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Local Government Q&A Test your knowledge of municipal
practices and procedures with the questions and answers below.
New! Questions and Answers at the 2001 Illinois Muncipal League Conference.
Municipal Q&A - November 2001
Will insurance companies and governmental pools cover claims for "regulatory takings?"
ANSWER: The answer to this question is still very uncertain. Governmental bodies, principally municipalities and counties frequently take regulatory actions, which can and do, affect the value of property. If a municipality reduces the hours during which liquor stores, convenient stores or gasoline stations can be open, the owners or tenants can claim that part of the value of their property has been "taken" by the governmental body. Although not a physical taking, these actions can be argued to violate Federal and State Constitutional provisions which protect an individual's property from being taken without due process of law and without value being paid. A similar argument can be made by a home owner on a small lot who is prohibited from building a second story addition. Written on a bigger scale, the commercial owners and developers of large tracts of land can contend that a failure to grant them high density or commercial zoning categories also constitutes such a "regulatory taking."
The courts have been divided on the issue of whether governmental actions of this nature constitute a mere regulation or a "taking." Ultimately, the question comes down to whether the actions of a governmental body, in restricting the use of land, are similar to other standard regulations, like front yard setbacks, [for which the government does not need to pay], or rules forbidding all construction on beach front land to allow neighbors to retain a view of the ocean [for which the courts have held that governments are required to compensate the land owners]. Please note that in this last example, result in the government would be obligated to pay damages even though it did not physically take control of the property to which the restrictions applied.
One reason why these issues are important is that the language of almost all insurance policies and the central documents of governmental self-insurance pools provide that no coverage is available when the governmental body exercises its power of eminent domain. The reason for this exception is that, absent this language, governments could simply take over lands for roadways, sewer lines or water detention ponds, without the owner's permission, and turn over any later claim to their insurance company. The issues which insurance companies, pools and ultimately the courts must deal with are:
1. What regulatory act of a government is so excessive as to constitute a taking of property rights?
2. Is such a "taking," which may result in damages under the Civil Rights Act, covered by insurance or through the Pool documents which normally excludes any payments arising from the government's utilization of its eminent domain powers?
Recently, attorneys David Lincoln Ader and Stewart H. Diamond of our office spoke at the annual convention of the Public Risk Management Association on this topic. To read this presentation, entitled "Visionary Coverage for Pools—Where Others Fear to Tread—Land Use Takings", click here 
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