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Fla. suit may offer clarity on utilities' right to recoup pipeline damage costs

A U.S. appeals court referred to the Supreme Court of Florida a case that could determine whether utilities operating in the Sunshine State can claw back a special class of litigation costs from construction companies that damage underground lines.

The question is whether Peoples Gas System can seek indemnification from Posen Construction Inc. to recover damages paid to a Posen employee. Peoples Gas is seeking indemnification under the Florida Underground Facility Damage Prevention and Safety Act, which allows utilities to recoup costs when an excavator damages infrastructure through negligence.

The three-judge U.S. Court of Appeals for the 11th District said Aug. 1 that while the act does not directly address indemnification, Florida courts have never addressed whether the law can be interpreted to allow the kind of damages that Peoples Gas is trying to collect. Indemnification relates to compensation for injury, loss or damage.

The appeals court judges pushed the case on to Florida Supreme Court, recommending that the higher court consider certifying the decision, although whether the seven-justice body will take up the case remains to be seen. If the state's top court does hear the case, it could clear up uncertainty in the law and have impacts beyond the Peoples Gas case.

Excavation damage by third parties, including construction companies, was the leading cause of distribution pipeline incidents in Florida over the past 20 years, accounting for 40% of the total, according to the Pipeline and Hazardous Materials Safety Administration. This class of incident caused two fatalities and six injuries during that time, more than any other, and resulted in $1.2 million in property damage, making it the third-costliest type of incident.

The Florida law at issue says excavators that damage underground lines through negligence are liable "for the total sum of the losses to all parties involved as those costs are normally computed."

Lawyers for Peoples Gas claim the language of the law should allow the utility to recoup the cost of settling with the Posen employee, who ruptured a gas line while digging and tilling in the area and was injured in the subsequent fire. Posen and several other court cases have leaned on the fact that the law does not explicitly address indemnification of this sort.

The U.S. District Court for the Middle District of Florida earlier dismissed Peoples Gas' argument, saying the utility failed to provide authority to support its claim. But the appeals court disagreed on this point.

"While true, this particular set of circumstances leads us to believe that certification is the most prudent course of action in deciding a potentially novel application of Florida state law," U.S. Circuit Court Judge Joel Dubina said in the panel's written decision.

"In our view, Florida case law does not conclusively establish the purpose of the Act, including whether it creates a cause of action to recover damages paid to third parties or simply clarifies a common law negligence claim, and whether it authorizes damages incurred under circumstances as remote as these," Dubina wrote.