The recent, well-publicized break of Davis and Weber Counties Canal Company's canal has pushed liability concerns to the forefront of Utah's water community. With canal and irrigation companies operating dams, ditches and canals in increasingly more urbanized settings, it is actually surprising that it has taken this long for the liability alarm to sound.

While liability, like death and taxes, will always be with us, there are steps that mutual irrigation companies can take to, in the lingo of lawyers, "limit their exposure." This article will list briefly some of those steps:

1. Create an inspection, maintenance and repair program.

Many, if not all, mutual water companies are operated on a shoestring budget with pressure to keep assessments as low as possible. If maintenance is deferred, obviously both the chance of an accident occurring and the responsibility for the accident are magnified. Long range planning is essential! Most mutual irrigation companies would have never been created in the first place without the foresight of those who made substantial sacrifices and investments in the future.

2. Bump up assessments now.

A modest assessment increase now, in accordance with the company's governing rules, will add up over time and will help make necessary and crucial maintenance & repair projects realistically feasible. This maintenance or contingency fund will also provide a cushion for coping with unexpected emergencies.

3. Utilize available funding mechanisms to reduce liability.

Funds from the Board of Water Resources and other such sources are available to upgrade facilities, at low or interest free rates. Take advantage of those resources.

4. Insure, if possible.

Insurance will provide at least some measure of protection and defense against liability claims. Insurance, like the contingency fund discussed above, requires only a small increase in assessment, but could save the company in the face of a large claim.

5. Consider creation of a separate corporation to hold water rights.

The most valuable asset of a mutual irrigation company is generally its water rights. To help insulate those valuable water rights from liability claimants, formation of a separate corporation to hold only the water rights should be considered. This will help to protect the water rights, which are essentially irreplaceable, from the high liability associated with assets such as the diversion and conveyance facilities. No strategy is completely "bullet proof." However, this is one mechanism that has not been widely used in the past that should be seriously considered now.

6. Don't own anything you don't maintain.

If particular laterals, ditches or other facilities are considered the responsibility of a particular shareholder or group of shareholders, convey those facilities to those with the maintenance responsibilities, or alternatively, have them execute indemnification agreements to protect those without such maintenance responsibilities. If you have facilities you don't use, consider disposing of them.

7. Make urbanization pay its share.

If facilities need to be re-routed or reconfigured because of development, use this as an opportunity to improve the facilities and make them safer while fairly allocating to such development its rightful share of the costs.

8. Encourage employees, shareholders and others to keep an eye on company facilities.

Many water facilities are in remote locations. However, if small problems are spotted and reported, many big problems can be avoided. The shareholders of a mutual irrigation company are a great asset that can be used to help spot such problems and they should be encouraged to pay close attention to company facilities.

9. Prevent, Document and Report Vandalism.

Many liability problems are caused by vandals. The use of locks, fences, gates, etc., discourages vandalism. If vandalism does occur, document it, photograph it, and report it to the proper authorities before repairing it, unless it is creating an emergency. Interference with water works is a specific crime in Utah. This will help develop a partial defense to liability claims by others arising out of the vandalism.

10. Create a 24-hour Rapid Response System for Emergencies.

Most problems, if caught and corrected early, are small. Unfortunately, the response time on the more serious problems, is often very short. In order to minimize the damage, and resulting liability, a rapid response system should be developed and implemented. It should be functional around the clock, because emergencies rarely happen when its convenient and easily solved.

Comments or questions concerning this topic can be directed to the authors at (801) 413-1600 or jcraigsmith@smithlawonline.com.

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