AGCS Marine Ins. Co. v. Arlington Cnty., 800 S.E.2d 159

Background

Insurers (AGCS and Indemnity) paid ~$1.8M to Harris Teeter for damage to store merchandise and cleanup after raw sewage backflow from an Arlington County sewer system in May 2012 and sued the County in inverse condemnation (Article I, § 11, Va. Const.) asserting subrogation rights.
Original complaint alleged the sewer system served a public purpose and that the County failed to properly operate, inspect, maintain, and repair the treatment plant and pumps, causing the backup.
Complaint did not allege the County or its employees intentionally caused the backflow or deliberately used Harris Teeter’s property to serve a public-purpose function.
Circuit court sustained the County’s demurrer, dismissed the complaint with prejudice, and denied leave to amend; insurers appealed.
The Virginia Supreme Court held the original complaint pleaded only tort/negligence (not a public‑use taking) but found the proffered amended complaint alleged facts and reasonable inferences supporting a deliberate plan or policy that could constitute a public‑use damaging and therefore should have been allowed.
Court also held Article I, § 11 covers damage to personal property (e.g., merchant stock), not limited to fixtures or converted realty.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether original complaint stated inverse condemnation claim (public‑use requirement)	Insurers: sewer system serves public use; damage from its operation suffices for inverse condemnation	County: allegations show negligence only; tort claims barred by sovereign immunity; no purposeful taking for public use	Court: Original complaint insufficient — alleged negligence, not purposeful public‑use damage; demurrer properly sustained
Whether proffered amended complaint should be allowed	Insurers: amended allegations allege purposeful diversion/closure and policies making backup "most probable," implying deliberate use of plaintiff’s property to serve public system	County: amendment is futile; does not cure defect; dismissal proper	Court: Denial of leave to amend was abuse of discretion; amended allegations and reasonable inferences plausibly state inverse condemnation claim; remand for further proceedings
Scope of Article I, § 11 — does it cover personal property damages?	Insurers: personal property (merchandise) qualifies as "private property" under §11; just compensation owed	County: post‑Livingston reading limits recovery to personal property only if it is a fixture/appurtenant to realty	Court: §11 covers personal property; recovery not categorically limited to fixtures; personal property damage can be compensable under inverse condemnation
Whether inverse condemnation is coextensive with tort liability (sovereign immunity waiver)	Insurers: public‑use argument makes County liable under Constitution	County: allowing claim here would swallow sovereign immunity and convert all negligence claims into takings	Held: Constitutional takings/damage remedy is narrower than torts — requires purposeful public‑use taking/damaging (not mere negligence); sovereign immunity not eliminated by §11

Key Cases Cited

Burns v. Bd. of Supervisors, 218 Va. 625 (Va. 1977) (recognizes inverse condemnation as implied‑contract remedy under Article I, § 11)
Jenkins v. County of Shenandoah, 246 Va. 467 (Va. 1993) (governmental diversion/maintenance decision can constitute public‑use damaging supporting inverse condemnation)
Hampton Roads Sanitation Dist. v. McDonnell, 234 Va. 235 (Va. 1987) (deliberate bypass discharge of sewage onto private property constitutes damage for public use)
Kitchen v. City of Newport News, 275 Va. 378 (Va. 2008) (municipality’s use of subdivisions as contingent overflow areas can state inverse condemnation)
Livingston v. Virginia Dep’t of Transportation, 284 Va. 140 (Va. 2012) (purposeful acts or omissions that elect to use private property for public storage/flow can meet public‑use requirement; cautionary language about personal property recovery)
City of Richmond v. Williams, 114 Va. 698 (Va. 1913) (personal property may be compensable in eminent domain proceedings)
Town of Cape Charles v. Ballard Bros. Fish, 200 Va. 667 (Va. 1959) (oysters/personalty taken or destroyed by public undertaking are compensable)
Potomac Elec. Power Co. v. Fugate, 211 Va. 745 (Va. 1971) (no compensation where utility had only revocable license; distinguishing cases where lessee’s personal property was incident to a leasehold right)
Taco Bell of Am., Inc. v. Commonwealth Transp. Comm’r of Va., 282 Va. 127 (Va. 2011) (questions whether equipment is a fixture for inclusion in condemnation award)
Horne v. Dep’t of Agriculture, 135 S. Ct. 2419 (U.S. 2015) (Takings Clause applies to personal property as well as real property)