Case of the Day – Monday, June 20, 2022

THE STIG

Jim and Cindy Muncie found oil on their land.

Sadly, this was not a cause for champagne. The oil was #2 heating oil, a thousand gallons of it that had come spilling down the hill to flood their house. It was a mess.

The estate of the deceased woman whose oil tank had ruptured settled a federal court suit for $60,000, the restoration amount the Muncies figured it would take to clean up the slick. But as soon as they got the $60,000, the Muncies – deciding that cleanup compensation just wasn’t enough – sued the estate in state court for “stigma damages.”

Stigma damages, which I caution Top Gear fans has nothing to do with The Stig, are what they sound like. Remember how you felt when you learned that your childhood hero Captain Kangaroo did not fight beside Lee Marvin in the Battle of Iwo Jima? And that he was not really a captain and had never been a kangaroo? After that, there was a stigma attached to ol’ Cap that even Dancing Bear could not erase.  

Properties can be like that. Considering buying Yellowstone Park from a federal government that’s a little strapped for cash to pay Medicare and Social Security for us baby boomers? How much you’re willing to shell out for a national treasure might be affected by knowing that you’re standing in the caldera of the one of the biggest volcanoes on earth. On a smaller scale, a buyer might hesitate to write a check knowing that his or her prospective home had been steeped in hydrocarbons, even if there was no tangible evidence that the mishap had ever occurred.

We recently focused on restoration costs being awarded where those costs exceeded the reduction of value suffered because of a trespass and subsequent damage. Today’s case is the obverse of that coin, where the restoration costs may not be quite enough to fully pay for the loss suffered, a loss due to the “stigma” attached to the property because of the damage.

Muncie v. Wiesemann, Case No. 2017-SC-000235-DG (Supreme Court, Kentucky, June 14, 2018). A faulty underground home heating oil tank on an unoccupied property cracked open one cold December day, spilling 1,000 gallons of fuel oil. The oil flowed downhill, flooding the nearby residence of Cindy and Jim Muncie.

Although Patricia Wiesemann, who was handling the affairs of the estate that owned the unoccupied property, hired contractors to remove the heating oil and prevent further contamination, the leaking continued to damage Jim and Cindy’s place. The contamination caused the Kentucky Environmental Response Branch to declare an environmental emergency, implementing emergency procedures to “limit any human health or environmental impacts” at the Muncie residence.

Litigation ensued. In September 2013, the parties entered into a partial settlement. The settlement allocated $60,000 to the Muncies for restoration costs, intended to remedy actual damages to their property. In return, the Muncies agreed to dismiss all claims against Wiesemann and the Estate, except for a few reserved claims. Prominently, the partial settlement reserved “claims by the Muncies asserting the diminution of the value of their real estate due to the stigma resulting from the contamination…”

Stigma damages, as the name implies, are damages suffered from diminished value to property caused by a negative perception of a site, and call for compensation for the “stigma” to satisfy the fundamental concept that an injured party must be made whole. A perception of harm may be all that is needed to support an award of stigma damages. Such damages are intended to compensate for loss to the property’s market value resulting from the long-term negative perception of the property in excess of any recovery obtained for the temporary injury itself. Were this residual loss due to stigma not compensated, a plaintiff’s property would be permanently deprived of significant value without compensation.

A month after signing the settlement, the Muncies sued Pat in state court for negligence, trespass, and permanent nuisance. Pat filed a motion for summary judgment, arguing that the partial settlement barred the state action because the Muncies were fully paid for the actual damages the contamination caused to their property. She claimed that as a matter of law stigma damages can only be recovered when paired with an actual damages award.

The trial court said while stigma damages can be considered as part of restoration damages – the cost to repair the property – stigma damages cannot be awarded separate from restoration damages. Because the Muncies settled their restoration claim in the partial settlement agreement, the trial court held, no further claim existed. The Muncies’ claim for stigma damages was dismissed.

The Muncies appealed.

Held: Stigma damages can be awarded in Kentucky, and that award can be separate from restoration damages.

Pat complained that because the $60,000 restoration payment was accepted by the Muncies in the partial settlement agreement, they could not now separately seek stigma damages for the diminution in value of their property. To do otherwise would result in a “double recovery” for the Muncies.

The Supreme Court disagreed. In order to recover stigma damages, it held, plaintiffs must have suffered actual property damage. If injured parties receive repair costs that make them whole, then they cannot recover stigma damages that would compensate them above the diminution in their property’s value. But if restoration damages for repair costs is insufficient to make the injured party whole, then a recovery for stigma damages up to the monetary value of the diminution may be proper.

In other words, the Court said, damages recoverable for an actual injury to real property are equal to the sum of the costs of repair and the difference in fair market value of the property before the injury and after it has been repaired. If there is a difference in fair market value after the physical injury has been repaired, then that is the appropriate measure of stigma damages.

Stigma damages measure the amount by which a real property’s value is diminished in excess of repair costs. Here, once the oil was removed from the Muncies’ property and the environmental response team departed, stigma was what remained, and it – by its nature – it cannot be repaired.

“Unquestionably,” the Court presciently ruled, “the devil is in the details for these types of cases. We can only provide broad principles of law. The method for the computation of damages is easily stated but can be difficult to understand. They can also be difficult to prove.” However, when property is damaged by trespass, the degree of the damage is determined at the moment such injury is completed. The recovery shall be the difference in value of the property before the injury occurred, and the value immediately after it is completed. The after-value shall take into account stigma damages, if any. Damages will also include the cost of any repair or remediation.”

Because there was no evidence taken on the stigma damage, if any, suffered by the Muncies, the Supreme Court of Kentucky sent the case back for a factual determination as to whether they were fully compensated for the diminution in fair market value of their property by the $60,000 partial settlement for repair.

– Tom Root