SANITARY SEWER OVERFLOWS; MUNICIPAL LIABILITY by zxg15325

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									                                                           SANITARY SEWER OVERFLOWS;
                                                            MUNICIPAL LIABILITY


                                                           Senate Bill 109 (Substitute H-4)
                                                           First Analysis (12-11-01)

                                                           Sponsor: Sen. Shirley Johnson
                                                           House Committee: Civil Law and the
                                                            Judiciary
                                                           Senate Committee: Natural Resources
                                                            and Environmental Affairs


THE APPARENT PROBLEM:

Sanitary sewer overflows (SSOs) can pose a severe          Under the governmental immunity act, governmental
problem to the environment and public health. These        agencies are immune from tort liability in the
are discharges of raw or inadequately treated sewage       exercise or discharge of a governmental function.
from a separate sanitary sewer collection system           There are several exceptions to governmental
before the sewage reaches a wastewater treatment           immunity, however, that allow recovery by people
plant. The discharges can back up into basements and       injured as a result of a municipality’s negligence. In
buildings, flow out of manholes or weak spots in the       1998, the Court of Appeals held that municipalities




                                                                                                                     Senate Bill 109 (12-11-01)
collection system, and reach ground or surface             could be held liable for sewer backups without a
waters. According to the Department of                     showing of negligence, so as to establish liability
Environmental Quality (DEQ), SSOs have risen               under     the    trespass-nuisance     exception    to
sharply with the aging and inadequate wastewater           governmental immunity (CS&P, Inc. v City of
infrastructure coupled with factors such as                Midland, 229 Mich App141). See BACKGROUND
groundwater infiltration, heavy rainstorms or              INFORMATION below. This decision has resulted in
snowmelts, equipment or pump failures, blockages,          numerous lawsuits against municipalities for sewer
and power failures. The discharges can contain             overflows.
disease-causing bacteria, floating human waste, toxic
pollutants, pesticides, and other contaminants that        Legislation has been introduced in order to establish
can threaten public health and the environment,            a more limited legal liability standard. The standard
contaminate drinking water sources, and damage             would link liability with proof that an actual sewer
buildings.                                                 system defect existed, that a particular local unit of
                                                           government was responsible for that defect, and that
Governmental agencies are required to provide              the defect was the substantial proximate cause (that
certain necessary services, such as sewer systems,         is, that the defect was 50 percent or more of the
within municipalities, and are responsible for             cause) of the event, property damage, or physical
maintaining and upgrading these systems. Some              injury.
residents blame their municipality for an aging sewer
system and its frequent sewer backups. According to        THE CONTENT OF THE BILL:
an article in the Detroit Free Press (1-30-01), at least
110 homes in Birmingham, 91 homes in Beverly               Senate Bill 109 (H-4) would amend Public Act 170
Hills, and 20 homes in Farmington Hills experienced        of 1964 which concerns the liability of municipal
sewer overflows in their basements after heavy rain        corporations, political subdivisions, and the state, in
deluged the system in 1998. According to the sanitary      order to establish a protocol that allows citizens to
sewer overflow county lookup program established           seek compensation from a municipal government in
by the DEQ, the following counties, among others,          the event of a sewer overflow, obtaining
have reported cases of SSOs since July 10, 2000:           compensation for economic and non-economic
Ingham County, 20 cases; Macomb County, 23 cases;          damages either as the result of a negotiated
Oakland County, 41 cases; Washtenaw County, 26             settlement, or a civil suit and court judgement.
cases; and Wayne County, 35 cases.
                                                           The bill specifies that in order to afford property
                                                           owners, individuals, and governmental agencies


