EXCESSIVE RAIN CAN CAUSE PAIN: FLOODING AND SEWER BACK-UPS CLAIMS

Heavy rains this summer in many parts of the country, including Illinois, have resulted in flooded basements and other damage for some property owners. Storm water inflow into a sanitary sewer system can surcharge the system, causing sewer back-ups into houses. Surface water can inundate window wells and crawl spaces. Power outages can render sump pumps helpless.

Review of a few Illinois court decisions suggests some of the issues a property owner may encounter when seeking to recover for damages caused by such heavy rain events.

One obvious issue concerns recovery attempts under property insurance policies. In Industrial Enclosure Corp. v. Glenview Insurance Agency, 379 Ill. App. 434 (1st Dist. 2008), an insurance policy covered sewer back-ups but excluded flooding. Thus the coverage did not cover flooding damage in a building primarily due to creek overflow and surface water runoff caused by a 17 inch rain event. The court found that the insurance agent had no duty to advise customers of the import and meaning of provisions of policies faithfully procured according to the customer's requirements. The court said that the burden is on the customer to know the meaning of the policies it accepts. See also Smith v. Union Automobile Indemnity Co., 323 Ill. App. 3d 741 (2d Dist. 2001), upholding a policy exclusion for water damage primarily due to rain caused surface water flooding.

Another issue can be whether a property owner can recover from a municipality for sewer back-ups from the town's sanitary sewer system. In Dial v. City of O'Fallon, 81 Ill.2d 548 (1980), the Illinois Supreme Court affirmed that a city can be liable for sewer back-ups into a house during heavy rainfall, as a trespass. In Hull v. City of Griggsville, 29 Ill. App. 3d 253 (4th Dist. 1975), the court held that a city was liable for sewer back-up damage in a basement caused by a broken tile in the city's sewer system. The court said that, since the city had exclusive control of its sewer system and the customer did not contribute to the happening of the damage, the city was responsible.

A related issue is whether a municipality can claim immunity from liability for sewer back-up damage. This is a complex question. In Trtanj v. City of Granite City, 379 Ill. App. 3d 795 (5th Dist. 2008), the court held that a city did not have immunity in a suit to recover damages for sewer back-up to the basement. But see Alexander v. Consumers Illinois Water Co., 358 Ill. App. 3d 774 (3d Dist. 2005), where a sanitary sewer main became clogged from debris when a home owner cleaned out the lateral service line serving the homeowner's property. The court said that the village was immune from claims that it should have adopted rules prohibiting home owners from discharging debris into the sewer service laterals.

These court decisions provide an example of some of the issues a property owner may encounter when seeking relief from damages caused by heavy rain event flooding and sewer back-ups. However, it would seem that a good beginning point for anticipating the consequences of heavy rain events is to know the terms of one's insurance policy.

WATER UTILITIES FACE RATE INCREASE PRESSURES

Although the economy may be viewed as sluggish, and inflation rates currently are low, water and wastewater utilities nevertheless are experiencing pressures to increase rates for service. What are some of the drivers for the need to increase rates at this time?

1. Replacement of Aging Infrastructure. Various estimates range from $200 to $300 billion nationally to replace mains, treatment and pumping facilities that have exhausted their useful lives.

2. Compliance with Increasingly More Stringent Standards and Monitoring Requirements. Under the Safe Drinking Water Act and the Clean Water Act, utilities are subject to what appear to be ever increasing USEPA regulations as well as litigation claims.

3. Need for Enhanced Security Measures. Security has come to the forefront in imposing capital and operating costs, particularly for water utilities because water is essential for public health and safety.

4. Response to Diminishing Sources of Water Supply. Not every utility has the benefit of Lake Michigan water, but even that source of supply is limited. Surface waters such as rivers and ground water aquifers also have limitations in both quantity and quality. The more contaminated a source is, the more treatment and cost are required.

5. Expansion of Capacity. Although current economic conditions may have dampened customer growth for now, the fact is that growth can be expected in the future, which translates into expansion of mains and treatment facilities.

These factors, as well as other pressures, cause the need for rate adjustments to alleviate these cost drivers. Without such rate adjustments, utilities can be tempted to defer addressing needed expenditures. Insufficient rates can cause misallocation of water as a resource, impede replacement of assets, frustrate regulatory compliance, and reduce security and quality of service.

Rates should be reviewed and adjusted on a regular periodic basis and established to recover fully all costs of service, based upon cost of service studies. Further, innovative rate structures can be developed. For example, many utilities successfully have implemented rate riders or surcharges to base rates to recover costs incurred for ongoing main replacement programs.

Adequate rates also should facilitate utilities' attraction of financing at reasonable costs for required capital requirements. Certainly, utilities should not avoid needed rate increases in the hope of receiving federal or state grants of limited availability.