5/6/2016

A Tragedy on Tap

Making sense of the insurance claims and litigation facing Flint and its water crisis.

By Richard Baron , Ben Fruchey , Elizabeth Goutman

There is no shortage of opinions, articles, and information regarding the Flint, Michigan, water crisis. This article will focus on issues of interest to claims professionals and attorneys while attempting to avoid sensationalizing the story—the facts are bad enough. What follows is a brief explanation of some of the key events, parties, claims, laws, lawsuits, and defenses that likely will be at play in the litigation. We also address considerations associated with class-action certification, perspectives from the claims management side, and the potential for early resolution.

Before the city of Flint had problems with lead in its water, it purchased water from the Detroit Water and Sewerage Department (DWSD). Under development, however, was an alternate and less expensive water distribution source from Lake Huron operated by the Karegnondi Water Authority (KWA). The KWA was planned for several years and was incorporated in 2010 by Flint and others. However, the KWA’s water distribution system was incomplete.

On Nov. 29, 2011, Flint became the fourth Michigan city to be brought under the control of an emergency manager. The law gave the emergency manager complete authority and control over decisions made on behalf of Flint. In April 2013, the state treasurer authorized the emergency manager to enter into a contract with the KWA. The DWSD tried to retain Flint as a customer, but negotiations failed. That same month, the DWSD sent Flint a letter terminating its water service contract, effective April 2014, which meant that Flint had to find an alternative water source until the KWA distribution system was complete. The interim water source would be the Flint River.

Central to the Flint water crisis is the Lead and Copper Rule (LCR). Old water lines can contain lead and copper, which can leach out of the pipes if the water is corrosive. Corrosion protection often is provided through the use of water treatment additives such as phosphates. Importantly, the corrosion protection takes time to develop or erode. As a result, changes to water chemistry are not immediately apparent in their effect on water quality or how it will impact the water service lines.

The LCR was developed to minimize risks associated with lead and copper in drinking water. It requires corrosion control treatment unless the water system is deemed to have optimized corrosion control. The Michigan Department of Environmental Quality (MDEQ) took the erroneous position that Flint was subject to an exception to corrosion control treatment found within the LCR. 40 CFR 141.81(b) provides exceptions for corrosion control treatment to which Flint would not have qualified because it did not maintain treatment after switching water supplies. The MDEQ also allegedly used sampling methods that falsely showed lower levels of lead than what actually existed.

Summary of Underlying Facts

Prior to Flint sourcing its water from the Flint River, MDEQ staff and staff of Flint’s utilities department privately expressed concern in emails about the quality of water from the Flint River and the unpreparedness of the Flint’s water treatment plant to provide safe water. Nonetheless, the Flint emergency manager went ahead and switched to the Flint River for its water supply.

On Jan. 12, 2015, in response to water quality concerns, the state provided bottled water to its state offices in Flint. State employees were given the option to use bottled water, and bottled water was provided to visitors. The optics of these actions communicated a private concern by one or more state officials that apparently was at odds with the public message.

Between late February and April 2015, numerous complaints relating to water quality were made. According to media reports, Flint resident LeeAnne Walters contacted the Environmental Protection Agency (EPA) to report drinking water in her home that contained lead at 104 parts per billion (ppb). Under the LCR, there is an action level for lead if 10 percent of the samples exceed 15 ppb. Even if Flint had qualified for the exception, an exceedance of the action level threshold would have required additional steps to be taken to control corrosion.

The EPA began to suspect that Flint River water chemistry was leaching metal from the pipes, which prompted EPA staff to email MDEQ staff and ask whether appropriate corrosion control was in place at the city’s water treatment plant. The EPA also began to suspect that the lead results were biased low because they were collected after water was flushed through the taps. On Aug. 27, 2015, Virginia Tech University Professor Marc Edwards released his first set of findings regarding test results of Flint tap water. Over half of the 48 samples were reported to have lead levels of more than five ppb, and 30 percent of samples had lead levels greater than 15 ppb. On Aug. 31, 2015, the EPA and MDEQ discussed the second six-month monitoring results, which showed the 90th percentile of lead at 11 ppb (the top 10 percent was 11 ppb or higher). On Sept. 8, 2015, a water study’s results were posted on FlintWaterStudy.org that concluded, “Flint has a very serious lead in water problem,” and that Flint’s 90th percentile was 25 ppb. The difference in 90th percentile findings between these two reports provides support for the EPA’s theory that sampling techniques sanctioned by and relied upon by MDEQ staff were biasing the sample results.

