Presentation by David Lincoln Ader
Comments by Stewart H. Diamond

DAVID LINCOLN ADER was a partner for many years in the Chicago law firm of ANCEL, GLINK, DIAMOND, BUSH, DICIANNI & KRAFTHEFER, P.C, and now serves as counsel to the firm. He received his law degree (J.D.) from the Northwestern University School of Law and his undergraduate (B.S.) degree from the University of Illinois. Mr. Ader has written, taught and spoken on a variety of legal topics, including insurance and self-insurance, to groups both within and outside of the legal profession. One of his articles was the first-place winner in the Illinois State Bar Association's Lincoln Legal Writing Contest. Mr. Ader has served in various governmental and quasi-judicial positions, and has been a professor of law, teaching at the Northern Illinois University School of Law, and at the Valparaiso University School of Law. Mr. Ader advises the boards of several governmental self-insurance pools that provide primary and excess tort coverage and health coverage. He has litigated contract and statutory construction issues in many different trial and appellate courts, as well as defended a variety of tort actions. Additionally, he has served as counsel to governmental bodies and their legal officers.

STEWART H. DIAMOND is a senior partner in the Chicago law firm of ANCEL, GLINK, DIAMOND, BUSH, DICIANNI & KRAFTHEFER, P.C. He was educated at the University of Chicago and Oxford University, England. He is the author of numerous pamphlets and articles on governmental law, and is the editor of the multi-volume IICLE Handbooks on Municipal Law and School Law. Mr. Diamond has taught Local Government Law at Northwestern University Law School and has lectured at many state and national conventions of governmental associations. He and his firm pioneered governmental self-insurance in Illinois and have helped to organize a large number of intergovernmental pools. His firm serves as corporate, defense and loss prevention counsel to many liability, property, workers compensation and health pools, as well as to governments self-insuring individually.

Mr. Diamond and Mr. Ader are available, as are other members of their firm, to consult with pools and self-insuring governments across the country, regarding all aspects of initiation or formation, operation and defense, and to act as advisors or counsel in trial and appellate litigation.

I. The Fundamental Purpose of Risk Pooling.

The fundamental purpose of risk pooling is not unlike that of conventional insurance. The essentials of how they each function is not much different. They are both devices for risk sharing and the spreading among those covered of pecuniary losses suffered from the future materialization of risks. The concepts of insurance and risk pooling can only make sense when the pecuniary losses provided against, result from matters that were risks which were basically outside of the control of the members and were not expected to occur.

[T]he purpose of insurance is to protect insureds against unknown risks.

Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d. 56, 63 (3rd. Cir. 1982).

Implicit in the concept of insurance is that the loss occur as a result of a fortuitous event, not one planned, intended, or anticipated. Without a transfer of risk, an essential element of the insurance contract is missing. The risk must involve the possibility of real loss which neither the insured nor the insurer has the power to avert or hasten.

Couch on Insurance, 3rd, §§101:1, 101:2.

Most pools, during the period of coverage, cover as an "occurrence" an event (whether called an "accident" or not) that results in personal injury or property damage which was neither expected nor intended from the standpoint of the pool member. Among those things that constitute a "personal injury" covered by the pool are wrongful entry or eviction, or other invasion of the right of private occupancy; acts held to be wrongful under Section 1981 or 1983 of the federal Civil Rights Act; discrimination based upon race, religion, nationality, national origin, color, creed, sex or age; false arrest, detention or imprisonment; malicious prosecution; and assault and battery. Among the things that constitute "property damage" are usually physical injury to or destruction of tangible property.

Most pool coverage documents, however, contain language similar to the following as part of the pool's exclusions: "This coverage does not apply: To liability arising out of or in any way connected with the operation of the principals of eminent domain, condemnation proceedings, or inverse condemnation, by whatever name called, whether such liability accrues directly against the Member or under a Benefitting Contract.

Given the fundamental purpose and operation of a risk pool and the usual terms of coverage and exclusion in the pool's coverage documents, the question addressed is should governmental risk pools modify their respective coverage documents to cover payments made by a member resulting from a claim or judgment related to a "regulatory taking?"

