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Power Companies & Public Safety: Determining Liability in Utility Subrogation

Posted on 08/12/2024 - 8:00 AM by

This article is a companion piece to this video

In this episode of On Subrogation: Utility Claims, RG subrogation attorney Steve Alsip talks utility claims. What makes subrogating a case involving utilities different from other fields like automotive subrogation? Steve goes into detail about the process, focusing on overhead lines, underground lines and service defects.

Power Companies & Public Safety: Determining Liability in Utility Subrogation

The issues of property damage and personal injury subrogation involving utilities is a much more common sub-field of insurance law than you might think. Our environment is crisscrossed with countless overhead power lines, buried cable lines, underground water/sewer lines, phone poles, and more. This leaves the possibility of tort claims arising from incidents involving utilities ever-present.

Because of the prevalence of utility infrastructure, utility companies are regulated in cooperation with legislation of the state in which they provide service. Utilities that are required to follow certain statutory and regulatory frameworks include:

  • Electric
  • Cable
  • Phone
  • Water/sewer
  • Gas 

Regulating Vital Utility Services to Protect the Public

Because of the unique nature of utility companies, when it comes to approaching a subrogation claim, an attorney is dealing with specialized standards of care, regulatory frameworks that govern the utility, what types of tort issues can be brought against a company, and complex issues of liability. State regulatory agencies that govern utility companies include:

  • Public Utilities Commission
  • Public Service Commission
  • Corporation Commission
  • Regulatory Commission
  • Federal Energy Regulatory Commission (power)

These state regulatory agencies work with state legislation to protect the public by:

  1. creating a statutory framework for utility companies, and 
  2. creating compliance rules to keep the public safe and ensure they receive the appropriate level of service.

The Usual Suspect: Property Subrogation for Power Utilities

Because the physical infrastructure of power utilities are pervasive in our surroundings, and because the infrastructure is a giant interdependent network, electricity companies are the most common targets of tort claims for property damage, especially fire subrogation claims. Because power failures and accidents can easily cause huge loss of property and casualty, there’s a lot of potential for legal disputes involving liability in utility subrogation.

Steve cites a case he is currently handling, where strong winds blew a trampoline onto a power line on a neighboring house. This then resulted in a fire that destroyed at least two homes. The initial negligent act is simple to identify: the homeowner that failed to properly tie down their trampoline. But after that, did any utility-related issues contribute to the subsequent fires?

  • How are the power lines run?
  • Are they too close to homes?
  • Are they too flammable?
  • Were they improperly maintained/neglected?

Should issues with duty of care on the part of the utility be identified, the subrogating party may be able to pursue the company as an additional liable party in the insurance claim.

Steve breaks how a team investigating a property, fire or personal injury subrogation claim involving utilities should look for potential liability in overhead, underground and poorly-maintained lines:

1. Overhead Power Line Property Subrogation

In subrogation, claims involving overhead lines, poles and transformers are common. Overhead utility lines are most common because they’re cost-effective and easy to access, but they’re also prone to failure because they’re susceptible to the elements. Understanding the distribution of an overhead system is key to determining points of failure in a property subrogation claim.

A case for subrogation can be made for power lines that either actively caused the incident of loss or secondarily contributed to it. For instance:

  • A poorly-maintained power line falls due to high winds, throwing sparks that start a wildfire.
  • A pedestrian touches a low-hanging line that isn’t properly insulated and suffers severe electrocution.
  • A transformer is overloaded when it’s struck by lightning, causing a massive fire that destroys several homes.

There is a host of havoc overhead lines can cause on the ground that present unique types of liability when considering the process of arguing your subrogation case. These claims are often tricky, so utility subrogation claims often require investigations, experts, and a strategic approach to quantifying liability.

2. Subrogation of Underground Line Disputes

Underground utility lines are often co-located in a single trench, such as phone and cable. 811 is the national Call Before You Dig number. When digging or excavating in areas with utilities, 811 provides survey resources to locate relevant underground lines. Because underground lines are buried, they’re not as susceptible to the environment. But they are more likely to be neglected because maintenance is more expensive and access is difficult.

This type of utility subrogation has the potential to be very simple or highly complicated. Did a person/company dig without calling 811 or another appropriate route to locate underground utilities first? There’s your liability for the loss of use and/or property that results from digging into the utility.

