11/15/2017
OPEN LETTER:
I Signed the Government Fire Debris Removal Contract.
What can I Expect?
--Introduction--
Officials appeared relieved when the vast majority of northern California’s fire victims executed the government's Right of Entry contract ("ROE"). Billed as the best and fastest way to get the hazardous and toxic material removed from the environment and the start of rebuilding, the ROE was promoted with high-pressure sales tactics.
Even while lawyers found the ROE language problematic, local officials continued to tout provisions inconsistent with the contract, telling citizenry, “Don’t worry about what’s in the written contract, the government will do the right thing.” An empirical review of history fails to enable these assurances as the most comforting ever uttered.
--What did I agree to that I might have Missed?--
For starters, you assigned all of your insurance proceeds for "debris removal" to be paid directly to the applicable county and you agreed to notify your insurer of this assignment. Have you already made your notification phone call? If by chance you still receive insurance funds for debris removal, you have 30 days to turn those funds over to the county.
You also agreed to defend indemnify and hold harmless the applicable county (and virtually all other public and private actors involved in the process) for and from claims arising from the debris-removal process, including claims related to insurance disputes.
--What Challenges can arise from the ROE Agreement?--
The legal consequences resulting from entering into any contract can be exhaustive, but some of the more likely issues capable of arising from the ROE are presented below.
Once the county has performed debris removal and the insurer has been notified of its assignment of benefits, the insurer owes contractual duties to multiple parties. The insurer has a direct duty to its insured as a result of the insurance policy. The insurer has a contractual duty to the applicable county and all other governmental and private actors as the result of the assignment. It has a similar duty in the case of a mortgage holder, who is an insured as a result of its interest in the property.
How should in insurer pay claims under these circumstances? An insurer might believe itself compelled to issue a check naming all three parties for debris removal reimbursement costs. The insured, the mortgage holder and the applicable county would then be required to endorse the check. After all, the money has already been assigned to the applicable county and the ROE agreement requires the funds be immediately provided to the county rather than being provided directly to the insured. No problem—so far. But what if you, the insured object? What if you or your mortgage lender disputes the cost to rebuild or replace the home?
A typical coverage ratio example is helpful to illustrate this problem. Say the property is insured for $100,000. There is additional debris removal coverage of $5000 available in the policy (5%). The insurer says the cost to replace the home is $75,000. So, according to the ROE contract, the insurer is obligated to write a check for $30,000 to the applicable county and the balance of $75,000 to its insured. But what if the insured or lender believes it will cost more than $75,000 to rebuild the home?
If the insured tries to get the insurance money back from the county, they are going to be confronted with the indemnification clause they signed in the ROE. That provision requires the county be indemnified and held harmless from and against any and all insurance claims, deductibles, demands etc. Further, since the insured expressly waived the ability to prosecute any such claims in the ROE contract, any such effort might be summarily dismissed. Ouch!
Another real world example: Suppose there are trees or other debris that exist on your site that will not be removed under the ROE contract, but could otherwise be removed at no cost if you were handling the matter. Can your insurer ignore the ROE assignment by giving the debris removal benefit to you for this unused asset? Or would such activity put your insurer in breach of the express contractual obligation to the assignee (county) who is entitled to be paid all of the debris removal coverage?
While either party has a fair argument that they are entitled to the funds, the carrier is left with a Hobson's choice—If it gives the money to the insured, it violates the express language of the assignment executed by its insured. If instead it gives the money to the county, while it may then be in full compliance with its contractual assignment clause, it would nevertheless be taking action directly against the interest of its own insured. Ouch again!
Another common problem is that cleanup recovery often seeks money for debris removal not covered by the insured’s policy, such as a "community cost" (a generic cost attributed to an area or neighborhood which can’t be directly attributed to any single parcel). In other fires the largest component of debris removal billing has been this generic cost. Since the insurer generally does not insure the "community" but only its insured, will it refuse to pay for debris removal that can’t be attributed to any insured parcel? If the county and the insurer do not agree about the payment of the non-covered debris removal costs, will you the insured then have to indemnify the county and hold it harmless from the ensuing coverage dispute?
What if the landfill where your debris is taken is not properly permitted to receive the waste or has a future toxic waste problem when the “toxic and hazardous” waste is collected, compiled and disposed of at the unlicensed facility as has been reported in the case of other fires? Can the county then seek your indemnity for the improper disposal of hazardous material at an unpermitted facility? Is that second "debris removal" from the unpermitted facility your responsibility as a result of the indemnity agreement?
Indemnity under the ROE is troubling overall, your obligation to foot the bill or take action to defend others in this situation permits more than insult upon injury, it permits injury upon injury. The obligation potentially persists even if the applicable county submits a grossly inflated insurance claim for debris removal to the insurer, thereby potentially violating the provisions of California Insurance Codes. Will the county then demand you indemnify their specious claim under the terms of the ROE contract?
--We Don’t Know the Answers to These Questions Today but we Likely will 3-5 years from Now.--
These questions and others will likely puzzle attorneys and their clients over the next several years. Sadly, once the fires die out and the world returns to “normal” the law goes back to the rule of law.
In California, written contracts are generally required to be interpreted from the writing alone.The ROE contract has an integration clause that states the agreement constitutes the entire agreement between the parties with respect to the subject matter and that all prior or contemporaneous agreements, understandings and representations, oral or written, are superseded. This finality is almost always applied in cases such as this where the language is clear and unambiguous.
So what should ROE participants expect? No one knows for sure, but we do know an ounce of prevention is worth a pound of cure. In this case there’s a solution that will easily prevent people from being victimized a second time.
--Easy Solution – Waiver--
The economy of scale, impending rainy weather, and desire to restore normalcy are factors militating the decisive action taken by our officials. But action need not mean convincing people under duress to sign a contract that says something different than all the accompanying verbal promises. If there is to be no threat of unfavorable interpretation for our local citizens then all that need occur is the issuance of a simple waiver. With this accomplished the ROE may read the same, but will not be negatively enforced against the people who relied on the enthusiastic promises of officials and cooperating private actors.
A simple proclamation from each affected county stating, “We respect those who relied on our representations even when such promises were contrary to the language within the contracts we urged signing. Therefore we will only enforce the agreements to the extent and in the manner that we actually promised, and will not limit or reduce these promises to that which is contained in the written ROE agreement(s)."
Because we believe our leaders well intentioned and acted as needed under tremendous pressure to accomplish necessary momentum, we also believe they will further meet any challenge benefitting our citizens. A waiver made in the spirit suggested above will bestow clarity instead of foster continued uncertainty. Nobody likes to be in the position requiring trust for what was promised out loud if it differs from what was promised in writing.
/s/ Allan Cory, Esq.
/s/ Hans Herb, Esq.
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Allan J. Cory is a Santa Rosa based attorney with over 20 years experience in real estate related matters.
Hans W. Herb is a Santa Rosa based attorney working primarily in the fields of emergency response, hazardous waste spills and complex commercial insurance litigation. He has worked in these fields for more than 30 years.
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The above open letter contains generic legal analysis and advice which is not meant to be tailored or suited to any individual matter. If you have a legal concern you must seek counsel from a licensed California attorney with experience in the matter for which you have such concern.