II. The United States Constitution and the Constitutions of the Several States Distinguish Between Depriving a Person of Property and Taking a Person's Property.

A. Constitutional Distinction Between a Deprivation and a Taking.

The Fifth Amendment to the United States Constitution draws this distinction as follows:

No person shall . . . be deprived of life, liberty or property, without due process of law, nor shall private property be taken for public use, without just compensation.

U.S. CONST., amend. V (emphasis added).

The Illinois Constitution is an example of this distinction as seen in state constitutions. Section 2 of Article I:

No person shall be deprived of life, liberty or property, without due process of law, or be denied the equal protection of the laws,

IL CONST. of 1970, art. I, § 2 (emphasis added), addresses the deprivation while Section 15 of Article I of the Illinois Constitution addresses the taking of property:

Private property shall not be taken or damaged for public use without just compensation as provided by law. Such compensation shall be determined by a jury as provided by law,

IL CONST. of 1970, art. I, § 15 (emphasis added).

B. The Stated Constitutional Prerequisite to a Taking.

Public use should be recognized to be different from a general public benefit resulting from exercise of the police power.

1. "[T]o constitute a public use, something more than a mere benefit to the public must flow . . . . The public must be to some extent entitled to use or enjoy the property, not as a mere favor or by permission of the owner, but by right." Gaylord v. Sanitary Dist. of Chicago, 204 Ill. 576, 68 N.E. 522, 523 (1903). The police power seeks to provide public benefit without acquiring public use. A taking should only be found under the explicit language of the Constitution where the property is taken to be used by the public.

2. "Rights of property, like all other social and conventional rights, are subject to such reasonable limitations in their enjoyment, as shall prevent them from being injurious, and to such reasonable restraints and regulations established by law, as the legislature . . . may think necessary and expedient.*** It is not an appropriation of the property to a public use, but the restraint of an injurious private use by the owner, and is therefore not within the principle of property taken under the right of eminent domain." Commonwealth v. Alger, 61 Mass. (7 Cush.) 53 (1851).

C. Examples of the Distinction.

1. Controlling who, or under what circumstance or to what extent one, may contract is an exercise of the police power, a true regulation. Stepping into the shoes of one of the contracting parties and taking over as one's own that party's rights and benefits under the terms of the contract is a taking.

2. Limiting the height of buildings on another's land so that the airspace near the surface can be used for a flight path by the government or the public is a taking. Griggs v. County of Allegheny, Penn., 369 U.S. 84, 90 (1962) ('" [A]n adequate approach way is as necessary a part of an airport as is the ground on which the airstrip, itself, is constructed * * * .' Without the 'approach areas,' an airport is indeed not operable"); C.f., United States v. Causby, 328 U.S. 256, 267 (1946). Limiting the height of buildings for aesthetic reasons, to reduce density, to preserve light and air, etc., is an exercise of the police power. Penn Central Transp. Co. v. New York City, 438 U.S. 104, 130n. 27 (1978) ("[T]he fallacy of appellants' related contention [is] that a 'taking' must be found to have occurred whenever the land-use restriction may be characterized as imposing a 'servitude' on the claimant's parcel").

III. Deprivations of Property and Takings of Property Viewed Historically.

A. Deprivations of Property Historically.

Those deprivations of property consistent with due process are lawful. But, when the deprivation is without right (e.g., trespass), it is a civil wrong (e.g., tortious) or the commission of a constitutional tort (e.g., a civil rights violation made actionable by the federal Civil Rights Act); an impermissible exercise or application of the police power of property through deprivation is normally covered.

1. Regulations that cause a deprivation of property emanate from the exercise of the State's police power --- the government's power to regulate to protect and promote the public health, safety and welfare. Outside of those rare instances when government actions deprive one of his or her property directly because of an immediate threat to the public's health or safety (e.g., quarantine and destruction of sick animals and infected plants, demolition of unsafe buildings), the police power operates only to control a private person's actions in regard to his or her own use of his or her own private property. This power is normally employed to control other's actions in regard to their own property in order to benefit the public while leaving the use of the affected property in private hands.

