Environmental stigma damages: speculative damages in environmental tort cases.

• Author: Johnson, E. Jean

INTRODUCTION

Courts across the United States are recognizing a new cause of action that allows property owners to recover the diminution in property values resulting from environmental Stigma that accompanies the contamination of their properties.(1) The recoveries are predicated upon the public's negative perceptions about, and unsubstantiated fears of, contaminated property.(2) Unfortunately, by allowing plaintiffs to recover for damages based upon conjecture and speculation, these courts have defied fundamental principles of common law.

Stigma, in the environmental context, may be broadly defined as the negative perceptions associated with property that is contaminated, that was once contaminated or that lies in proximity to contaminated or previously contaminated property. Stigma represents a loss in value apart from the cost of curing the contamination itself,(3) and it can be based upon actual or perceived risks or fear, such as "possible public liability," "fear of additional health hazards" and "simple fear of the unknown."(4) Additionally, stigma is based upon perceptions about risks and liabilities associated with owning, or holding property interests in, contaminated property. The perceptions on which society bases the stigma need not be reasonable or substantiated.

Proponents of stigma damages contend that once property is contaminated, it becomes stigmatized by public perceptions about the contamination's effects on health and the environment. Stigma advocates also contend that even if the property is subsequently remediated, it will still continue to have a stigma because of the past contamination;(5) once seriously contaminated, they contend, property can almost never reclaim a marketable uncontaminated status.(6)

It is this author's position that stigma damages should not be recognized as a basis of recovery because stigma damages are based solely upon public perceptions--perceptions which can change at any given moment. However, where courts are inclined to award stigma damages despite their speculative nature, stigma damages should never be awarded prior to a plaintiff realizing an actual harm from the stigma.

This Article discusses and explores the ramifications of awarding stigma damages to property owners whose property has been contaminated or is juxtaposed to contaminated property. This discussion is divided into five Parts. Part I provides an overview of various environmental laws and introduces risks associated with having ownership or a property interest in contaminated property. Part II provides an introduction to stigma damages and discusses the evolution of traditional common law theories of recovery for real property damage into causes of action for environmental stigma. Part III discusses and analyzes case law relating to stigma damages to contaminated properties. Finally, Part IV discusses policy considerations for determining whether stigma damages are justified. This Article concludes that stigma damages should not be recognized as a basis of recovery because they are inherently speculative in nature.

I.

RISKS ASSOCIATED WITH CONTAMINATED PROPERTY

In discussing environmental stigma damages, it is important to have a general understanding of the nature of the liability scheme associated with environmental laws that regulate sources of pollution. The purpose of this overview is to depict the potential liability associated with contamination. Leaking underground storage tank systems, chemical spills and hazardous waste dumping result in widespread contamination to properties throughout the United States. Consequently, a vast amount of litigation has arisen over environmental liability.

Historically, no one fully understood the potential environmental and health risks associated with leaking underground storage tanks, chemical spills or hazardous waste dumping. As a result, virtually no laws regulated such acts. If an underground storage tank had a leak, the tank owner merely followed the industry standard of replacing the tank without removing or treating the soil or groundwater into which the contaminants migrated. Additionally, underground storage tank owners did not have to register the tanks; they could install or remove the tanks without accountability. It was not unusual for business owners to close down "shop" and move to other locations without removing the underground storage tanks or cleaning up the chemicals that they had previously spilled or dumped onto the property.

Today, there is virtually no way to account for the vast number of underground storage tanks that remain in the ground, the number of properties onto which chemicals and solvents were spilled and the number of sites where hazardous wastes were legally disposed under old law. One study suggests that it would exceed $41 billion and take more than 30 years to clean up just the contamination associated with underground storage tanks.(7)

The Love Canal and other similar incidents exposed the country to the effect hazardous waste disposal could have on the environment.(8) These occurrences prompted the passage of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), which made owners of contaminated property strictly liable for the costs of remediating the property.(9) Under CERCLA, the Environmental Protection Agency ("EPA") imposes liability for mere ownership of contaminated property, regardless of whether the owners caused, contributed or even knew of the contamination.(10) The fact that CERCLA imposes liability regardless of fault is significant in environmental stigma cases because prospective purchasers may not want to assume the risk of having to perform future environmental clean-up. Other acts, such as the Clean Air Act ("CAA"),(11) the Clean Water Act ("CWA"),(12) the Resource Conservation and Recovery Act ("RCRA") and the Toxic Substances Control Act ("TSCA")(13) were also adopted as a result of the perceived dangers of chemicals to human health and the environment. Each of these acts placed restrictions on how property could be used, how a business could be run, and the extent of contaminants that any business operation could generate.

The majority of environmental stigma cases result from violations of the CWA. The CWA regulates contaminants introduced into the soil and groundwater. State laws, patterned after federal laws, also regulate pollution.(14) Each state adopts clean-up standards, characterized by numerical limits, which serve as guidelines for designing remediation systems and for determining when the property is considered clean for regulatory purposes. Once a responsible party reduces contaminant levels below the numerical limits, property is considered clean and the party can obtain case closure.(15) Obtaining closure does not necessarily mean that all the contaminants were removed from the property. Rather, obtaining closure merely signifies that the remediation satisfies state clean-up standards, which generally require something less than the removal of all contaminants.

As stated previously, because the liability structure of various environmental laws makes property owners strictly liable for cleaning up the contaminants on their property, a mere ownership interest in contaminated property subjects the property owner to liability;(16) the property owner need not cause or contribute to the contamination. It is from this back-drop, coupled with both the publicity given to toxic waste sites and public perceptions of the health and environmental risks associated with exposure to chemicals and wastes, that the concept of stigma damages has surfaced. Because the liability scheme subjects financial institutions to liability for clean-up costs when property is used as collateral to secure a loan, financial institutions should require an environmental assessment of the property serving as collateral prior to granting the loan.(17) Depending upon the results of the assessment, a potential buyer may or may not purchase the home, or a lending institution may or may not fund the loan. As is evident from this discussion, there exist definite drawbacks and risks associated with owning contaminated property. The following section discusses common law theories of recovery that are advanced in environmental contamination litigation and elaborates on the concept of stigma damages.

II.

INTRODUCTION TO STIGMA DAMAGES AND OVERVIEW OF COMMON LAW REMEDIES

Common law has long recognized causes of action allowing plaintiffs to recover for actual contamination under theories of trespass, nuisance, and negligence.(18) Strict liability and regulatory causes of action also exist under both state and federal statutory laws.(19) Courts are awarding stigma damages in addition to such other relief. In short, the controversy surrounding stigma damages stems from its definition. By definition, stigma is based upon perceptions. Thus, stigma damages are not damages for actual physical contamination; instead, environmental stigma damages are damages for negative perceptions associated with the contamination. This distinction is crucial because damages for actual contamination may often be confused with damages from stigma. Specifically, stigma damages are predicated upon what third parties think about the property, regardless of whether their thoughts are reasonable or factual. Because perceptions change, and in some instances are difficult, if not impossible, to verify, stigma damages can be problematic.

The concept of stigma damage is not new. Stigma damages are in many respects comparable to damages associated with a common law cause of action for "defamation." Defamation is an invasion of a person's interest in reputation and good name.(20) It is a "relational interest," as it involves the opinions that others in the community have, or may have, about a particular individual.(21) Whereas defamation concerns damage to an individual's reputation,(22) stigma...