Electricity-Caused Wildland Fires: Costs, Social Fairness, and Proposed Solution
The Workers’ Compensation Model
by Vytenis Babrauskas (excerpt)
…It is proposed that the best way forward would be to adopt some of the features of Workers’ Compensation. This is, effectively, a mandatory no-fault insurance concept and it eliminates tort litigation. Tort law used to be utilized at length by workers litigating against their employers for workplace injury. The Workers’ Compensation system operates in all US states and in many foreign countries. One of the main features of this system was to abolish the right of workers to make tort claims against their employers [79].
During the late 1800s and the early 1900s, many countries, along with all of the states in the US adopted a scheme for Workers’ Compensation (WC). The primary features of these were the following [80]:
(a) accident prevention;
(b) no-fault compensation;
(c) collective employer liability;
(d) industry funding;
(e) universal coverage;
(f) administrative adjudication.
Some of the features of workers’ compensation programs pertain to the unique relationship between an employer and their employees. Here, we are concerned with the losses sustained primarily by homeowners, who do not have a daily relationship with another party in the context of wildfire losses. Thus, we will focus on those aspects of WC which can have direct relevance. The ones which can be directly transposed to the present situation are as follows:
• no-fault compensation;
• universal coverage;
• administrative adjudication (as contrasted to civil litigation).
Two of the reasons for instituting WC programs to replace recovery via tort litigation were as follows [81]:
(1) “The court awards or settlements often bore little relationship to the losses sustained. The awards were greatly influenced by the effectiveness of the lawyer representing the employee, the effectiveness of the employee and his or her witnesses on the witness stand, and the attitudes of the judge and the jury”;
(2) System inefficiencies due to attorney fees and other legal costs.
It may be noted that, in the present system of civil litigation by victims of wildfire cases, lawyer fees are likely to be in the range of 30–40% of the total amount awarded. This surely is inefficient if viewed from the viewpoint of any part of society other than the attorneys. In addition, under the present system, sizable funds are expended to defend the utility companies against tort claims. The costs are hard to quantify, but they may be 10–15% of the awards/settlements. Adding this to the prior percentage means that there is close to a 50% overhead which represents the legal costs of maintaining the tort system.
The salient feature of WC programs is that they are the exclusive remedy for injured workers. In other words, the system explicitly removes the possibility of employees suing their employers for their losses. This, of course, is what makes the system work from a societal perspective. There would certainly be no societal fairness achieved if the employees were allowed to doubly recover from the WC system and via tort liability litigation.
One important aspect of WC programs, in contrast to recoveries under tort liability litigation, is that these programs do not cover indirect losses. In the context of wildfire losses, indirect losses might include a wide range of claims, notably ‘pain and suffering’. In terms of damages to land, in some cases, extreme claims have been recompensed under the tort system. For example, a farmer might claim the total value of burned timber, even though this sum would be vastly greater than what a realistically assessed value of the whole property would have been prior to the fire. A WC-type system would eliminate such transfers of wealth.
WC systems are primarily funded by levies on employers. Here, of course, the analogy does not carry over. If a WC-analogous system were adopted for wildfire losses, one of the main social objectives would be to cover all categories of fires, not limited to just those caused by electrical utilities. Thus, it would seem appropriate to derive the funding from general state tax funds.
One important aspect of WC programs is that they constitute a baseline compensation system, not a mechanism to restore every aspect of the worker’s prior enjoyment. The general societal objective is to rescue the victims from a dire situation, not to “make them whole.” The latter is a feature of tort litigation and has been a primary feature of causing costs to escalate in a dramatic and uncontrolled manner. As can be seen from the phrase itself, it is an elastic concept lacking a rigorous definition.
In brief, the largest benefits of converting from a tort-based system to a no-fault system modeled after WC programs would be as follows:
(1) Ensuring that victims in a similar situation (e.g., burned out from a fire caused by powerlines versus caused by lightning strike) are treated and compensated similarly;
(2) Eliminating the inefficiencies of a large fraction of financial resources going into legal costs;
(3) Rectifying a situation where a massive wealth redistribution occurs in an unplanned and unintended manner.
Means to Ensure Utility Safe Practices
If the tort litigation potential were removed from wildfires, it might reasonably be asked if this would encourage unsafe practices by utilities. The best answer would seem to be to continue the practice of PUC inspections, monitoring, and fining for unsafe practices. But this is effectively a categorical answer to a modulated problem. What is still needed is a workable basis for benefit/cost evaluation. In other words, a mechanism needs to be found by which to rationally determine the amount and type of safety-related spending utilities Fire 2024, 7, 442 17 of 22 should be undertaking. Note that this would not be a new problem under a WC-analog system. The present system is exceptionally deficient in not having any metrics to establish what are cost-effective safety expenditures….
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Related: Electricity-Caused Wildland Fires: Costs, Social Fairness, and Proposed Solution