2. To be proper, an exercise of the police power need only be consistent with the requirements of procedural due process and substantive constitutional guarantees. No payment of money is required. One of the due process requirements for a police power regulation is that there be a reasonable relationship between the object and effect of the regulation and the protection and promotion of the public health, safety and welfare.

3. A proper exercise of the police power can result in the destruction of property or in a radically diminished value of real estate without obligating the governmental unit to pay anything to the property owner. e.g., Hadacheck v. Sebastian, 239 U.S. 394 (1915). (in regard to a police power regulation that diminished the value of the property by 95%, the United States Supreme Court held: "[A]cts done in the proper exercise of governmental powers, and not directly encroaching upon private property, though their consequences may impair the use, are universally held not to be a taking . . ." ). Accord: Miller v. Schoene, 276 U.S. 272, 278 (1928), (holding that it was proper for a state entomologist to enter property and destroy diseased trees without payment of damages or compensation); Bowditch v. Boston, 101 U.S. 16, 18-19 (1880), (denying compensation to owners whose houses were destroyed to prevent spread of fire).

4. In all but the most extreme cases, which are rare, police power regulations are "facially" valid, and claims of invalidity arise only in the application of a particular police power regulation to a particular piece of property or situation. Normally any regulation that is contrary to constitutional authority or in excess of it should be void, and since what is void can have no effect, there should be no damage that is recognized by the law. This is probably the practical result in most states as a consequence of sovereign or statutory immunity. Nevertheless, since a violation of federal constitutional guarantees becomes actionable as a type of tort under the federal Civil Rights Act, if not remediable by a State tort proceeding, misuse of the police power can lead to the award of damages, and a pecuniary loss to a governmental unit that is a member of a risk pool. Improper acts by government that deprive a person of his property without due process of law are considered tortious and give rise to a claim for damages. e.g., Hudson v. Palmer, 468 U.S. 517, 532-37 (1981); Sinnisckson v. Johnson's, 17 N.J. Law Rpts. 126, 146-47 (1839) (citing an English decision that, "public officers acting under the authority of an act of Parliament, in repairing public streets, were not answerable for damages, unless they were guilty of an excess of jurisdiction . . .").

5. Because police power regulations have as their intended objective the control of other people's conduct in regard to their own property, because the judgment of the governmental body as to what is reasonably related to the protection and promotion of the public health, safety and welfare is generally valid on its face, and because invalidity is usually a matter of the regulations application to a particular piece of property or situation, and therefor ordinarily unforeseeable, damages that arise from an improper exercise of the police power are properly covered; they are a fortuitous event, not planned, intended or anticipated; a risk that governmental units constantly face and can neither avert nor hasten.

B. Takings In History.

1. Amounts paid as a result of a taking of property are probably universally excluded from pool coverage.

2. Power to take private property for a public use has been consistently held to be a governmental right inherent in sovereignty, pre-existing the Constitution. Mississippi & Rum River Boom Co. v. Patterson, 98 U.S. 403, 406 (1878). A taking of private property for public use, therefore, is never a wrong. Nevertheless, by constitutional requirement, the governmental unit must always pay just compensation for the private property that has been taken for the public's use. It was recognized very early on that payment of just compensation for a taking is an exchange of one pecuniary value for another equivalent one, a swap. Gardner v. Trustees of the Village of Newburgh, 2 Johnson Chancery (N.Y.) 162, 167, (1816) (Quoting, I Blackstone, Commentaries, 139) ("The public is now considered as an individual treating with an individual for an exchange. All that the legislature does is to obligate the owner to alienate his possessions for a reasonable price . . ."). It is analogous to a contractual purchase and sale of property. Because the exchange does not result in a pecuniary loss, there is no occasion for coverage.