But what if the correct measures were taken by the property owner, and the contractor accidentally hit a utility line anyway? Now, a subrogating party can look to the location company and the excavator. For instance:

  1. Did the survey/location company correctly mark the locations of the utility lines? 
  2. Did the excavator (owner/contractor) act negligently and dig without paying attention to the markings?

If proper measures were not taken by the property owner and/or the companies they hired, they may carry liability for hefty property damage claims, as digging into a line will likely cause problems throughout the network, especially in residential neighborhoods. However, if the lines were outdated or the company hadn’t performed proper remediation in the first place, there is still a subrogation liability claim to be made against the power company.

3. Product Defects: Subrogating Faulty Power Services

There are also utility subrogation claims resulting from a faulty “product”: a problem with your electricity service. For instance, a power surge to a residence or entire residential area can fry every plugged-in device in every home it affects. Instantly, insurers will have to pay out dozens of large claims that they then need to recoup.

These cases will require experts in order to prove there was a service defect like a surge. This includes an in-depth scene examination and an analysis of how the power is delivered. Is the utility company on the hook for the loss of use and property damage?

A particular culprit of fire claims for power utilities are decaying lines, poles and transformers that have not been properly maintained. As a liability argument, this is referred to as negligent maintenance. The utility company is responsible for maintaining their infrastructure as a matter of public safety and providing compliant services. 

Utility companies are held to different standards of care than, say, a single business owner or a homeowner. A power company is not expected to monitor every piece of equipment in their jurisdiction all the time, because it is agreed upon that it is functionally impossible to do so. However, should someone have reported a smoking transformer that later exploded and caused a fire insurance claim, and the company had failed to act on that previous report, that would be a strong claim for liability on the utility company. 

But like all things in insurance disputes, subrogation laws vary by state when it comes to protections for and responsibilities of utility companies because of the public safety aspect. In determining liability for utility subrogation litigation, courts look at:

  • Negligent maintenance: Was there a failure to properly inspect and repair aging infrastructure? Consider aging transformers or inappropriate loads.
  • External causes: Was there an “act of god” or other uncontrollable situation that caused the power line to fail? Consider weather or vandalism by a third party.
  • Regulatory compliance: Was the line that failed up to current local, state and/or federal codes? Had it been inspected on a compliance-informed schedule?
  • Warning systems: In cases where a severe storm was predicted or planned maintenance carried potential risk, did the utility company properly inform/warn customers of the risks beforehand?

Some states weigh these variables differently than others. One jurisdiction may adhere strict liability standards that hold utility companies accountable even where there is no negligence. Subrogation laws in California use a version of this called inverse condemnation.

Other states require negligence or gross negligence be proven for the utility company to carry liability. For instance, Texas subrogation laws require gross negligence for a utility claim, making it more difficult to pursue the utility company for subrogation recovery.

Challenges & Strategies to Proving Liability in Utility Subrogation

In all, fire subrogation claims arising from utility failures have a lot of moving parts and missing pieces. Subrogation lawyers must be proactive and strategic in order to maximize potential recovery of claims like these. Challenges include:

  • The utility company will claim it followed all regulations and inspections.
  • Claims often require extensive investigations and expensive expert testimony.
  • If a utility company is government-owned, they may leverage a sovereign immunity claim.
  • Fire damage, downed lines, etc. often destroy crucial evidence in a subrogation case.

To overcome these obstacles, the subrogating party in a utility claim should:

  • Document the scene, including photos, witness statements, fire and police reports, and any relevant samples that should be taken.
  • Consult electrical engineers, fire investigators and forensic specialists in the course of the subrogation investigation.
  • Research the jurisdiction-specific laws for utility companies.
  • Request all maintenance and repair documentation from the utility company.
  • Be prepared for the typical defenses subrogation lawyers encounter in these claims, including sovereign immunity and third-party negligence.

For more on subrogation claims for fire, property and utilities, listen to our On Subrogation podcast episode: Shedding Light on Power Utility Claims. If you would like to learn more about the subrogation process and the nuances of insurance law, visit Rathbone Group’s YouTube channel and podcast library for more episodes of On Subrogation.

On Subrogation is a free educational resource for subrogation professionals interested in maximizing claims recovery even in complicated cases. Have a suggestion for a topic we have not yet covered? Reach out at video@rathbonegroup.com or podcast@rathbonegroup.com to see your question discussed in a future episode.