of our trustees," says Pete Tritz of the
League of Minnesota Cities Insurance Trust, "was to try to make
sure that cities could afford to enforce their land use regulations;
i.e., that the city wouldn't be forced to cave into a developer who's
threatening to sue, simply because the city on its own couldn't afford
to defend that litigation."
The good news is: that goal is obtainable.
Governments should win most takings cases if adequately
prepared
In states throughout America, this much is true: governments
should—and in fact do—win most takings cases. That
is a central theme of a Takings Litigation Handbook produced jointly
this year by the Community Rights Counsel and the California Community
Land Use Project. The
book demonstrates that recent victories for takings claimants before
the U. S. Supreme Court have been narrow and carefully limited.
Courts throughout the land have repeatedly reaffirmed the
essential role of local land use planning to protect our communities.
An
important corollary, however, is that when government defendants lose
takings cases, they often lose because of mistakes made early, either
in establishing the factual predicate for land use decisions or
compiling the facts for presentation to the court. Inadequate preparation and the lack of means to fight a
takings claim head-on can also lead governments to rush to settle
cases they should win or to unnecessarily compromise their planning
objectives out of fear of a costly suit.
Pools have been successful thus far
The evidence thus far shows that municipal liability pools can
help prevent mistakes and disadvantageous settlements.
Rufous Nye, Executive Director of the Michigan Municipal Risk
Management Authority notes "we've been successful in the
courts." Multiple pools cited their role in increasing the number
of takings settlements that towns felt happy with, in large part
because insurance coverage "prompts [communities] to take a
harder stand" according to Mike Forster.
Indeed, pool officials in Minnesota and Michigan have noted
that plaintiffs now avoid filing claims that would trigger insurance
coverage as a result of the vastly improved legal representation towns
get through their plans. And,
perhaps the best news of all, not one pool offering takings coverage
has complained of costs getting out of hand, and all the ones we've
asked have said they have not had to raise premiums as a result.
Overall,
it appears liability pools offer an effective means of allowing local
governments to take advantage of the economies of scale involved in
complex litigation and fight takings challenges effectively without
breaking their banks. And
because of the role precedent plays in setting the course of future
litigation, success now can pay big dividends in the future.
Liability pools are the best way to provide governments
with the experts necessary to defeat a takings challenge
It is important that every state have a reliable cadre of
lawyers and experts such as land appraisers, real estate economists,
and engineers available to help local governments.
And it is absolutely crucial that municipalities have access to
all these experts as soon as a takings suit commences.
A
municipal liability pool provides the best means of putting state
experts in all the relevant fields at the fingertips of each
municipality at the crucial early stages of litigation.
Pete Tritz explains why: "LMCIT's involvement in many
cases has resulted in the city receiving much better representation
than they might otherwise have had. Because the attorneys we use specialize in these issues and
because we assign fair numbers of cases to them, they can afford to
devote the time it takes to keep very familiar with and current on the
applicable law. Similarly,
because the attorneys we use do a lot of this type of litigation, they
(and our claims staff as well) also develop a good knowledge of which
experts and what kinds of expert testimony are and aren't helpful and
convincing in a trial."
Winning takings cases now will pay dividends in the future
Providing
one municipality with effective legal representation will pay off well
for all state municipalities because of the influence each case has on
the emerging takings jurisprudence.
Poor representation, on the other hand, could make litigation
costlier for all others in the future if it leads to confusing or
pro-plaintiff precedent. Municipal
liability pools that provide quality representation help ensure that
the law evolves in a manner that saves governments money without
compromising their ability to regulate effectively.
The most obvious benefit of a strong legal defense is that
governments will win even more takings cases than they do now.
Equally important is that, the stronger the case law supporting
takings defendants, the earlier governments will win cases and the
less likely they will be pressured into unfavorable settlements.
A victory in a takings case can provide more help to similarly
situated defendants in the future than most other types of cases.
