CARSON CITY, Nev. (CN) – A board chaired by Nevada Gov. Steve Sisolak on Thursday signed off on a $25 million settlement between the state and 105 plaintiffs over a 2016 wildfire that swept through homes after a state agency failed to contain a controlled burn.
Under the settlement approved by the Nevada Board of Examiners, which also includes the state’s attorney general and secretary of state, $18 million will go to individual property owners and $7 million to insurance companies that filed subrogation claims in the so-called Little Valley Fire case. The state’s excess insurance carrier will pay $15 million, while the state will contribute $10 million from its contingency and tort funds.
A state court jury found the Nevada Division of Forestry guilty of gross negligence by allowing the controlled burn to escape in October 2016 and scorch 23 homes, some valued at $1 million or more, and about 2,300 acres on the western edge of Washoe Valley, about 25 miles south of Reno and just north of Carson City.
The forestry agency initiated the controlled burn to reduce fire fuel within the Whittell Forest and Wildlife Area, owned by the University of Nevada, Reno for research and teaching purposes. The university was named as a co-defendant but was not found liable.
An investigation concluded that high winds turned the controlled burn into a wildfire. The investigation found that “with wind gusts of more than 80 mph, embers from the smoldering or reignited vegetation crossed the control line for the prescribed fire and ignited unburned vegetation outside the prescribed fire.”
Plaintiffs alleged that the Division of Forestry knew the risk that the burn could set off a wildfire especially in light of an approaching storm with high wind gusts.
The settlement halts a legal battle over whether the blaze amounted to a physical invasion and taking of homeowners’ property for a public use, known as inverse condemnation, that could have led to a verdict far in excess of the state’s limited waiver of sovereign immunity that caps tort damages at $100,000. Under inverse condemnation, the cap does not apply and the state would be liable to provide just compensation to property owners.
A separate trial on damages and the inverse condemnation claim had been scheduled for later this year.
State Attorney General Aaron Ford, in a memo outlining the settlement, acknowledged the risk of higher damages posed by inverse condemnation and also revealed that settlement demands throughout the course of discovery and mediation reached a peak of more than $325 million.
The trial court refused to dismiss the inverse-condemnation claim, and the state appealed. The Nevada Supreme Court, however, ruled that the issue was premature because a record from the trial proceedings had not been fully developed.
In a brief submitted to the Supreme Court, the state said that allowing the inverse-condemnation claim to proceed would pervert Nevada law by merging takings and negligent property tort law.
As a consequence, the “rule in Nevada will be that if your insured and replaceable house burns down as a result of government negligence, then your insurance company will be fully repaid by Nevada taxpayers,” the state argued.
Plaintiffs countered that Nevada law recognizes the viability of inverse condemnation and tort claims arising out of the same conduct and that their complaint adequately alleged a claim for inverse condemnation.
“An inverse condemnation is a claim arising from a constitutional right, not a loophole to get around the $100,000 statutory limit for tort damages,” plaintiffs argued in one brief.
In a 2016 decision, Nevada’s high court established the elements of inverse condemnation as follows: “(1) a taking (2) of real or personal interest in private property (3) for public use (4) without just compensation being paid (5) that is proximately caused by a governmental entity (6) that has not instituted formal proceedings.”