Strategic Land Use Litigation: Pleading Around Municipal Insurance

Abstract

Municipal insurance policies inevitably contain a curious exclusion of coverage for regulatory takings claims. Many courts have interpreted this exclusion broadly, applying it to all land-use litigation. Other courts have interpreted the exclusion narrowly. Both interpretations are problematic. The former is at odds with policy language and the normal rule that insurance policies are to be construed against the insurer. The latter creates an opportunity for plaintiffs to craft their pleadings explicitly to trigger or to avoid triggering the municipality’s insurance coverage. Plaintiffs seeking a quick settlement are well advised to plead around the exclusion so as to settle with the insurer. But plaintiffs seeking to have the local government capitulate should avoid the insurance coverage, forcing the local government to bear its own litigation costs and the risk of an adverse judgment. The possibility of such pleading arbitrage is problematic, and this Article argues that states should find ways to extend insurance to cover Fifth Amendment regulatory takings claims.