California Clarifies Its Inverse Condemnation Standard

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In City of Oroville v. Superior Court, 446 P.3d 304 (Cal. 2019), the Supreme Court of California considered whether the City of Oroville (City) was liable to a dental practice for inverse condemnation damages associated with a sewer backup. The court held that in order to establish inverse condemnation against a public entity, a property owner must show that an inherent risk in the public improvement was a substantial cause of the damage. Since the dental practice did not have a code-required backwater valve — which would have prevented or minimized this loss — the court found that the city was not liable because the sewage system was not a substantial cause of the loss. This case establishes that a claim for inverse condemnation requires a showing of a substantial causal connection between the public improvement and the property damage. It also suggests that comparative negligence can be a defense to inverse condemnation claims.

In December 2009, a dental practice, WGS Dental Complex (WGS), located in the City, incurred significant water damage as a result of untreated sewage from the City’s sewer main backing up into WGS’ building. WGS submitted a claim to its insurance carrier, The Dentists Insurance Company (TDIC) and, in addition, sued the City for its uninsured losses, alleging inverse condemnation and nuisance. TDIC joined the litigation, alleging negligence, nuisance, trespass and inverse condemnation. Under California law, when a government entity fails to recognize that an action or circumstance essentially amounts to a taking for public use, a property owner can pursue an inverse condemnation action for compensation. The City filed a cross-complaint against WGS for failing to install a code-required backwater valve on their lateral sewer line, which would have prevented or minimized the backup.

The City filed a motion for summary judgment, which the trial court denied. WGS then sought a judicial determination on the issue of inverse condemnation. The City presented evidence that the sewage system was designed in accordance with industry standards, and that WGS failed to comply with the City’s plumbing code by failing to install a backwater valve on its private sewer lateral. The trial court found the City liable for inverse condemnation because the blockage that caused the backup originated in the City’s sewer line. The court held that the blockage was an inherent risk of sewer operation. The Court of Appeals affirmed the decision, holding that the City would have had to prove that the WGS’s lack of a backwater valve was the sole cause of the loss in order to absolve itself of liability.

The Supreme Court acknowledged that private property owners can establish inverse condemnation liability even where there are other concurrent causes, but only if there is a substantial casual nexus between the inherent risks of the public improvement and the harm incurred. The court cited several cases in which courts held that an essential factor in determining liability in inverse condemnation cases is the casual relationship between the inherent risks of the design, construction or maintenance of the public work and the damage to private property. The court reasoned that that the “inherent risk” and “substantial causation” factors help avoid imposing boundless liability on public entities for private property damage that is marginally connected to a public improvement. Thus, the court held that the damages incurred must be the “necessary or probable result” of the improvement in order to establish inverse condemnation. If there are concurrent causes for a particular event, the damages to private property must be an inescapable or unavoidable consequence of the public improvement.

The court recognized a presumption that the City acted reasonably in reaching its decision to adopt a particular plan of design, construction or maintenance. The court noted that part of the consideration of the design of the sewer system was the enactment of a code provision requiring property owners to have backwater valves. Since WGS failed to install a backwater valve, the court found that damages to WGS’s property were not an inherent risk of the sewer system as deliberately designed and constructed. While the sewage backup was arguably connected to the design, operation and maintenance of the sewer system, because WGS failed to install the backwater valve, the court did not agree that the damage was substantially caused by the system. Thus, the Supreme Court reversed the judgment of the Court of Appeals and held that the City was not liable to WGS for inverse condemnation.

The City of Oroville case establishes that, in California, a mere showing of ordinary negligence is insufficient to prove inverse condemnation against a public entity. A property owner must prove that an inherent risk of the public improvement was a substantial cause of the damage. The court did not quantify the term “substantial causation,” but seems to suggest that a public improvement must be found to have contributed more than 50% to the cause in order for the public entity to be liable. This case also establishes that the comparative negligence of the property owner can be a viable defense to inverse condemnation liability.

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