Academic journal article Defense Counsel Journal

Stigma Damages: Property Damage and the Fear of Risk

Academic journal article Defense Counsel Journal

Stigma Damages: Property Damage and the Fear of Risk

Article excerpt

Courts are struggling with the public policy considerations of where to draw the line between just compensation and cost to society

Today, more than ever before, concerns about risk abound. Whether it be the risk posed by an abandoned landfill, an inactive industrial site or a farm with a leaking underground storage tank, people fear that environmental risk - health problems or financially devastating legal liability for cleanup or repair - will be overwhelming. Not surprisingly, concern about environmental contamination can affect public perception of the value of property.

An environmental stigma results from perception of uncertainty and risk. It may be relatively easy to quantify the cost to remedy a simple contamination problem, such as a leaking underground storage tank. However, as the complexity of the contamination increases, the level of uncertainty and perceived risk rises.(1)

Stigma, of course, can be associated with matters other than environmental contamination. It has been claimed to affect the value of buildings that have had structural damage or defects or that have been infested by termites. Here, too, negative public reaction to risk and worry about future problems is often the basis for the claim of the stigma and accompanying damages. Claimants assert that prospective purchasers will not take the chance that the stigma-causing problem might recur or that repair or remediation might not have been a complete solution.

In short, where stigma is claimed to exist, property owners often seek recovery for market value losses in addition to whatever repair costs might be involved. The damages they seek are commonly labeled "stigma damages."

Nature of Stigma Damages

A. What Is Stigma?

Stigma can result from a multitude of factors, including a simple fear of the unknown.(2) People fear what they do not understand and feel they cannot adequately control. Real estate purchasers are no different. The level of fear and severity of concern increases according to the complexity of the stigma-inducing problem. Even if a contaminated property has been restored to the extent that present technology allows and indemnity is offered to protect against future problems, sometimes the property still might not attract purchasers.(3)

Stigma, however, is not entirely irrational. Because it is premised on public uncertainty and lack of complete knowledge, purchasers may have legitimate concerns for property value. For rational reasons, they may choose to avoid properties where the potential for future problems exists. They may even ignore scientific assessments of the nature of a problem - say, an environmental clean-up assessment - or protection, such as a seller's warranty or agreement to indemnify.

Yet, when the stigma-inducing activity has not physically affected a claimant's property, but rather has touched only surrounding property, it seems less rational for a purchaser to suppose that an environmental consultant's clean bill of health given to the surrounding property may be incorrect, leaving open the possibility of a future contamination spill-over. Claimants nonetheless seek compensation for stigma-related market value loss because of a neighbor's contamination.

B. Stigma-Related Damage Claims

While claims for stigma-based damages have been asserted for such conditions as termite damage, structural defects and the installation of high-voltage power lines, stigma damage claims are on the rise in toxic tort and environmental contamination lawsuits.(4) They arise in two distinct factual situations. The first occurs when environmental contamination has not directly affected a plaintiff s property or substantially interfered with use of the property, but nevertheless the public fears the property is contaminated. The second situation involves environmental contamination that has affected a plaintiff s property, requiring the defendant to pay reparation costs, but the plaintiff claims that the value of the property will be permanently diminished by a remaining stigma. …

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