"Stigma" Property Damages Rejected
Often, plaintiffs in environmental toxic tort cases seek to recover property damages based on a theory that contamination or other environmental conditions have imposed a “stigma” on the property. Sometimes the property is itself contaminated or formerly contaminated. Other times the property is only in proximity to contamination or the other environmental condition. The latter situation is often a difficult one for plaintiffs to convince courts to allow.
A Kansas Supreme Court decision issued at the end of October 2007 exemplifies such a case. In Smith v. Kansas Gas Service Co., 169 P.3d 1052, after a two-week jury trial the plaintiff class recovered $5 million in stigma property damages based on a 2001 accidental release of natural gas from a storage facility. The gas release caused an explosion in a downtown Hutchison, Kansas business and a second explosion a day later in a mobile home that killed two people. Eventually, the source of the release was discovered and corrected. The gas storage company also entered into agreements with a number of local property owners so it could drill venting wells to vent gas that had escaped from the storage facility.
The plaintiff class alleged that their property values had diminished because of the accident. Their expert, Dr. Robert Simons, performed a mass appraisal using three techniques. The first was a comparison of housing trends in Reno County with trends in surrounding counties. He also utilized a contingent valuation survey posing hypothetical questions to area residents, a technique similar to the CVM surveys used in CERCLA natural resource damages cases. His final technique was a hedonic regression analysis that identified factors affecting the value of a house and assigned a value to each factor. Here, he opined that being within a quarter mile of a deep-drilled vent well caused a 5% loss in the house’s value. 169 P.3d at 1055.
The plaintiff class tried only its nuisance and negligence claims. The trespass claim had been dropped before trial. For the Kansas Supreme Court, the key question was whether the plaintiff class could collect damages under either of those two claims for stigma or market fear when the class did not prove that the escaping gas caused any physical injury to the properties or interfered with the owners’ use and enjoyment of their properties. 169 P.3d at 1059. The court concluded that the plaintiff class could not recover.
For nuisance, the court held that a plaintiff must show an interference with his use and enjoyment of the property. That interference must be separate and distinct from an allegation that the property’s value has diminished because of marketplace fear or stigma. 169 P.3d at 1062. For negligence, the court described the plaintiffs’ theory as “negligent infliction of emotional distress on real property.” Id. A claim for negligent infliction of emotional distress to a person requires “a physical injury directly and proximately caused by the negligent conduct.” Id. The court saw no reason to apply a different standard to property claims. Therefore, “in order to recover for the diminution in value of real property resulting from the marketplace fear or stigma alleged to have been created by a defendant’s negligence, the plaintiff must establish that the property sustained a physical injury as a direct and proximate result of the negligent conduct.” 169 P.3d at 1063.
In reaching these conclusions, the court distinguished a handful of Kansas cases allowing recovery of stigma damages because in each the stigmatizing condition occurred on and directly affected plaintiff’s property. In two electric transmission line cases, plaintiffs were allowed to recover stigma damages when the power lines were constructed on their land. Ryan v. Kansas City Power & Light Co., 815 P.2d 528 (Kan. 1991); Willsey v. Kansas City Power & Light Co., 631 P.2d 268 (Kan. App.), rev. denied, 230 Kan. 819 (1981). In the third case, involving a termite inspector’s negligent inspection and report, the plaintiff purchaser’s house had termite damage. Horsch v. Terminix Int’l Co., 865 P.2d 1044 (Kan. App. 1993), rev. denied, 254 Kan. 1007 (1994).
Under these standards, plaintiffs did not meet their burden of proof by presenting only individual class member testimony that failed to establish physical injury or interference and Dr. Simons’ analysis based upon a perceived stigma among the buying public. For that reason, the court reversed and remanded with directions to enter judgment for defendants.