The Indiana Court of Appeals found that the city of Indianapolis and water company – which contracts with the city to operate the water utility – are entitled to common law immunity from a lawsuit brought by a restaurant and its insurers after a fire destroyed a Texas Roadhouse restaurant. The plaintiffs argued that the frozen hydrants, which delayed firefighters’ ability to put out the fire, were a result of the hydrants not being properly closed by private parties who paid the defendants for water use.

Texas Roadhouse and two of its insurers – National Trust Insurance Co. and FCCI Insurance Co. – sued Indianapolis, its department of waterworks and Veolia Water Indianapolis LLC. The trial court partially denied the city’s motion to dismiss and Veolia’s motion for judgment on the pleadings. Both defendants claimed they were entitled to immunity.

The trial court concluded that the commercial sale of water took their actions outside the scope of common law immunity for firefighting. The trial court also held that the insurers were third-party beneficiaries of Veolia’s contract with the city.

On interlocutory appeal, the Court of Appeals reversed, finding both are entitled to common law immunity because the common law rule turns on the purpose for which the water is being used, not the underlying cause of the lack of water, wrote Judge Terry Crone. The judges cited precedent on immunity in firefighting cases that bar claims for fire damages stemming from an inadequate supply of water or inoperable fire hydrants.

Crone noted that although the appellate court is bound by settled precedent on whether Veolia is entitled to immunity, the insurers have presented several cogent reasons for reconsidering this policy, including that insulating Veolia from liability for its alleged failure to monitor or maintain may actually create a disincentive to maintain the hydrants.  Since the last time the Supreme Court addressed immunity for firefighting, public-private contracts have become more prevalent and more complex, the appellate court pointed out.  

“Were we writing on a clean slate, we might adopt a different rule; however, we are bound by supreme court precedent,” Crone wrote.

The judges also found that the insurers are not third-party beneficiaries to the management agreement entered into by the city and Veolia, so they can’t pursue a breach of contract claim. The management agreement contains a section that explicitly disavows any intent to create third-party beneficiaries.