Brad Kuhn Quoted on California’s Inverse Condemnation Doctrine

Brad Kuhn, Chair of Nossaman’s Eminent Domain & Valuation Group, was quoted in an Inframation story that examines how California’s unusual inverse condemnation doctrine and a commission report due in July will impact wildfire liability for Investor Owned Utilities (IOUs).

California’s inverse condemnation doctrine stems from the state’s constitution, which holds that property owners are entitled to just compensation if their property is taken or damaged by the government for a public use. The doctrine has been interpreted as applying to IOUs as they work on public projects. California’s broad application and interpretation is an outlier in the U.S., with investment analysts looking at an IOU operating in California as the state’s reinsurer if the IOUs equipment is a substantial cause of a wildfire in its service area.

Concurrently, IOUs in California require regulatory approval from the California Public Utilities Commission (PUC) to recover these types of costs from ratepayers. Meeting this condition hinges on reaching a prudent manager standard, or proving that they were not at fault in causing the damage—which is burdensome. Commenting on this condition, Brad said, It is so easy, in hindsight, to say ‘You should have done this or that differently,’ or ‘You could have done this and it would have been better,'…so I think the utilities face a really difficult and arguably unfair double-edged sword.

To help alleviate this type of pressure on IOUs, SB901, which was signed in 2018, established a Blue Ribbon Commission to explore equitable distribution of costs from California wildfires. However, the commission’s report is not due until July of 2019, and the push to change liability laws that impact IOUs stalled in 2018 despite then-Governor Jerry Brown’s support. It’s a difficult issue and it's a really sensitive one, given the impacts that have been suffered by communities [impacted by wildfires], said Brad. People don't want the utilities getting a bailout if they truly did something wrong or were negligent, but the strict liability standard is arguably unnecessary. 

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