Analysis available @ http://www.michiganlegislature.org                                        Page 1 of 7 Pages
greater efficiency, certainty, and consistency in the     bill specifies that a governmental agency would
provision of relief from damages or physical injuries     remain subject to tort liability for non-economic
caused by a sewage disposal system event, a claimant      damages if the claimant, or the individual on whose
and a government agency subject to a claim would          behalf the claimant was making the claim, had
have to comply with certain procedures. The bill          suffered death, serious impairment of body function,
specifies that a governmental agency would not be         or permanent serious disfigurement. Under the bill,
immune from tort liability for the overflow or backup     these issues would be questions of law for the court,
of a sewage disposal system if the governmental           if the court found either of the following: (a) there
agency is the appropriate governmental agency.            was no factual dispute concerning the nature and
(’Appropriate governmental agency’ and 11 other           extent of the claimant’s injuries; or, (b) there was a
terms are defined by the bill, and noted below.) The      factual dispute concerning the nature and extent of
bill would abrogate common law exceptions to              the injuries, but the dispute was not material to
immunity for the overflow or backup of a sewage           determining whether the claimant had suffered a
disposal systems, and provide the sole remedy for         serious impairment of body function, or permanent
obtaining any form of relief for damages or physical      serious disfigurement.
injuries, regardless of the legal theory.
                                                          Further, the bill specifies that a party to a civil action
Seeking damages. Under the bill, if a claimant,           would have all applicable common law and statutory
including a claimant seeking non-economic damages,        defenses ordinarily available in civil actions, and
believed that an event caused property damage or          would be entitled to all rights and procedures
physical injury, the claimant could seek                  available under the Michigan Court Rules.
compensation for the property damage or physical
injury from a government agency if the claimant           Claim notification protocol to governmental agency.




                                                                                                                       Senate Bill 109 (12-11-01)
showed that all of the following existed at the time of   Under the bill, a claimant would not be entitled to
the event: (a) the governmental agency was the            compensation unless he or she notified the
’appropriate governmental agency’; (b) the sewage         governmental agency of a claim of damage or
disposal system had a defect; (c) the governmental        physical injury, in writing, within 45 days after the
agency knew, or in the exercise of reasonable             date the damage or injury had been discovered, or in
diligence should have known, about the defect; (d)        the exercise of reasonable diligence, should have
the governmental agency, having the legal authority       been discovered. The bill specifies the appropriate
to do so, failed to take reasonable steps in a            content of the written notice, and directs that a
reasonable amount of time to repair, correct, or          governmental agency make information about the
remedy the defect; and, (e) the defect was a              notice protocol public. Specifically, if a person
substantial proximate cause of the event and the          notified a contacting agency, either orally or in
property damage or physical injury.                       writing, before providing a notice of a claim, then the
                                                          contacting agency would be required to provide the
Obtaining damages. In addition to the requirements        person with all of the following information in
to seek damages, the bill specifies that to obtain        writing:     (a) an explanation of the notice
compensation for property damage or physical injury,      requirements, sufficiently detailed to allow a claimant
a claimant would have to show both of the following:      to comply with the requirements; (b) the name and
(a) if any of the damaged property was personal           address of the individual within the governmental
property, then reasonable proof of ownership and the      agency to whom a claimant must send written notice;
value of the damaged personal property. Reasonable        and, (c) the required content of the written notice,
proof could include testimony or records                  which would be limited to the claimant’s name,
documenting the ownership, purchase price, or value       address, and telephone number, the address of the
of the property, or photographic or similar evidence      affected property, the date of the discovery of any
showing the value of the property; and, (b) the           property damages or physical injuries, and a brief
claimant followed the proper notification protocol to     description of the claim.
seek damages from the governmental agency, as it is
described in the bill (see below).                        The bill specifies that a claimant’s failure to comply
                                                          with the notice requirements would not bar him or
Non-economic damages. Generally, the bill specifies       her from bringing a civil action, if the claimant could
that economic damages are the only compensation for       show both of the following: (a) he or she had notified
a claim, and directs that a court shall not award and a   the contacting agency during the period for giving
governmental agency shall not pay non-economic            notice; and, (b) his or her failure to comply with the
damages as compensation for an event. However, the



