Environmental Stigma Damages
A common claim in environmental litigation is for “stigma” damages. “Environmental stigma” is “an adverse effect on the market’s perception of the value of property containing an environmental risk even after cleanup costs have been expended or considered in estimating value.” The Appraisal Institute, Environmental Risk and the Real Estate Appraisal Process, Chapter 6.
One of the seminal cases in this area is Bixby Ranch Co. v. Spectrol Electronics Corp. No. BC052566 (Cal. Super. Ct., judgment entered Dec. 15, 1993), in which a California jury awarded a property owner damages for permanently decreased property value due to stigma related to a groundwater contamination, which the jury found would persist even after remediation.
The Remediation Lifecycle
Shortly after contamination is discovered, particularly where there is intense media coverage, the public may conclude that a given area is unsafe, unattractive, or otherwise undesirable. This can lead to a significant decrease in property value, due to various concerns including in respect of additional investigation, remediation, legal, or administrative costs.
Where there are significant remediation efforts, stigma tends to decrease over time, with many (although not all) properties gradually returning to their initial value, or close to their initial value, following effective remediation. In some instances, property values have been found to actually increase following cleanup, as consumers may have been reassured that the investigative and remediation efforts would have uncovered any latent defects.
Impact of Remediation Lifecycle on Litigation and Expert Evidence
Given that the plaintiffs’ potential losses of property value tend to vary significantly based on the point in the remediation lifecycle at which value is measured, the time at which an expert (generally a real estate appraiser) quantifies losses related to stigma may become of critical importance.
In many cases, the quantification of the plaintiffs’ claimed losses related to stigma and the associated decrease in property value will be maximized by choosing a point in time nearest to the discovery of the contamination, where the applicable contamination has yet to be remediated or fully remediated.
For the defence, assuming that the post-contamination cleanup efforts follow a relatively standard remediation lifecycle, there is some incentive to quantifying any potential decrease in property damage due to stigma at the latest possible date, where any associated stigma may have largely dissipated.
Regardless of whether you act for the plaintiff or the defendant, attorneys should always pay careful attention to the point in time at which an expert appraiser has quantified losses. It may be a potentially fruitful ground for cross-examination, as it is an assumption upon which the opinion can stand or fall, and in the right case, may be the easiest and most direct line of attack.
Cheryl Woodlin is a partner and Alexander Payne is an associate at Bennett Jones LLP in Toronto, Ontario, Canada.