3. Historically, a taking required an actual occupation of the private property or the transfer to the governmental unit of a recognized interest in the property as defined by the property law of the state, such as an easement or a riparian right. With more and more regulations, the courts have come to recognize that regulations can have the same de facto effect as a physical use and occupation of private property by the public. The courts have determined that where all of the economically viable uses of the property are rendered impossible by government regulation, just as they would be by a physical occupation of the property, the payment of just compensation is required. Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992). They have also determined that where a regulation has the same effect as an acquisition of a lesser interest in the property (e.g., a regulation prohibiting a property owner from excluding others from his property would act like an easement of access), the payment of just compensation is required. Kaiser Aetna v. United States, 444 U.S. 164, 173, 180 (1979). Also, a permit that rightfully should be issued to the owner of property under the exercise of the police power cannot be made the consideration exchanged for an interest in the property unless it is to offset an adverse effect on the public closely connected to the grant of the permit. Dolan v. City of Tigard, 512 U.S. 374, 395 (1994); Nollan v. California Coastal Comm'n, 483 U.S. 825, 831, 836-37 (1987).

4. Because the governmental unit that is seeking either to physically occupy and use the private property, or make a de facto acquisition by regulation, has, or must be assumed to have, a deliberate plan to do so, either reflected through formal proceedings in condemnation or the clear foreseeability of the practical result, takings cannot be accurately spoken of in terms of risk or as being without control of the pool member.

5. The improper exercise of the takings power, by failing to pay just compensation or by attempting to take for a private use, etc., have historically led to invalidity of the taking. The taking would have been beyond the constitutional jurisdiction and authority of the governmental unit and therefore void. Litchfield & M. Ry. Co. v. Alton & S.R.R., 305 Ill. 388, 137 N.E. 248, 251 (1922); South Park Comm'rs v. Montgomery Ward & Co., 248 Ill. 299, 93 N.E. 910, 912, 914 (1910). What is void can have no effect and therefore cannot cause injury in law or damage. Where there is no pecuniary loss there is nothing to be covered by the risk pool. Furthermore, such results must be considered the result of conscious decisions and actions within the control of the pool member and not properly regarded as merely a risk.

IV. The Constitutional Principles Regarding Takings are in Tumult and the Distinction between a Deprivation by Police Power Exercise and a Taking has become Blurred.

A. There is an active debate regarding what should be the basis of a finding of "taking." There are those who argue, like Professor Epstein of the University of Chicago, that all restrictions on private property that are not necessary to extinguish a common law nuisance are takings. This view can be called "Lockean Liberalism" after the philosophy of John Locke. Opposed to this view are those that argue that property rights are rooted in the community and takings claims for non-physical occupations are strongly circumscribed by the community's important needs. This view can be called "civic republicanism." This view is expressed by Benjamin Franklin: "Private property is a creature of society and is subject to the calls of that society." Those persons who share Professor Epstein's viewpoint would like to characterize normal police power regulations, such as height restrictions and setbacks, as servitudes and subject to just compensation. But, the fact remains that public benefit is not the same as the public use of property. Penn Central Transp. Co. v. New York City, 438 U.S. 104, 130n. 27 (1978).

B. There is also a larger constitutional debate going on as to what is the function of a written constitution. One group believes that a written constitution must be applied as written, and that it was written to give stability and certainty to the meaning of its provisions. Among this group would be those espousing original intent and the textualists, who would have the constitution construed as any written statute is. Opposed to this group are those who believe that a written constitution is merely a statement of philosophical first principles from which the law should expand to ever more liberal personal rights and protections. The Constitution's literal requirement of "use" by the public of the private property becomes lost. The issue as seen by some courts is no longer one of occupation and acquisition, or its regulatory equivalent, but has become one of financial values and the relative bearing of burdens.

C. There is at least one further force at work. Modern courts seem to have adopted the philosophy that there is no cost of citizenship in this imperfect world; rather, every adversity must be considered a remediable injury at law.

D. As a result of the tensions and interplays between these forces at work, there is no consistent way, let alone a bright line, by which a tortious deprivation of property can be distinguished from a lawful taking and exchange, except at their purest, outer boundaries.

The question of what constitutes a "taking" for the purposes of the Fifth Amendment has proved to be a problem of considerable difficulty . . . [T]his Court, quite simply, has been unable to develop any "set formula" for determining when "justice and fairness" require that economic injuries caused by public action be compensated by the government, rather than remain disproportionately concentrated on a few persons.