Analysis available @ http://www.michiganlegislature.org                                         Page 2 of 7 Pages
notice requirements resulted from the contacting             caused damage or physical injury), "claimant,"
agency’s failure to comply with the protocol.                (which would be defined to mean a property owner
                                                             who believes that a sewage disposal system event
Additional governmental agencies responsible;                caused damage to the owner’s property or a
inspection and investigation before litigation. The          physically injured individual or person making a
bill specifies that if a governmental agency notified        claim on behalf of a physically injured individual
of a claim believes that a different or additional           who believes that a sewage disposal system event
governmental agency may be responsible, then that            caused the physical injury. Claimant includes a
agency would be required to notify each additional or        person who is subrogated to a claim of a property
different governmental agency of that fact, in writing,      owner or physically injured individual), "contacting
within 15 business days after the date the claimant’s        agency," (which would be defined to mean any of the
notice was received.                                         following within a governmental agency: (i) the
                                                             clerk of the governmental agency; (ii) if there were
The bill specifies that this provision is intended to        no clerk, an individual who may lawfully be served
allow a different or additional governmental agency          with civil process directed against the governmental
to inspect a claimant’s property, or investigate a           agency; and (iii) any other individual, agency,
claimant’s physical injury, before litigation. Further,      authority, department, district, or office authorized by
it specifies that failure to provide notice to a different   the governmental agency to receive notice, including
or additional governmental agency would not bar a            but not limited to an agency, authority, department,
civil action against the different or additional             district, or office responsible for the operation of the
governmental agency.                                         sewage disposal system, such as a sewer department,
                                                             water department, or department of public works),
Under the bill, if a governmental agency received a          "defect" (which would be defined to mean a




                                                                                                                        Senate Bill 109 (12-11-01)
notice from a claimant, or a different or additional         construction, design, maintenance, operation, or
governmental agency, the appropriate governmental            repair defect), "non-economic damages" (which
agency receiving notice could inspect the damaged            would be defined to include, but not be limited to,
property, or investigate the physical injury. A              pain, suffering, inconvenience, physical impairment,
claimant, or the owner or occupant of affected               disfigurement, mental anguish, emotional distress,
property, would be prohibited from unreasonably              loss of society and companionship, loss of
refusing to allow a governmental agency subject to a         consortium, injury to reputation, humiliation, and
claim to inspect damaged property or to investigate a        other non-pecuniary damages), "person," "serious
physical injury. Further, the bill specifies that this       impairment of body function" (which would mean
provision would not prohibit a governmental agency           that term as defined in the Insurance Code), "service
from inspecting damaged property or investigating a          lead" (which would mean an instrumentality that
physical injury during a civil action.                       connects an affected property, including a structure,
                                                             fixture, or improvement on the property, to the
Civil action. The bill specifies that if a governmental      sewage disposal system and that is neither owned nor
agency notified of a claim and a claimant do not             maintained by a governmental agency), "sewage
reach an agreement on the amount of compensation             disposal system" (which would mean all interceptor
for the property damage or physical injury within 45         sewers, storm sewers, sanitary sewers, combined
days after receipt of notice, then the claimant could        sanitary and storm sewers, sewage treatment plants,
begin civil action. Further, the bill specifies that a       and all other plants, works, instrumentalities, and
civil action could not be instituted until after that 45     properties used or useful in connection with the
days. However, the bill specifies that this would not        collection, treatment, and disposal of sewage and
apply to claims for non-economic damages.                    industrial wastes, and includes a storm water drain
                                                             system under the jurisdiction and control of a
Definitions. Under the bill, 12 definitions are              governmental agency), "sewage disposal system
included to establish the conceptual elements of the         event" or "event" (which would mean the overflow or
compensation recovery protocol.          There are           backup of a sewage disposal system onto an affected
definitions for the following terms, some of which           property. An overflow or backup would not be a
are included here: "affected property," "appropriate         sewage disposal system event if any of the following
governmental agency," (which would mean a                    were ’a substantial proximate cause’ of the overflow
governmental agency that, at the time of a sewage            or backup: (i) an obstruction in a service lead that
disposal system event, owned or operated, or directly        was not caused by a governmental agency; (ii) a
or indirectly discharged into, the portion of the            connection to the sewage disposal system on the
sewage disposal system that a claimant alleges               affected property, including, but not limited to a



