1. Fires on Forest Service Timber Sale Contracts

The standard Forest Service timber sale contract addresses the very different consequences for two types of fires started by a contractor.

  1. The first is a “Negligent Fire,” which is a fire “caused by the negligence or fault of the Purchaser’s Operations.” See Standard Clause B[T]7.42. The contract makes the contractor liable for “damages and the cost of suppressing Negligent Fires.” Id. As discussed below, in recent years whenever a private party has caused damage to National Forest timber, the government has aggressively sought to recoup not only its suppression costs but a host of other damages as well. Of course, the potential for such large liability is precisely why Purchasers have insurance that covers such events and require their subcontractors to have such insurance as well. Indeed, Purchasers would be well advised to review both their own policy limits and those that they require of any subcontractor.
  2. The second kind of fire started by a Purchaser referred to under the contract is an “Operations Fire,” i.e., “a fire caused by Purchaser’s Operations other than a Negligent Fire.” B[T]7.41. Under this clause a Purchaser’s liability is limited to reimbursing the Forest Service for suppression costs up to the amount stated in Clause A [T]11. In this regard, the value of the Purchaser’s suppression actions, supplies and equipment provided to fight the fire is credited. Although the clause makes the Purchaser responsible for suppression costs (even for fires for which it was not at fault), due to the government’s heightened efforts to recover a variety of other types of damages in addition to suppression costs, the limitation of the Purchaser’s liability in the clause is very significant.
  1. Fires on Stewardship Contracts

This above-noted distinction between the two types of fires that can be started by a contractor also exists in Integrated Resource Timber Sale Contracts, i.e., stewardship contracts where the value of the timber exceeds the value of the services to be performed. The distinction is not, however, carried over to Integrated Resource Service Contracts (IRSC), i.e., stewardship contracts where the value of the services exceeds the value of the timber. In IRSCs there is no specific reference to contractor liability for fires caused while providing services. Accordingly, if a fire is the result of a contractor’s negligence, the contractor potentially faces liability for all of the damages resulting from its negligent act.

  1. Other Fires Started by Private Parties that Damage Federal Timberlands

As noted above, in recent years the Department of Justice has been increasingly aggressive in seeking recovery for damage to federal lands resulting from fires caused by private parties. Indeed, it has obtained huge jury verdicts and settlements in a variety of circumstances, including cases that involve:

  1. Railroads: It was established that railroad employees started and then failed to extinguish a fire while making track repairs in a National Forest. The fire ultimately damaged approximately 52,000 acres and the government sought damages of nearly $200 million from the railroad. Notably, the government also sought to recover $13 million for “habitat equivalency damages,” which were in addition to the value of the timber that was destroyed, and designed to compensate the government for damage to wildlife habitat and public enjoyment of the forest that was lost in the fire. After the judge ruled that the government could go to trial on all of the categories of damages it sought, including habitat equivalency damages, the case settled for a substantial, but undisclosed, amount.
  2. Construction Contractors: As discussed further in this edition of Legal Briefs, this year a California jury awarded $36.4 million to the government where an electric grinder operated by a subcontractor at a construction site threw hot metal fragments onto dry vegetation and started a fire that spread onto a National Forest and burned some 18,000 acres. After trial but before the jury returned its verdict, the prime contractor settled with the government for $2.1 million. Notably, the lion’s share of the award was $28.8 million in “intangible environmental damages.” The subcontractor appealed the verdict, solely on the issue of the amount of intangible damages; however, the Ninth Circuit affirmed the full amount of the jury’s award.
  3. Forest Products Industry: In the wake of the Ninth Circuit’s affirmance of the $28.8 million jury verdict for intangible environmental damages, the government recently settled another case on the eve of trial for an estimated $122.5 million. Some projections of the amount that the government had been seeking were as high as $791 million, plus interest. In this case, fire spread from private lands to a National Forest, where it burned over 46,000 acres. The three defendants reportedly shared in the settlement as follows: a small timber landowner where the fire had started contributed $7 million; a large forest products company that had contracted with the landowner for the timber contributed $47 million in cash, plus 22,500 acres of forest land (valued by the government as worth at least $3,000/acre); and the logging company that had been hired by the forest products company to perform harvesting and that had been working when the fire started contributed $1 million.
  4. Utility Companies: In the past several years, the government has brought several cases against utilities and their tree management subcontractors for damages caused by wildfires on National Forest lands started by power lines. Potential liability from such fires can be immense as evidenced by a California utility that recently sought authority to increase its rates to help recoup liability for wildfire damages expected to be some $500 million in excess of the company’s $1.1 billion in insurance coverage.
  1. Fires that Escape from Federal Lands and Damage Private Property

The above notwithstanding, a private party’s ability to collect damages when a fire escapes from public to private land traditionally has not been as easy as when fire escapes from private to public land. That is, even in situations where the government has been wholly unreasonable in allowing hazardous fuels to build-up or in the manner that it fought (or even refused to fight a fire) on public land, a private party who has suffered property damages still may not be able to obtain compensation. The reason is something called the “discretionary function exception” to the Federal Tort Claims Act (FTCA). Although the FTCA allows citizens to sue the federal government for injuries to persons or property caused by the wrongful or negligent actions of a federal government employee, such suits are precluded by the discretionary function exception when the damages are the result of a government employee who is exercising an element of choice in carrying out his duties. As a practical matter, this means that, unlike a suit between two private parties or even where the government sues a private party, when a private party seeks damages resulting from a fire caused by the government, the landowner must not only allege and prove negligence, but first must also prove that government employees had a mandatory (i.e., non-discretionary) duty imposed on them by statute, regulation or agency policy to take actions that could have prevented the damage to a citizen.

This is not to say that recovery cannot be had against the federal government under the FTCA where wildfire escapes from public lands and damages private property. Indeed, there are some very encouraging signs that courts are beginning to recognize the fundamental unfairness of a system that allows the government to seek millions (or billions) of dollars of damages from its citizens, while at the same time claiming broad immunity from damages it causes to its citizens in identical circumstances.