Insurance companies concerned about wildfire liability limits for North Dakota utilities

The insurance industry pushed back on a bill that would limit the reach of potential lawsuits against North Dakota power companies when their electric lines cause wildfires.

State Sen. Greg Kessel, R-Belfield, introduced Senate Bill 2339 to the House Energy and Natural Resources Committee on Thursday. It would allow electric utilities to submit wildfire mitigation plans either to regulators or their board of directors, depending on the utility's corporate structure. In exchange, the plans would be taken as evidence in court that a company "exercised a reasonable standard of care" to prevent a fire, granted that there is compliance with the plan.

It passed through the state Senate 45-1-1 and without opposing testimony during the bill's Senate committee hearing.

The bill comes following destructive and deadly wildfires over the past few years in western North Dakota. Last October, drought and wind gusts reaching as high as 80 mph in the northwest portion of the state resulted in the spread of multiple wildfires that officials referred to as "record-breaking." In all, more than 118,000 acres of land burned, resulting in millions of dollars in damages and two people dead.

As spring approaches, much of the state remains in drought conditions. First responders have already had to deal with some fires.

A report from the state Fire Marshal's Office attributed the cause of the fire that killed two men last fall to a downed power line; another report came back inconclusive, though a utility pole was unable to be ruled out as the cause. Two of the fires were found to have been caused by flaring of excess natural gas at oil wells, an industry practice done when there is not enough infrastructure in place to move or use the gas that rises, and companies do not decrease oil output.

Those were the only fires the Fire Marshal's Office was called to investigate. Some federal fire investigations are ongoing.

Similar bills have popped up in a number of states across the western U.S. as insurance and credit has become more difficult to access for utility companies in the wake of wildfires and related lawsuits. In California, the utility company Pacific Gas and Electric went bankrupt a few years ago after settling for $13.5 billion with wildfire victims.

Kessel said that the goal of the bill is to encourage greater wildfire mitigation efforts from power companies, while protecting them from liabilities that they may face during incidents that are out of their control. He said by guarding against utility bankruptcy, the bill would protect ratepayers, too.

"If (utilities are) negligent, they're going to be held liable," he said.

Kessel developed the bill by speaking with utility companies, he said. Representatives for multiple state utilities spoke to their ongoing efforts to mitigate wildfires.

The bill also received the support of state Fire Marshal Doug Nelson.

"Where we settled into was, 'This seems like a good step forward,'" he said.

Dennis Pathroff, a lobbyist for investor-owned utility companies MDU, Otter Tail Power and Xcel, said that courts have already found power companies do not have "strict liability" for damages from their lines. That means if a utility company is not negligent or intentionally harmful, it cannot be held liable for damages. The judicial findings make this legal interpretation "common law," he said.

"We're not making a change to the existing law, we're codifying existing law ... (but) say the (North Dakota) Supreme Court gets some new justices on the bench, and they can then say, 'strict liability' applies, that would be to the utilities' detriment," he said.

But representatives from the insurance industry said the bill, as written, would give power companies too much leeway to avoid responsibility for damages.

"The utilities are getting legal protections that are not available to almost any other business entity in the state," said Phillip Arnzen, the Midwest vice president for the National Association of Mutual Insurance Companies (NAMIC).

"Someone ultimately has to pay the costs," he added in testimony.

NAMIC proposed multiple changes to the law including language that would make submitting a plan mandatory and for the bill to require a new plan every year instead of every three. The proposed amendments also point to the specific industry standards that companies must follow to qualify for liability limits. Arnzen said NAMIC's members still would not be "thrilled" with the bill if the amendments are included, but said the changes represent a compromise.

"If they get that decreased liability, they should have a much higher standard," he said.

John Ward, a lobbyist with State Farm Insurance, disagreed with Pathroff's interpretation of case law. He argued that the court has found questions on "strict liability" falls to the state Legislature. Still, he said State Farm would see the bill as acceptable if NAMIC's amendments are added.

"We're probably going to have some other concerns with ideas that (utilities are) going to be bringing in upcoming sessions to further limit their liability," he said.

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