Analysis available @ http://www.michiganlegislature.org                                           Page 3 of 7 Pages
sump system, building drain, surface drain, gutter, or    was 50 percent or more) of the cause of the event and
downspout; and, (iii) an act of war, whether the war      the property damage or physical injury.
is declared or undeclared, or an act of terrorism), and
"substantial proximate cause" (which would mean a         BACKGROUND INFORMATION:
proximate cause that was 50 percent or more of the
cause of the event and the property damage or             CS&P, Inc. v City of Midland involved a case in
physical injury).                                         which water and sewage emanating from toilets and
                                                          floor drains invaded the premises of a commercial
MCL 691.1416 et al.                                       building located in Midland, and caused extensive
                                                          damage to the building and its contents. Evidently,
HOUSE COMMITTEE ACTION:                                   broken risers in the sewer on a street adjacent to the
                                                          building caused a blockage, and diverted the water
The members of the House Committee on Civil Law           and sewage into the building. The city admitted that
and the Judiciary substituted the Senate-passed           it owned the sewer system, and that it was
version of Senate Bill 109 with a modified version of     responsible for maintaining, installing, and repairing
House Bill 4960 (in particular, Substitute H-2, Draft     sanitary sewers. Although the section of the sewer
3, with amendments), a bill that had served as a          that failed had been cleaned and inspected, no
working document for a study group convened to            problems had been found.
advise the standing committee.          The bill is
substantially different from the Senate-passed            The plaintiffs alleged that Midland was liable for
version.                                                  damages to the building and its contents under a
                                                          trespass-nuisance theory. The city moved for
The Senate-passed version of Senate Bill 109 would        summary disposition, arguing that because




                                                                                                                    Senate Bill 109 (12-11-01)
have made political subdivisions immune from civil        maintenance of a sewer system is a governmental
liability for non-economic damages caused as the          function, the plaintiffs’ claims were barred by
result of the back-up of a sewer system, built,           governmental immunity. The trial court held that the
operated, maintained, or repaired, or otherwise under     plaintiffs had pleaded causes of action under the
its jurisdiction, under either of the following           trespass-nuisance exception to governmental
circumstances: (a) the political subdivision was in       immunity, and denied the city’s motions. The trial
full compliance with an order, permit, or other           court also ruled that negligence was not an element
document with an enforceable schedule for                 the plaintiffs would have to prove at trial in order to
addressing its sewage-related water pollution             establish Midland’s liability under a trespass-nuisance
problems that was issued by the Department of             theory. After a jury trial, the plaintiffs were awarded
Environmental Quality, or entered into as part of an      damages.
action brought by the state against the political
subdivision; or, (b) the political subdivision was not    The sole issue on appeal was whether the trial court
subject to an order, permit, or other document with an    had erred by ruling that the plaintiffs did not have to
enforceable schedule, but met all of the following:       prove negligence in order to establish liability under
(i) it was properly operating and maintaining the         the trespass-nuisance exception to governmental
sewer system at the time of the back-up; (ii) the back-   immunity. The Court of Appeals affirmed the
up was the first experienced by the sewer system;         decision of the trial court. As described by the Court
and, (iii) following the back-up, the political           of Appeals, trespass-nuisance is a "trespass or
subdivision entered into an order, permit, or other       interference with the use or enjoyment of land caused
document with an enforceable schedule for                 by a physical intrusion that is set in motion by the
addressing the political subdivision’s sewage-related     government or its agents and resulting in personal or
water pollution problems.                                 property damage". The court followed a 1994 ruling
                                                          of the Michigan Supreme Court, which held that
Unlike the Senate-passed version of the bill, Senate      negligence is not a necessary element of the cause of
Bill 109 (H-4) would make political subdivisions          action, even if the instrumentality causing the
liable for non-economic damages under some                trespass-nuisance was built with all due care and in
circumstances, as well as establish a protocol that       strict conformity to the plan adopted by a
would allow citizens to seek and obtain damages for       governmental agency or department (Peterman v
sewer back-ups if they could prove that a defect          Department of Natural Resources, 446 Mich 177).
existed in the system, that a particular unit of
government was responsible for that defect, and if the    Although the Michigan Supreme Court in October
defect was the "substantial proximate cause" (that is,    1999 granted leave to appeal the Court of Appeals


