Property Subrogation

Case Study

Kevin Price of Cummins & White, LLP, helped a church and its insurer recover damages after a sewer flooded, damaging the church’s basement fellowship room. Although its insurance covered a portion of the demolition and cleaning, no funds were available to rebuild the space. When the City of Los Angeles ignored a damage claim, the church and insurance company sued on a theory of inverse condemnation. The lawsuit settled at mediation for $350,000, which included repair costs, lost use, attorneys’ fees, and other damages.

Background

In 2011, a sewer line owned by the City of Los Angeles overflowed with raw sewage and flooded the basement fellowship room of a church. The sewage contaminated the floor coverings and walls, and destroyed personal property. The church’s insurance policy provided for cleanup of the sewage; however, no funds were left to rebuild the room described by some as the heart of the social and community life of the congregation.

The church and insurer filed claims with the City seeking reimbursement of the damages. When the City did not respond to or even acknowledge the claims, the church and its insurance company retained Kevin Price from Cummins & White, LLP, to represent them in a civil action against the City.

Legal Strategy

Mr. Price pursued claims of negligence and inverse condemnation based on the City’s failure to maintain the sewer line. Through research and discovery, Mr. Price established that the City had long deferred sewer maintenance, and dealt with “problem lines” only after spills and backups had already occurred. It was obvious that the City’s maintenance plan relied upon damage to private property as an indicator of when a sewage line became a “problem line.”

California’s Constitution provides the basis for inverse condemnation law in California. In an inverse condemnation case, a government entity is compelled to pay for private property damaged or destroyed as part of a public works project. In this case, inverse condemnation provided a broader range of recoverable damages than would be available through other causes of action, including:

• Damage to the church’s property,
• Reduction in tithes,
• Lost rental value,
• Reduced rent from a church tenant, and
• Labor costs for employees and emergency labor.

Results/Implications

With liability all but certain, the City requested mediation. Mr. Price presented a substantial settlement demand on behalf of the church and its insurer. The parties reached an agreement after one day, with the City agreeing to pay $350,000, including attorneys’ fees and costs.

“An inverse condemnation claim is atypical for property subrogation, but in this case it provided advantages over other causes of action,” Mr. Price said. “For example, any contributory negligence of the insured, often a potent defense in a case like this, became a non-issue. It is simply not applicable to an inverse condemnation claim. At mediation we were able to focus entirely on damages.”

Not all subrogation cases are the same. Getting consistently good results is usually the product of fresh thinking and creativity, along with diligence and skill that clients expect from a firm like ours. At Cummins & White, we look at each case individually in order to get the best results for our clients.