Are Smart Meters Causing Fires?

Smart Meters are high tech devices being installed by utility companies to provide two-way wireless transmittal of information to and from a utility to track energy use more accurately and to enable utility companies to monitor power distribution load and usage and to remotely shut off electricity. While there have been some concerns regarding privacy and the fear of what utility companies will do with the information, the reports of fires in several states have raised a whole new level of concern.

The Pennsylvania Public Utility Commission is investigating reports of fires caused by the new meters. The Maryland Public Service Commission held a hearing on Tuesday, August 28 based upon reports of the fires in Pennsylvania. There have also been reports of fires in California.

According to a paper published in July 2010 by Cindy Sage of Sage Associates and James J. Biergiel, EMF Electrical Consultant, the new meters may be contributing to electrical fires where there is a weak spot such as older wiring, undersized neutrals for the electric load, poor grounding, or use of aluminum conductors. The use of Smart Meters according to the authors places an entirely new and significantly increased burden on existing electrical wiring because of the very short, very high intensity wireless emissions (radio frequency bursts) that the meters produce to signal the utility about energy uses. According to the authors, the typical gauge electrical wiring that provides electricity to buildings (60 Hz power) is not constructed or intended to carry high frequency harmonics that are increasingly present on normal electrical wiring. The exponential increase in use of appliances, variable speed motors, office and computer equipment and wireless technologies has greatly increased these harmonics in community electrical grids and the buildings they serve with electricity. Harmonics are high frequencies than 60 Hz that carry more energy, and ride along on the electrical wiring in bursts. Radio frequency (RF) is an unattended by product of this electrical wiring according to the paper.

The manufacturer of the meters, Sensus Metering Systems, Inc., has denied that there is any problem with the approximate 10,000,000 meters it has installed nationwide. The company maintains that it has investigated reported failures of its meters and “in all cases, it was determined that the meters were not the cause of the problem.”

All of us involved in Subrogation should closely follow what is happening with the investigation of the potential for Smart Meters to cause electrical fires and make sure that our investigators are up to date on what is happening around the country with Smart Meters.

Pennsylvania Rejects Independent Action for Negligent Spoliation

The Pennsylvania Supreme Court recently joined “the overwhelming majority” of states that have declined to recognize a separate cause of action in tort for negligent spoliation of evidence. In Pyeritz v. Commonwealth of Pennsylvania, __ Pa. __, 32 A.2d 687 (2011), the Court held that “Pennsylvania law does not recognize a cause of action for negligent spoliation of evidence.” The case involved a suit against the Commonwealth for the actions of the Pennsylvania State police. Daniel Pyeritz was found dead at the base of a tree while hunting. He was alone and there were no witnesses. The remains of a black nylon belt were found 15 feet up in a tree stand. The Trooper in charge of the investigation into the death took the two pieces of belt as evidence and logged them into evidence.

The estate retained a lawyer to investigate a civil suit. Counsel wrote to the Trooper and asked if the evidence could be retained for the indefinite future, even after the coroner’s inquest, if able to do so. After the inquest finding an avoidable accidental death, counsel requested that the state police retain the evidence and the Trooper agreed. About 7 months later, the evidence was relocated when the state police barracks was moved. The Trooper in charge had been re-assigned to another post before the evidence was moved. The new Troopers, unaware of the communications between counsel and the original Trooper, authorized the destruction of the evidence. All that remained were some photographs and two envelopes with names of two tree stand belt manufacturers written on them.

The estate filed and then settled for $200,000 an action against the two tree stand belt manufacturers. The estate also filed an action against the Commonwealth in negligence for failure to preserve the evidence. The trial court granted summary judgment for the Commonwealth and the intermediate appellate court affirmed. The Pennsylvania Supreme Court recognized that the duty element in negligence required the Court to make a policy judgment whether it is in the public interest to impose damages for failure to conform conduct to a particular standard. The Court held “that as a matter of public policy, this is not a harm against which [a party] should be responsible to protect.” The primary reason relied upon by the Court was that such a cause of action would potentially allow liability where, due to the absence of evidence, it is impossible to determine whether the underlying litigation would have been successful. The Court noted that there were protections already in place to encourage the preservation of evidence and imposing tort liability would involve financial burdens that outweighed the benefit to encourage preservation. The overall public interest favored rejection of a tort based on speculation, the possibility of litigation proliferation, and one whose benefit was already sufficiently protected under existing law.

Last In First Out: Priority of Recovery for Insurers in Missouri

Although issues between primary and excess carriers regarding who is entitled to what in a subrogation recovery do not arise often, when they do they can involve substantial sums and interesting issues. Last fall the United States Court of Appeals for the Eighth Circuit addressed such issues under Missouri law. The underlying case involved an explosion in 1999 that caused $452 million in total losses. The incident raised issues relating to coverage, damages, allocation between insured and uninsured losses, and priority of recovery between primary and excess carriers. Travelers Property Casualty Ins. Co. v. National Union Ins. Co., 621 F.3d 697 (8th Cir. 2010).

The insured had $200,000,000 in primary coverage and $100,000,000 in excess coverage. It submitted a claim of $285,000,000 to its insurers and claimed significant uninsured losses not covered by its policies. After the explosion, the insured invited the insurers to discuss potential litigation against third parties and the allocation of litigation expenses and recoveries, including its independent claims for uninsured losses. The excess insurer declined to participate as it was not clear that the loss would exceed the primary layer. The insured and the primary carrier entered into an allocation agreement for recoveries and expenses between them at 45% - 55% respectively. The insured invited the excess carrier to join the agreement after it was signed. The excess carrier declined.

Two suits were pursued: one by the insured against the primary carrier on the amount of damage covered by the primary policy and a subrogation action pursuant to the allocation agreement. One defendant in the subrogation action settled for $126,000,000 and the proceeds were split according to the agreement. The case went to trial against the remaining defendant and the jury returned a verdict of $452,000,000 in total damages. After appeal, the defendant was responsible for $97,000,000. After rulings by the trial court in the coverage litigation, the primary carrier paid its $200,000,000 limit, and the excess insurer agreed to pay $10,000,000 to the insured to resolve the coverage suit. In a settlement agreement the parties reserved issues regarding the excess insurer's subrogation rights due to the pendency of the appeal of the subrogation verdict. After the appeal of that action was decided, the excess carrier sough recovery of its $10,000,000 in federal district court. After rulings on motions for summary judgment were appealed, the Eighth Circuit issued its opinion.

The Court ruled that the excess carrier was entitled to a priority interest in the subrogation proceeds representing insured losses. The excess carrier waived any right to contest the insured's designation of its own recovery as uninsured losses for failing to participate and allowing the insured and primary carrier to incur expenses in pursuit of recoveries. The excess carrier therefore had no priority against the insured to recover uninsured losses under state law or the insurance policy. The excess policy, however, clearly provided it priority in the subrogation provision. The subrogation provision in the primary policy was, at best, silent on the issue. The Court specifically acknowledged that the result under the policies was consistent with the recognized industry practice of "last in first out" for pure excess insures. That practice recognizes the realities of the risks bargained for and premiums received.

This opinion is a good place to start when dealing with issues relating to primary and excess disputes on subrogation recoveries.