The Forest for the Trees: Habitat Equivalency Analyses as an Innovative Basis for the Compensation of Wildfire Victims

By Calder Marchman

As the effects of climate change become more pronounced, the potential for extreme ecological disasters becomes more commonplace. For California residents, the threat of wildfires looms all too familiar in the dry months of summer and early fall. Despite the “wild” label, many of these fires are caused by human negligence. In fact, a recent audit found that six of the twenty most destructive wildfires in California since 2015 were caused by poorly maintained electrical infrastructure, including the 2018 Camp Fire that destroyed the town of Paradise and remains the single most deadly and destructive fire in the state’s history. Those affected by these fires face a difficult road to recovery, and these difficulties will likely only compound as insurance companies begin to limit coverage or withdraw from the state entirely.

A potential path victims of wildfires can take to get compensation for property damage suffered as a result of human-caused fires is to sue the entity that started the fire. Oftentimes this is a power company, such as PG&E, who is already defending a lawsuit for $225 million due to its role in starting the 2021 Dixie Fire. Historically, lawsuits such as these have been subject to a tough dilemma at the outset; whether to pursue the costs of rehabilitating the land damaged by the fires or to calculate the damages based on the quantifiable diminution in property values due to the fires. Both approaches have their pros and cons, but a new option, conducting a Habitat Equivalency Analysis, is showing promise as a means to compensate property owners for both the costs of remediation and the reduced enjoyment of property suffered in the aftermath of a wildfire.

Damages for Cost of Repair versus Diminution in Value

Traditionally, courts have the option to award successful plaintiffs either the reasonable costs of bringing a property back to the condition it was in before it was damaged, or to award the difference in fair market value between the property in its damaged state versus the fair market value of the property as it was before it was damaged. Salazar v. Matejcek, (2016) 245 Cal.App.4th 634, 643-644. While not an explicit rule, the usual standard is that the court will grant whichever is the lesser of those two values, which can leave even plaintiffs who win their cases with out-of-pocket expenses.

One of the more famous examples of these damage metrics falling short of providing relief for landowners is Peevyhouse v. Garland Coal & Min. Co., (1962) 382 P.2d 109. In this Oklahoma State Supreme Court case, a farmer entered into a contract with a mining company to lease a portion of his land containing a creek for mineral excavation. Id. at 111. Because the farmer respected the natural ecology of the area, he only agreed to the lease in exchange for the mining company’s promise to perform remedial work to undo any environmental damage done by the mining process at the end of the lease. Id. at 115.At the end of the lease period, the mining company refused to do the remedial work it had promised to perform in the contract, prompting the farmer to sue the mining company. Id. at 112.

In the trial court, the farmer introduced evidence that the remedial work to undo the damage done by the mining company, i.e. moving thousands of cubic yards worth of displaced soil, would cost $29,000. Id. The mining company did not deny that it failed to perform the work promised in the contract, but instead submitted its own evidence that the property’s fair market value would only be increased by about $300 if the work were performed. Id. The jury was somewhat sympathetic to the farmer’s situation and awarded him $5,000, but that verdict was overturned by the Supreme Court of Oklahoma on appeal, who reduced the damages all the way down to the $300 amount put forward by the mining company on the premise that actually performing the remedial work to restore the creek would be economically wasteful. Id. at 114.

This case illustrates a classic danger that meritorious plaintiffs face when attempting to recover for ecological harm done to their land or homes. Even in situations where defendants do not deny causing damage to plaintiffs’ property, they can still attempt to minimize their exposure to liability by arguing in favor of whatever measure happens to be the lowest possible metric for relief in order to drastically limit plaintiffs’ potential recoveries.

Habitat Equivalency Analysis Damages

To combat this issue, plaintiffs’ lawyers are adopting a new tactic by incorporating a Habitat Equivalency Analysis (“HEA”) into their damage calculations. HEA were originally developed to provide governmental organizations with a more complete picture of the cascading effects of ecological damage and are gaining traction in the legal field for the same reason. A paper published by the National Oceanic and Atmospheric Administration outlines the three main considerations of a HEA:

• 1) the cost of restoring natural resources that have been damaged;
• 2) appropriate compensation for the loss of use of the damaged resources from the time of loss until the time those resources have been sufficiently restored; and
• 3) the reasonable costs of conducting the HEA.

It is unsurprising then, that the HEA has become an attractive option to plaintiffs who are attempting to repair damage done to their land and cannot properly enjoy their property until it is repaired. By accounting for both the cost of repair and the diminution in value that can follow a catastrophic loss, a HEA avoids many of the pitfalls of the traditional either-or-but-not-both approach.

In United States v. Union Pac. R.R. Co., the federal government sued a railroad in the Eastern District of California for starting the 2000 Storrie Fire during track repairs. (2008) 565 F.Supp.2d 1136, 1138. The railroad took the same position as the mining company in Peevyhouse; admitting that it was the cause of the damage but arguing that the diminution in value to the land should be the only measure of damages owed. Id. at 1142. The court outright rejected the railroad’s contention, reasoning that to limit recovery to only one metric would fail to properly compensate a plaintiff for the total scope of the damage suffered in the fire. Id. at 1143. Instead, the court decided that a HEA that ascribed $13 million in compensation for the loss of public use of the forest during the time it took to restore the habitat was reasonable and appropriate given the considerable ecological damage caused by the fire. Id. at 1152.

This case illustrates that using HEA is not only viable in legal arguments but provides a crucial measure of relief for those who have lost the ability to fully enjoy their property in the wake of a wildfire.

Conclusion

Wildfire victims are already suffering unimaginable hardships, oftentimes having lost their homes, pets, and even loved ones in these increasingly common calamities. To fully compensate them when it matters most, Habitat Equivalency Analyses serve as vital tools to force accountability for all property damage caused by negligent fire starters.

At Arns Davis Law, we have significant experience in using these types of cutting-edge strategies to ensure fair recoveries on behalf of our clients. If you are in the unfortunate position of having to fight a corporation to try and rebuild your life after a catastrophic injury, you can trust the team of experienced litigators at Arns Davis to do everything in their power to help you recover.