First Responder Fees: Insurers Should Expect to Pay More

The following article was published in the Insurance Journal on August 12, 2011:

First responder fees:  Insurers should expect to pay more

By Allan Ray and Marlin Zechman

While fee recovery by fire departments is nothing new, an increasing number of local municipalities have begun to charge for first responder, primarily fire department, services.

Though the types of fees and rates vary considerably, one thing is clear – the recovery of fees by first responders is here to stay and insurance companies will see those fees as part of routine claim submissions.

Early Evidence

Early examples of first responders charging for services can be seen in the liability of land owners and occupants for the expense of fire suppression to extinguish fires originating on their land.

Owner and occupant liability for fire suppression charges is different than personal injury liability for such events created under common law and statutes.

Unlike personal injury liability, primarily embodied in the common law, liability for fire suppression costs has historically been statutorily based. Many state statutes authorize recovery of costs under a theory of strict liability, while other states require a showing of negligence in order to recover firefighter response costs.

During the 1970s, a new legal theory emerged regarding the collection of fees for emergency services known as the “free public services doctrine” or the “municipal cost recover rule”.

This doctrine is built on the notion that a governmental entity may not recover costs of public services incurred responding to a tortfeasor’s act. Instead, these costs are presumed to have already been borne by the public as a whole through taxation, and to allow the collection of such costs would constitute double recovery for the governmental entity.

The “free public services doctrine” has two major exceptions. First, “[a] municipal corporation may, however, avoid this non-recovery rule by statute.” Second, a governmental entity may recover emergency services costs “by alleging that the county utilized emergency services to protect property of its own.”

These exceptions, primarily exempted by statute, have largely eroded the free public services doctrine. Only eight states Arizona, Delaware, Hawaii, Iowa, Kansas, Maine, New York, and South Dakota – still adhere to the doctrine and have no statutory exemptions.

Legal Challenges

Despite the prevalence of statutes authorizing first responders to charge service fees, there are a number of legal challenges reflected in case law. Successful challenges have focused on lack of statutory authorization to charge a fee or noncompliance with statutorily prescribed procedures.

In Board of Supervisors of Fairfax County v. U.S. Home Corp., the defendants caused a gasoline leak and were charged for abatement and remediation costs. Defendants successfully defeated the costs on the grounds that there was no authorizing statute and the county did not invoke the emergency services to protect any property of its own.

Since this decision, Virginia has enacted subsequent legislation requiring responsible parties to contribute to a cleanup fund; thus, the case may now be moot under Virginia law. This case may still provide persuasive authority in states where there is no authorizing statute to charge for emergency services.

In another case in Massachusetts, American Commercial Financial Corp. v. Seneca Insurance Co., an insurer was charged $3,934 by a fire department for “fire watch” services after the sprinkler system in an insured’s building stopped working. The charges were not provided under contract and there were no town laws which revealed a “requirement that the fire department charge for administering a fire watch when a sprinkler system becomes inoperable.” As a result, the court held that the insurer was not responsible for these “fire watch” service charges.

Where there has been an authorizing statute for first responders to charge for services, there is only one successful challenge published. In Atwater Township Board of Trustees v. Welling, the Ohio Court of Appeals vacated a $600 fire department response charge to a heating oil tank spill, despite finding the fee “necessary and reasonable.”

The court found the fee impermissible because the township did not follow the procedures prescribed by the authorizing statute. The township also failed to certify its costs with the county prosecutor, and the county prosecutor further failed to make the required 30-day demand for payment prior to filing suit. Thus, the defendant was not liable for response costs.

This case stands for the proposition that authorized emergency service fees can be defeated if the procedures prescribed by the statute are not followed.

Other challenges have been less successful. In the same Ohio Court of Appeals seven years earlier, the reasonableness of emergency services fees charged from a fire department responding to an overturned diesel tanker were discussed in Knox County Local Emergency Planning Commission v. Santmyer Oil Co.

In addition to the unreasonableness of the fees, the defendant contended the fees were not based on a detailed record and were unrelated to actual costs of cleanup.

