Tag Archives: Construction

The Eminent and Inverse Environment – Interplay Between Environmental Issues and Condemnation

“THE EMINENT AND INVERSE ENVIRONMENT – The Interplay Between Environmental Issues and Condemnation” was presented to the Tarrant County Bar Association, Environmental Law Section in Fort Worth, Texas on February 27, 2014, by Mary Colchin Johndroe, 817-877-2810mjohndroe@canteyhanger.com.  The following summary contains highlights of the presentation.

In a statutory condemnation, the condemnor compensates the property owner before appropriating property.  If the government appropriates property without first paying adequate compensation, the property owner may bring a claim for inverse condemnation to recover resulting damages.  In both, statutory and inverse condemnation, a pivotal issue is compensation due to the landowner – which is typically measured by the difference in fair market value of the affected property before and after the taking. 

In Texas condemnation law, market value generally reflects all factors that buyers and sellers would consider in arriving at a sales price.  Environmental contamination, costs of remediation, and perception in the marketplace most assuredly can influence the value of a property.  

Texas courts have not yet decided if evidence of environmental contamination, potential liability for contamination, and remediation costs is admissible as relevant to market value of property taken by condemnation.  Although Texas case law has not specifically addressed these issues in the context of eminent domain, courts in at least thirteen (13) other states have determined the admissibility of evidence of environmental contamination and remediation of property taken in condemnation.  

The majority of courts follow an “inclusion approach,” holding that evidence of environmental contamination and the costs of remediation is relevant to fair market value and, therefore, relevant to a determination of just compensation in eminent domain proceedings.  Some courts follow an “exclusion approach,” with some excluding all evidence of contamination, while others have held that evidence of remediation costs is inadmissible, but property taken should be valued as remediated, as opposed to being clean and never contaminated.  The latter approach holds that evidence of the reduction in value of property caused by stigma attributable to environmental contamination is admissible.

In November of 2012, the Fourteenth Court of Appeals in Houston affirmed stigma  damages awarded for loss in market value resulting from prior  contamination  which  had been remediated. However, this was not a condemnation case. 

An inverse condemnation may occur when the government physically appropriates or invades the property, or when it unreasonably interferes with the landowner’s right to use and enjoy the property, such as by restricting access or denying a permit for development.  

The Texas Supreme Court has held that landowners have a constitutionally-protected, compensable property interest in groundwater and that State regulations cannot “unjustifiably” deprive landowners of the groundwater beneath their land.  At least one governmental entity has been held liable in inverse condemnation for denying permits for groundwater pumping and usage for irrigation. 

Moreover, Texas courts have allowed a claim by one private party against anotherfor trespass based on subsurface migration of water injected in a well permitted by TCEQ.  Regardless of a private party’s tort liability, constitutional concerns remain.  

Might governmental entities tasked with regulating groundwater or wastewater injection wells who issue permits resulting in migration onto other property and contamination of its water supply be liable for inverse condemnation?

The Texas Supreme Court Narrowed the Scope of the Contractual Liability Exclusion

In a unanimous decision, the Texas Supreme Court recently sided with the contractor in an insurance coverage dispute involving allegations of faulty construction. In Ewing Construction Company, Inc. v. Amerisure Insurance Company, the Texas Supreme Court limited the scope of an insurance policy exclusion for liabilities that contractors assume through contracts.

Commercial General Liability (CGL) insurance policies often include a contractual liability exclusion, which is an exclusion from insurance coverage when the allegations in a lawsuit arise from duties that are undertaken in contracts other than duties that the insured would have had in the absence of the contract or agreement. The question before the Supreme Court was whether a general contractor that enters into a contract in which it agrees to perform its construction work in a good and workmanlike manner, without more specific provisions enlarging this obligation, “assumes liability” for damages arising out of the contractor’s defective work so as to trigger the contractual liability exclusion.

The coverage dispute between Ewing and Amerisure arose when a school district sued Ewing alleging that Ewing’s construction of tennis courts was defective. In its contract, Ewing agreed that it would build the tennis courts in a “good and workmanlike manner.” Relying on this provision in the contract, Amerisure argued that the contractual liability exclusion in its policy barred coverage for a lawsuit against Ewing over the defectively built tennis courts.

The Texas Supreme Court ruled that the contractual liability exclusion is not triggered by faulty construction suits when a general contractor agrees in a contract to perform construction work in a “good and workmanlike manner.” The Court stressed that the contractual liability exclusion only applies when construction companies assume liabilities in a contract that they would not have had under common law. Based on the Ewing opinion, the contractor’s agreement to carry out work in a good and workmanlike manner does not create any additional liabilities by contract that would trigger the contractual liability exclusion.

The Ewing decision clarified the Texas Supreme Court’s holding in Gilbert Texas Construction LP v. Underwriters at Lloyd’s London, a 2010 opinion that interpreted similar contractual liability exclusion. In its ruling, the Court distinguished Gilbert on the basis that Gilbert involved unusual circumstances because the contractor there had assumed liability through its contract that was greater than it would have had under general law.

The Ewing and Gilbert decisions exemplify the importance of thoughtfully drafted contract provisions and will impact the way contacts are written in Texas for both contractors and owners.

Cantey Hanger attorneys regularly review construction contracts for contractors, design professionals, and owners, either at the beginning of a construction project or in litigation that sometimes results. For more information, please contact Stephanie Harrison at 817-877-2838 or sharrison@canteyhanger.com.