This is because, unlike a sexual harassment case, for example,
the essential facts in a takings case are often undisputed.
If a government defendant can point to a similar set of facts
in which no taking was determined, a judge should often dismiss the
case before it even goes to trial.
Even better, a well-prepared government can make a landowner
aware of successful defenses as soon as one threatens to sue and
hopefully avoid litigation altogether.
The positives of covering damages
Municipal liability pools cover damages even less
frequently than defense costs. Reasons
typically cited for this exclusion include a desire not "to
encourage excessively restrictive zoning" and a belief that towns
would be less likely to settle a case if their damages would be
covered. Indeed, because
takings defendants lose so infrequently, such coverage is probably not
essential to most municipalities. But, because this infrequency makes overall costs very slim,
such coverage may be important enough to pool members to outweigh the
above-cited concerns.
For
example, the law in some states is currently unclear with regards to
when governments might have to pay damages for "temporary
takings," regulations that have somehow affected a landowner's
property value in the past. Since
it is difficult for governments to predict when regulations might
actually lead to a damages award—and, indeed, such awards are still
very infrequent—this seems like the type of chance occurrence for
which insurance is important. Moreover,
some recent court decisions have indicated that certain important
growth control tools, such as transfer development rights programs and
temporary development moratoria, may lead to damage awards if
instituted in certain ways. Until the law regarding these generally accepted planning
tools is more settled, it would be a shame for towns to avoid them
altogether out of fear of an uncovered damage award.
Providing coverage should encourage innovative planning
An
important benefit to offering defense coverage for regulatory takings
cases is the potential for combating the chilling effect takings
lawsuits have on innovative land use planning.
But pools need to be careful not to create a chilling effect of
their own through risk management that discourages innovations.
Pete Tritz's message is a positive one for all developing towns
and cities: "Overall, I think the coverage we provide encourages
both sound land use planning and innovation.
A city that's considering an innovative approach shouldn't need
to be concerned that as the first one to try the innovation they'll be
the target of the inevitable legal challenge and have to bear that
cost."
Because
of the current rise of property rights extremists, it is probably
futile to focus too much attention on preventing lawsuits.
Moreover, because of the potential effectiveness of strong
legal counsel, such efforts are not as necessary as one would think.
Inevitably, some suits will come.
The most important thing for liability pools to master is the
ability to quash them as quickly as possible.
This
is not to say that municipal liability pools and risk management
associations cannot play a crucial role before litigation occurs.
Indeed, they are in an ideal position to prepare their members
to immediately defeat whatever claims may arise.
Municipalities must be kept up-to-date on the most current law
regarding takings, and their zoning ordinances and master plans should
be clear and modern. Equally
important, they should keep detailed records not only of the land use
decisions they make, but also of the reasons behind such decisions.
They should know which reasons are and are not acceptable, and
which types of decisions have amounted to takings in the past.
Municipal pools can greatly reduce their costs by providing
their members with such essential preparations.
Conclusion
When it comes to takings law, an ounce of prevention can indeed
lead to a pound of cure. Takings
cases are winnable, if understandably scary, challenges to a
government's ability to create healthier and more livable communities.
Takings law is indeed complex, and it varies slightly state by
state. But governments
should win most cases if they are prepared from the outset.
A
municipal liability pool offering defense coverage can supply the
preparations, legal counsel and experts needed to nip claims in the
bud and prevent costly and unnecessary trials or settlements.
The long-range benefits of any initial defense costs would be
of tremendous aid to local governments: teams of takings experts a
phone call away, and a robust list of cases they can cite to support
their regulatory decisions. In
the end, coverage for takings cases can help government officials
defeat current efforts to limit their role in society.
Liability pools in every state should seriously consider
offering such coverage.
Douglas
Kendall is founder and Executive Director of Community Rights
Counsel (CRC). Matthew Garvey is a student at New York University
School of Law who interned at CRC this summer.
|