Except for the administrative fee, the court found the remainder of the costs reasonable. The 15 percent administrative fee, which covered training costs, was deemed unreasonable because the court found that it bore no relationship to the “necessary and reasonable, additional or extraordinary costs” collectible under the statute. However, the court found the $6.50 per volunteer man hour reasonable because it covered labor, benefits and insurance costs.

In Rizzo v. City of Philadelphia, a group of taxpayers challenged the city’s practice of charging a fee for emergency medical services provided by the city’s fire department. The challenge hinged on whether the fees were revenue producing, an impermissible tax, or were merely meant to reimburse the municipality for its administrative and regulatory costs in providing a service, which would be permissible.

In drawing this distinction, the court announced “the crucial factor in determining whether a municipal charge for services constitutes a valid regulatory fee is whether the charge is intended to cover the cost of administering a regulatory scheme or providing a service.”

The court found the EMS fees to meet this requirement and the taxpayers’ challenge was dismissed. This case could stand for the proposition that fees in excess of costs incurred for administering a service may be held to be invalid.

Collectively, case law seems to present the general principle that – where a fee is authorized by statute, issued pursuant to statutory prescription, and proportional to the cost of the service rendered – it will be upheld.

A fee may be defeated where there is a lack of detail in the billing, no clear statutory authorization, disproportional charges, and where statutory procedure is not followed.

Any challenge’s validity hinges on the presence, language and directives of the statute. It is imperative to examine the state, county or local specific statutory authority before coming to a conclusion in applying the general principles.

Current Trends

Over the past 15 years, first responder fees were primarily limited to incidents involving releases of hazardous materials or other non-hazardous spills. First responders often mitigate the ultimate damages incurred by the responsible party through quick response and containment of the spilled material, not to mention, in the case of hazardous material releases, providing protection to the public at large.

Often, the services and related fees reduced the total damage exposure and were well worth the cost. As with any “service” fee, situations may arise where fees billed are considerably higher or inconsistent with the services provided. More recently, emergency response billing fees may include fire departments, ambulance and paramedic, police and local emergency management official services.

One noticeable trend is the billing of nonresidents for emergency response fees.

California appears to be leading the nation in passing statues and ordinances to bill nonresidents. The rationale is that non-residents do not pay taxes to support the local first responder budget, thus, if the non-resident is unfortunate enough to be involved in an incident requiring a fire department response in a jurisdiction with an applicable statute or ordinance, then that non-resident will be charged for the response.

Though cities nationwide have implemented nonresident first responder fees, at least 10 states have outlawed them. States that do not allow nonresident fees include: Alabama, Arkansas, Florida, Georgia, Indiana, Louisiana, Missouri, Oklahoma, Pennsylvania and Tennessee.

As case law and the exception to the free public services doctrine illustrate, there must be a statutory authorization in order for first responders to charge for their services.

Statutes authorizing first responder fees are far from uniform among the states.

Sixteen states authorizing charges only for hazardous cleanups are Alaska, Connecticut, Idaho, Maryland, Massachusetts, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, and Tennessee. Ohio allows the responsible party’s taxpayer status to be accounted for in the billing.

General authorization allowing fire departments to charge for services is provided by statute in Alabama, Arkansas, Florida, Illinois, Louisiana, Michigan, Minnesota, Mississippi, Oklahoma, South Carolina, Texas, Utah, Vermont, and West Virginia. Kentucky allows different response costs to be assessed against resident and nonresidents.

Six states – California, Georgia, Virginia, Washington, Wisconsin, and Wyoming – have general statutes which allow the municipality, rather than the emergency response department, to recover costs incurred in responding to emergencies or abating nuisances.

As a result of the growing number of state statutes addressing this issue, insureds and their insurers can expect to see more bills for first responder services.

Claim professionals should keep abreast of state and local governmental statutory developments to assure permissibility of fees and to challenge those that appear excessive.

Find this article here:  http://www.insurancejournal.com/news/national/2011/08/12/210705.htm