Analysis available @ http://www.michiganlegislature.org                                       Page 4 of 7 Pages
decision in CS&P, the Supreme Court reversed its           property of another. Then, and only then, will the
order in January 2000. Therefore, the Court of             private entity be held liable for trespass.
Appeals decision is final.                                 Municipalities, liable under the trespass-nuisance
                                                           doctrine, need not be found negligent, but merely
FISCAL IMPLICATIONS:                                       present. Under this doctrine, the complainant does
                                                           not need to prove that a local unit was negligent in
According to the House Fiscal Agency, the bill would       order to recover damages, but merely that there was
have an indeterminate fiscal impact on local units of      trespass. This is a ’higher’ standard of liability--one
government. The fiscal impact would depend both            that is easier to prove--than the standard that applies
on the extent to which the bill would increase or          to private entities. It provides for nearly limitless
decrease the number of lawsuits; and, in any               exposure, and as a matter of public policy it is both
determinations of liability, the degree to which it        unwise and unfair.
would enable recovery for non-economic damages.
(12-10-01)                                                 For:
                                                           This bill protects homeowners’ rights and yet holds
ARGUMENTS:                                                 local units of government responsible for defects in
For:                                                       their sewage systems. When raw sewage overflows
This legislation affords property owners, individuals,     into a home’s basement and fills it with stench and
and governmental agencies greater efficiency,              slime, full restitution of damages, including in certain
certainty, and consistency in the provision of relief      instances non-economic damages, should be allowed.
for damages or physical injuries caused by what the        If, for example, an incident causes death, serious
bills calls "a sewage disposal system event." The bill     injury, or disfigurement, citizens should be able to
puts in place a protocol under which citizens can file     collect non-economic compensation.




                                                                                                                       Senate Bill 109 (12-11-01)
claims against, and recover damages from, a local          Response:
government that operates a sewage or waste                 Citizens already can collect economic damages for
management system. The new protocol would allow            sewer back-ups. Indeed, according to an article that
citizens to seek and obtain damages for sewer back-        appeared in the Detroit Free Press entitled "Sewage
ups if they could prove that a defect existed in the       suit settled before liability bill passes" (7-18-01), one
system, that a particular unit of government was           law firm in the state has represented almost 5,000
responsible for that defect, and if the defect was the     home owners in mostly class-action back-up and
"substantial proximate cause" (that is, it was 50          flooding cases throughout the state since 1996, and
percent or more) of the cause of the event and the         has been able to obtain judgments or settlements
property damage or physical injury.                        from cities of almost $16 million.             As to the
                                                           provision that would allow for non-economic
For:                                                       damages for sewer back-ups, these would rarely be
This bill would impose a more reasonable standard          awarded in basement flooding cases. Overall, the bill
for liability in sewer overflow events. Currently,         would have little effect.
governmental units are being held liable for events
beyond their control. They need the protection this        For:
legislation provides, not the virtually unlimited          According to the Southeast Michigan Council of
exposure which has been the result of recent court         Governments,        this      legislation     provides
decisions.     For example, an electric utility is         accountability, certainty, recognition, and protection-
generally not liable for damage caused by a power          -policy principles that are in the best interest of the
outage resulting from lightening. Yet municipalities       broad spectrum of property owners. With regard to
can be held liable for damages caused by a sewer           accountability, the bill asserts that liability for
backup resulting from an unusually large rainstorm.        damages should be linked to responsibility for
                                                           causing flooding. With regard to certainty, the bill
According to CS&P, Inc. v City of Midland (1998),          allows sewer system owners and operators to know
local units are subject to a strict liability standard.    when they are meeting their responsibilities. As to
Plaintiffs need not prove that a local unit was            recognition, the bill recognizes that all basement
negligent in order to hold it liable under the trespass-   flooding is not preventable. Finally, the bill offers
nuisance doctrine (which applies only to                   protection for homeowners and their local
governmental agencies). In contrast, to prove the          governments that increases the likelihood that
liability of a private company, the complainant must       insurance coverage will be available to cover the risk
prove that the private entity intends to intrude on the    of sewer back-ups and basement flooding.