Penn Central Transp. Co. v. New York City, 438 U.S. 104, 123-24 (1978). Accord, Connolly v. Pension Benefit Guarantee Corp., 475 U.S. 211, 224 (1986) ("In evaluating whether governmental regulation of property constitutes a "taking' we have eschewed the development of any set formula . . . and have relied instead on ad hoc, factual inquiries into the circumstances of each particular case").

Professor Charles Haar has, for instance, suggested that the quest for the appropriate formula to distinguish police power regulations from regulatory takings is "the lawyer's equivalent of the physicist's hunt for the quark." One might note that the physicists have now found the quark but lawyers remain in the dark as to what the contours of a regulatory taking are.

V. Regardless of the Philosophical Tangles the Courts are in, To provide Appropriate Coverage, Risk Pools Need Only Remain Consistent With Pragmatic Criteria, such as Distinguishing (1) the Risk of a Future Occurrence of Loss from a Deliberate Commandeering of the Private Property of Another for the Public's Use; (2) an Injury that Results from the Equivalent of a Civil Wrong from a Transfer of Rights; and (3) Pecuniary Loss from a Transactional Exchange of Value.

A. A pool can deny coverage to all occurrences characterized as a taking. Or, it can seek to separate traditional takings for public use from improper exercises of the police power and tortious conduct (traditionally covered as civil rights violations or torts but which courts have begun to recharacterize as takings). A pool that decides to extend coverage need not, however, commit to unlimited coverage. A pool can choose a compromise between the extremes of no coverage for anything denominated a "taking," on the one hand, and a complete openness to all "taking" claims that might be recharacterized as a tort, on the other hand.

1. Pools can establish a higher than ordinary deductible.

2. Pools can establish a copayment element of some substantial percentage (e.g., 20% +).

3. Pools can establish a low to moderate ceiling on coverage.

4. Pools can establish a combination of these limitations so that no one case can deplete the assets of the pool, and each member has an economic incentive to minimize any possibility of being misinterpreted as "taking" property.

5. Pools can decide to cover only the just compensation due for a temporary taking for a period equal to the time the case is pending, if the case should end in a determination that a taking has been effectuated, so long as the covered party acts to move the litigation along expeditiously and does not extend it by unreasonable appeals.

6. Pools can decide to cover only the defense costs of a taking claim, and then only when there are related due process, equal protection, tort, etc. claims made as well.

To keep the exposure of each member of the pool in balance with that of each of the other members of the pool, the pool should be comprised of the same kinds of governmental units (all should be cities, villages and incorporated towns, or all should be park districts, etc.) or there should be some payment differential to account for the differing risks.

B. Those pools that remain open to provide some coverage for tort damages that have been characterized as just compensation for a taking will obtain an advantage from the "taking" characterization. The damages awarded are limited to reductions in property value on a market value basis and, in general, have not been characterized as federal torts involving less easily measured "emotional" injuries to plaintiff.

C. One of the chief advantages of governmental risk pooling is that expectations and intentions are seldom disappointed because the members of the pools themselves decide to what extent and on what terms their risks of loss will be pooled. It may well be that the individual members are satisfied to bear their own risks and losses separately every time a court or pleading uses the word "taking" to characterize the basis for the judgment. It may be, however, that members want to share their pecuniary losses, regardless of how the loss is characterized, separating out judgments for damages from those that are in reality payments of consideration for an acquisition. The following list of suggested test considerations will, hopefully, prove helpful to such a pool. These considerations should be used as a series, not each in isolation from the others. Many of the considerations are closely related, but they differ from one another in their focus or perspective. Taken together (although not every single one will apply to every case), they should give form to the activity involved, and help it to stand out either as a deprivation [covered] or a taking [not covered]. Coverage would depend on which side of the text the facts of the case line up.

1. Does the claim arise out of a regulation that informs another's use of his or her own property [covered] or one that coopts the other's property, employing it to perform a "corporate" function which would usually be accomplished through the government's, or the public's, occupation of the property [not covered]?