On Sept. 24, 2015, Dr. Hanna-Attisha presented her findings at a press conference at Hurley Medical Center of unacceptably high lead levels in the blood of children residing in Flint. Four days later, Michigan Department of Health and Human Services Director Nick Lyon called for an analysis of the blood lead levels in order to “make a strong statement with a demonstration of proof that the blood lead levels reported were not out of the ordinary.” On Sept. 29, 2015, the Detroit Free Press published an analysis of blood lead level tests and concluded that Dr. Hanna-Attisha’s analysis was correct. On Oct. 16, 2015, Flint switched back to DWSD as the source of its drinking water.

Findings and Litigation

The Flint Water Advisory Task Force was charged with determining what happened, why it occurred, and what is needed to prevent a reoccurrence in Flint or elsewhere in the state. It provided Governor Rick Snyder its final report on March 21, 2016. The report provides a summary of purported responsibility and concludes that the MDEQ bears primary responsibility for the water contamination in Flint because, in part, it:

  • Anticipated that the use of Flint water would be problematic but deferred to the state’s emergency manager’s decisions to proceed.
  • Misinterpreted the LCR by not requiring corrosion treatment.
  • Did not require appropriate sampling of tap water as mandated by the LCR and insisted on the accuracy of the erroneous data.
  • Reported incorrect or misleading information about Flint’s corrosion control to EPA.

Reportedly more than 70 lawsuits have been filed, which allege hundreds of millions in damages. One of these includes a class-action lawsuit filed in the U.S. District Court for the Eastern District of Michigan by lead plaintiff Angela McIntosh. The proposed class is “all persons who at any time between April 2014 and the date this action was filed who resided in homes connected to the city of Flint’s water system.” Typical claims include negligence, gross negligence, breach of contract, breach of warranty, nuisance, trespass, unjust enrichment, negligent and intentional infliction of emotional distress, and alleged violations of substantive and procedural due process. It is likely that many cases either will be consolidated for discovery or ultimate disposition.

In addition to bodily injury claims, there are claims for property damage. Homeowners are claiming that their appliances—including dishwashers, washing machines, and water heaters—have been damaged. Business owners have similar claims in addition to loss of use claims. It remains to be seen whether there will be any first-party coverage and then resulting subrogation litigation.

Criminally speaking, on April 20, 2016, Flint’s 67th District Court Judge Tracy L. Collier-Nix authorized charges against Mike Glasgow (Flint’s utilities administrator), Mike Prysby (MDEQ water engineer), and Stephen Busch (MDEQ water supervisor). The docket report lists the various charges against Prysby and Busch including misconduct in office, tampering with evidence, and violations of the Safe Drinking Water Act. Factual allegations supporting the Safe Drinking Water Act violations reportedly include telling residents to pre-flush their taps before taking water samples and removing test samples that should have been included in the 90th percentile analysis. In a live press conference held on April 20, 2016, Assistant Attorney General Bill Schuette stated that additional factual allegations include authorizing a permit for Flint’s water treatment plant even though they knew it could not provide safe water. He further stated, “The charges are only the beginning. There are more to come. I guarantee it.”

Where Does the Buck Stop?

Availability of defenses will depend in part on whether the person or entity sued is a governmental agency or employee. Michigan’s Governmental Tort Liability Act of 1986 affords immunity to governmental agencies engaged in the exercise of a governmental function. An exclusion to the rule is the proprietary function exception.

Government employees receive immunity if they are acting within the scope of their employment and are not determined to have been grossly negligent. Some individuals may be more likely than others to have their immunity stripped as a result of gross negligence. Governor Snyder and the heads of the various agencies are afforded absolute immunity as long as they are found to be acting within the scope of their authority.

Federal law allows for private entities that contract with the federal government to enjoy immunity under certain circumstances. A good example of this immunity can be found in Bennett, et al. v. MIS Corp., et al. However, Powers v. Peoples Community Hosp. Auth. is cited for the proposition that Michigan does not provide immunity to private contractors who contract with the state. As a result, private contractors such as Lockwood, Andrews, and Newnam will have to look elsewhere for their defenses. In addition to any legal defenses, there also may be contractual defenses. Any contracts that existed between government agencies or contractors and private entities likely contained clauses that shifted liability. Under Ambassador Baptist Church v. Seabreeze Heating & Cooling, there may be arguments that design professionals or engineers involved in the project bear responsibility if they affixed their seal to a set of plans that contained errors that contributed to the incident. Private contractors hired by state and local government may be responsible for holding the applicable governmental agency harmless or indemnifying them under the terms of their contracts.