Analysis available @ http://www.michiganlegislature.org                                          Page 5 of 7 Pages
Against:
The Michigan Supreme Court is considering a case           complying with a state-ordered and DEQ-approved
involving sewer backups in two municipalities that         plan to correct and eliminate a sewage system
will substantially clarify current Michigan law            violation. For example, a city could be required to
regarding liability for sewer backups that result in       pay a homeowner for repairing a flooded basement
basement flooding. Legislative action on Senate Bill       and replacing its contents, and the city also could
109 should await clarification from the Michigan           have to pay additional damages to compensate the
Supreme Court on two cases: Jones v Farmington             homeowner if a claimant experienced death,
Hills, and Pohutski v Allen Park. Both cases have          disfigurement, or impairment of body function. The
been consolidated by the Michigan Supreme Court,           intent of the Senate-passed version of this bill was to
which heard oral arguments this fall and will render a     provide local governments immunity from citizens’
decision in early 2002.                                    claims for non-economic damages--protecting city
                                                           budgets from the imposition of unexpected legal and
Against:                                                   financial burdens that come of large non-economic
This bill will not restore insurer comfort with            damage awards-- if the local governments could not
municipal risk. According to committee testimony,          reasonably be considered to have been liable, given
insurance will not be available to local units of          state mandates. This bill fails to protect local
government for these flooding and sewer overflow           governments in that manner. Further, by creating an
events, unless the legislation includes a provision that   entirely new category of liability and requiring that
the defect in the sewer system was "the proximate          citizens be given notice, the bill could well increase
cause" of the sewer over-flow (that is, the one most       local governments’ exposure to citizens’ suits for
direct cause). As it is drafted, the phrase "the           damages.
proximate cause" has been jettisoned in favor of




                                                                                                                      Senate Bill 109 (12-11-01)
"substantial proximate cause," which means a               Against:
"proximate cause that is 50 percent or more of the         This legislation further erodes the concept of
cause" of the sewer overflow event, the property           governmental immunity, a set of principles first put
damage, or physical injury. As a result, a spokesman       in place to prevent citizens from what is, in effect,
for the Michigan Municipal Risk Management                 bringing suit against themselves as taxpayers. It
Authority notes that governmental entities should be       should be noted that the need for governmental
prepared to go without insurance coverage, or very         immunity is greatest with regard to the provision of
limited coverage for the foreseeable future. This          those services whose effects are most uncertain--that
means the new standard of liability defined in the bill    is to say, when the provision of the service entails
will be financed, for the most part, with municipal tax    unpredictable results and even likely mishaps, or ’acts
dollars.                                                   of God’. Generally it is these kinds of service
                                                           delivery systems that are relegated only to
Generally, those who insure against risks in local         governments, precisely because the private sector
government observe that the insurance marketplace          assesses their profitability to be too low, and their
has entered a hard market cycle. Re-insurers are now       risk too high. Indeed, governmental agencies are
allocating their capacity more selectively to achieve      mandated by law to provide an efficient and
profitability. This means that reinsurance will be         systematic drainage system to safeguard the public
harder to find for certain higher risk areas, like sewer   health and welfare, regardless of profitability.
backups. The September 11 attacks on the World             Further, often improvements to these kinds of service
Trade Center and the Pentagon further exacerbated          delivery systems are extraordinarily expensive for
this market trend. The insurance industry has been         taxpayers, and it is for that reason that the expense of
particularly hard hit, and the estimates of insured        their improvement is undertaken collectively. It
losses continue to mount. Initial estimates of $40         makes little sense to spend already limited tax dollars
billion have grown to more than $70 billion, as the        on court judgments or out-of-court settlements when
September 11 attacks have proved to be the largest         the tax dollars would be better used to improve the
single-event loss in history.                              infrastructure of the system.

Against:                                                   POSITIONS:
Unlike the Senate-passed version of Senate Bill 109,
this substitute bill would not protect municipalities      The Michigan Environmental Council supports the
from liability for non-economic damages caused by          bill. (12-6-01)
sewer backups, even if local elected officials were



Analysis available @ http://www.michiganlegislature.org                                         Page 6 of 7 Pages
The Michigan Townships Association supports the
bill with amendments. (12-10-01)

The Michigan Municipal League supports the bill
with amendments. (12-10-01)

SEMCOG is not opposed to the bill. (12-6-01)

The Department of Environmental Quality is neutral
on the bill. (12-6-01)

The Michigan Association of Counties has the
current substitute under review to determine how it
affects counties’ ability to insure their operations.
(12-6-01)

The Michigan Municipal Risk Management
Association does not support the bill. (12-10-01)




                                                                                        Senate Bill 109 (12-11-01)




                                        Analyst: J. Hunault
______________________________________________________
nThis analysis was prepared by nonpartisan House staff for use by
House members in their deliberations, and does not constitute an
official statement of legislative intent.



Analysis available @ http://www.michiganlegislature.org             Page 7 of 7 Pages

								
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