2. Is private conduct injurious to the public restricted by the regulation [covered] or does the regulation effectively appropriate the property for the government or the public [not covered]?

3. Is the owner of the property as likely to enjoy a benefit from the regulation as are other members of the public [covered] or is the owner only being forced to sacrifice something of value [not covered]? (Zoning, set backs, and the like, for instance, generally improve the value of everyone's property, including that of the restricted owner. Government's expectation that there will be a reciprocity of benefits indicates that it is the police power that is intended to be exercised, and generally contradicts a taking).

4. Does the regulation impose a generalized cost spread over many [covered] or is there a concentrated cost focused on very few [not covered]?

5. If only a small portion of an entire parcel is affected by the regulation, this generally indicates an exercise of the police power [covered], but if the whole parcel is affected, this could indicate a taking [not covered]?

6. Is the property owner's bundle of ownership rights only marginally affected by the regulation, [covered] or is a core right of property ownership being denied or prohibited [not covered]?

7. Does the regulation have the affect of confiscating property in order to combat or remove an immediate, significant threat to public health or safety, or for punishment [covered] or is the regulatory result that the property is being commandeered for use in the performance of a public function [not covered]?

8. Is the regulation to avoid or limit a private owner's encroachment on the public [covered] or to provide for the public's encroachment on the private owner [not covered]?

9. Is the result of the "occurrence" a pecuniary cost suffered by the governmental unit without it acquiring a corresponding personal "corporate" gain of like value [covered] or is the occurrence a transaction in which something was acquired for use by the unit and/or its public of a like value to that which was given for it (i.e., a swap of equivalent values - each getting in a different form something worth the same equivalent monetary worth) [not covered]?

10. Does the claim reflect a loss [covered] or a transaction cost [not covered]?

11. Has the amount for which the claim is made resulted from a harm done [covered] or does it represent a value received [not covered]?

12. Did the particular claim "sneak up" unexpected by the governmental unit (i.e., a risk materialized) [covered] or was it fully foreseeable, or even known, at the time the action resulting in it was taken [not covered]?

13. Was the aspect of the conduct from which the claim arose unplanned [covered] or was it part of a conscious and planned result [not covered]?

14. Does the conduct from which the claim arises bear a closer resemblance to the characteristics of a common law tort (i.e, civil wrong) [covered] or to the acquisition and use of a traditional estate or property interest in land or other item of property [not covered]?

15. Is the reasoning from the facts presented to the court (by which the amount is claimed and the injury adjudged) consistent with harm done [covered], or is the reasoning from the facts presented consistent with the establishment of a purchase price or rent [not covered]?

16. Is the nature of the action one of deprivation [covered] or one of enlistment in a service [not covered]?

D. A pool that has chosen to remain open to provide some coverage based on its own independent analysis of the circumstances, rather than relying solely on a court's characterization of the circumstances as constituting a taking, should include a provision like that which follows in its coverage document and in its contract and by-laws in order to limit controversy and disagreement among pool members.

In the event that there is a dispute regarding the interpretation of this scope of coverage document, or otherwise regarding the obligation of the Pool to administer or pay claim, such dispute may be brought by the affected Member to the Board of Directors of the Pool.

In the absence of fraud or a clear abuse of discretion, the Members agree to be bound by the decision of the Board of Directors regarding the obligations of the Pool. The Members of the Pool have carefully selected the other Members of the Pool in order that all Members have a common interest in the scope of coverage not intended to be within the scope of joint self-insurance.

The Members would not have entered into the Contract and By-Laws without specific language in that document and in this scope of coverage document granting extremely wide latitude to the Members of the Pool to interpret the language of Pool documents in a manner consistent with the original intent of the contracting parties. In an entity which anticipates the assumption of substantial financial obligations, it is an essential element of the contractual intent to accord to the Board of Directors the broadest parameters of contract interpretation.

The scope of coverage established herein is intended to be limited to the intent of the contracting parties and to the extent that that intention is not fully expressed herein or that a coverage question should arise which is arguably within the scope of this document, but is not within the contemplation of the parties, then a decision regarding the scope of coverages of the Pool shall be made by the Board of Directors in accordance with the Contract and By-Laws document.