Assessment of Class Certification Issues

Recent developments in federal and Michigan law relate to how a class is determined. A plaintiff must provide a class definition that allows the court to identify those people who fall within the class with objective evidence. Michigan courts recently have adopted this test in two opinions: Mich Ass’n of Chiropractors v. Blue Care and Duskin v. Dep’t of Human Servs.

A possible defense to class certification in environmental class-action lawsuits can include other potential sources of injury; people who fall within the class definition but are not injured; and evidence to disprove a presumptive allegation (for instance, diminution of property value). In the lead exposure arena, a confounder is an alternative source of exposure (such as lead in paint) that is a potential cause of high blood lead levels. With respect to Flint, defense investigation would include an evaluation of evidence offered by plaintiffs to support their class definition. Of critical importance will be an evaluation of proposed class members who did not sustain an injury and would not properly be included in a settlement class. The lack of injury may be due to not living in Flint during the time in question, not ingesting the water, or their specific supply of water not containing elevated levels of lead. If that were the case, then it may be difficult to certify the class as currently proposed.

From the perspective of private defendants, one of the first tasks for a claims professional overseeing a claim will be to evaluate the scope of services agreed and approved together with the contractually outlined limitations. Plaintiffs certainly will focus on the retrospective view, while defense evaluation will benefit from a thorough evaluation of any request for proposals, bid documents, stated scope of services, duties accepted or avoided, and any contract modifications.

With respect to the class-action litigation, the outcome of the motion for class certification is a large driver of value. If the class is certified, the plaintiffs feel as if they have the defendants over a barrel. If the motion is denied, only the named plaintiffs and any joined parties remain in the case. Denial of class certification may dramatically increase the transaction costs for plaintiffs. Defense counsel may be successful by frontloading the investigation and focusing on developing evidence that may be useful in defeating the motion for class certification.

All successful claims handling requires organization and good data. This is particularly the case when dealing with mass tort litigation and environmental class actions that result in large amounts of information. Written discovery with questionnaires or interrogatories likely will be used to determine the age, gender, and parental relationship of the children who were affected. Other members of the potential class may include women who were pregnant during the toxic exposure, their newborns, and the elderly.

The potential for neurological impairments will be difficult to discern. It may be useful to develop a baseline to determine how damages will be calculated. In some instances, it may be useful to compare pre-exposure standardized test scores against post-exposure test scores to establish or dispute any alleged cognitive impairment. As in most tort cases, much of the damages will rely on the opinions of retained experts by both the plaintiffs and defendants.

Potential Strategies for Early Resolution

Instead of the traditional class-action settlement in which claimants may receive a coupon or a small monetary award, the Flint water crisis likely will require alternative settlement methods. In this unique scenario, the claimants may be better served if a fund is established to assist in ongoing needs, such as monitoring blood lead levels, IQ testing, tutoring, social work, nutritional support, and the like.

If risk assessment determines that an admission of liability is appropriate and damages are in excess of policy limits, it may be possible to tender the policy into an oversight fund to reduce litigation costs. This would be appropriate only if a defense no longer is needed. Early resolution may be difficult given the number of lawsuits, the jostling among plaintiffs’ counsel for a leadership role in the suits, varying degrees of culpability among the various defendants, and individual variation of potential damages.

The Flint water crisis demonstrates a unique but dramatic failure by Michigan state and local government to provide and manage safe drinking water to one of its largest population centers. Litigation will be complex and expensive given the multitude of plaintiffs with varying levels of injury and the many defendants with varying levels of culpability. It remains to be seen whether the defendants will develop a method to offer relatively swift relief to those who wish to resolve their claims short of trial.

 



Richard Baron is a founding partner at CLM Member Firm Foley, Baron, Metzger & Juip PLLC. He also serves as co-chair of CLM’s Environmental and Toxic Tort Committee. He can be reached at rbaron@fbmjlaw.com.

Ben Fruchey is a senior associate at CLM Member Firm Foley, Baron, Metzger & Juip PLLC. He can be reached at bfruchey@fbmjlaw.com.

Elizabeth Goutman is an attorney and technical claims consultant at Amerisure Mutual Insurance Company. She has been a CLM Fellow since 2015 and can be reached at egoutman@amerisure.com.

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