Insurance companies always included in their exclusions to municipal coverage a provision, which can be paraphrased as "there is no coverage for any case relating to eminent domain, in any form, no how, no way." This exclusion has been used by many insurance companies to deny claims where it is alleged that governments "took" the property right of private parties. Although pools have succeeded in improving the coverages made available by insurance companies, they must be very careful in assuming a responsibility, which these 200 year old institutions have scrupulously avoided.

I think that it is quite clear what we do not want to cover. That includes:

1. The standard use of eminent domain.
2. Inverse condemnation.
3. Any case where the government gets anything tangible as part of an alleged "taking" based upon over zealous regulations. This would include what in effect are easement rights or the exclusive use of open spaces demanded by citizens.

Our pools should be prepared to cover the following cases:

1. Civil rights damages because of a failure to accord a full hearing (due process).
2. Civil rights damages because of a failure to treat the persons equally (equal protection).
3. Civil rights damages because of irrational and prejudiced decisions based upon animus and hatred, often arising out of some past history.

Cases which are to close to call are dangerous to pools because they fall into a category under which some courts have begun to require governmental bodies to pay for any limitation in the manner that an owner of property is allowed to use his or her property in a completely laissez faire environment. For example, if a municipality will only allow a three story building to be built in the central business district where tenants could be found for six stores, the municipality will be allowed to enforce its regulation but will need to pay the difference in value. If the courts move in this direction, then we need to be able to define such a claim as arising out of some form of the exercise of eminent domain. Otherwise, it is too easy for a governmental body to simply "dig in its heels" and assume that it's governmental self-insurance pool will pay the difference. Such a risk, similar to damages arising out of contract or the failure to pay adequate compensation for labor actually received are the type of matters which neither insurance companies nor pools should be prepared to cover in part because the covered entity, perhaps unwillingly or unknowingly, has received some value in return for its breach or excessive action.

Pools can take some self-protective measures in these cases such as:

1. Agreeing to only cover those counts of a complaint that actually seek damages.
2. Establishing high deductibles or splits like 50/50 percent of defense or loss costs.
3. Provide a defense only.

One other self-defense mechanism relates not to a permanent refusal to allow a building to be constructed but damages arising out of temporary activity such as the occupancy of a store. Pool documents can allow the pool to require pool members to help to mitigate possible damages by, for example, allowing an adult bookstore or abortion clinic to open subject to a closure if the municipality wins the declaratory judgment part of the lawsuit. Such a reduction or mitigation in damages is not possible if the plaintiff is seeking to build a permanent structure which, once constructed, is unlikely to be ordered to be torn down by the court.

It has been suggested that another protective device is the language in traditional governmental pool documents where the pool can offer to settle the case for a specific dollar amount unless the defendant municipality objects. If it does object, it is responsible for any costs of settlement or defense, which are above the level at which the case could have been settled. This system works brilliantly for standard tort and some civil rights cases. Unfortunately, for land use cases, the plaintiff is not principally interested in money damages but in the ability to construct the facility, open the store or to take some other action with regard to land where money damage is not the principal focus of the litigation. Of course, in many cases, the pool may be able to get out of the case entirely by a Motion to Dismiss, arguing that the case is really nothing more than a garden variety declaratory judgment lawsuit. That will leave the governmental body with no pool participation.

Where the damage claim remains, however, and the municipality is not willing to give the relief sought regarding the land itself, the device of a "enforced settlement" is really not an available tool to prevent municipal stubbornness. So long as the relief to be granted is principally the construction of a building or the use of land (which the municipality objects to) if the liability for a defense and damages rests with the pool, the governmental body may demand that the case be taken to the World Court with no concern over the costs.

At some point, courts will give us a clearer understanding of whether every overly aggressive regulation relating to land will result in a potential for money damages and the payment of Section 1988 attorneys' fees. Until that time, pools need to be cautious about the level of their participation in such claims. A fairly recent trial court verdict of $30 million against a Michigan governmental body in a land use case is a sobering example of the risks involved.