Service contracts should be reviewed carefully before you agree to employ the consultant.  Service contracts often have very limited disclaimers.  These disclaimers may state that in the event the consultant makes a mistake, your liability is limited to the amount of the inspection or another limited dollar amount.  In addition, the contract may give you a very limited time frame in which to present a claim.  Such limited remedies could leave you in an unfortunate situation if a substantial defect is discovered after you own the property.  If you cannot recover from a third party for the defect, you could be positioned like the characters played by Tom Hanks and Shelly Long in the 1980’s movie The Money Pit. 

When contacting a real estate consultant, be sure to ask about the form of their service contract and whether the consultant carries professional liability or error and omissions insurance.  Ask to see a copy of the service contract well in advance of the property inspection.  In addition, you are entitled to obtain a current insurance certificate disclosing the amounts and types of coverages carried by the consultant.  Such background checks may prove invaluable if you later discover a mistake of the consultant.

Author: Jason P. Lueking (bio)
Phone: 317.464.1591
email: jlueking@bamberger.com

A recent case shows that in certain circumstances, landlords that own contaminated property are not necessarily on the hook for certain environmental claims.  In Martinsville, Indiana, a tenant spilled the dry cleaning solvent PCE during six or so years of operations, and the PCE migrated to the neighbor’s off-site property through the groundwater, soil and into indoor air.  The neighbor sued the landlord–the property owner at the time tenant operated and spilled the PCE.   The lower court denied the neighbors claims against the landlord and the case was appealed.  On the nuisance count, the Indiana Court of Appeals looked to a 1909 case to guide its decision on whether the landlord was liable to the neighbor for its tenant’s release of regulated chemicals into the environment.  

In Indiana, the long-established, general rule for landlord liability is whether the landlord had “actual knowledge” of tenant’s nuisance.   Showing “actual knowledge” requires direct evidence, which is not always easy or cheap to come by.  The case illustrates how it can be difficult to prove “actual knowledge” in environmental contamination cases.

The following facts in Neal v. Cure,—N.E.2d—, 2010 WL 4782240, No. 49A04-0908-CV-468 (Ind. Ct. App. November 24, 2010), did not convince the Indiana Court of Appeals that the landlord had “actual knowledge” of the tenant’s environmental nuisance:

• Tenant’s drums of PCE and waste oil out in the open;
• Landlord knowing that PCE was used on the property by tenant;
• Landlord visiting the property, seeing drums and declaring that tenant was a “sloppy housekeeper;” and
• Landlord’s awareness of a spill of PCE in 1991, where the landlord was told “it didn’t amount to anything.”

None of these facts were direct evidence that landlord knew the activities of the tenant had created contamination amounting to a nuisance.

The affected neighbor suing the landlord suggested that Indiana should adopt a “knew or should have known standard” that some other states use instead of Indiana’s “actual knowledge” standard.  The court declined, citing the 1909 case and explaining that the Indiana decisions are clear:  a landlord will only be liable for a tenant’s nuisance if 1) the character of the business itself is a nuisance, 2) landlord knew about the nuisance and could stop it but failed to do so, or 3) landlord consents to the maintenance of the nuisance.   The neighbor did not argue that the dry cleaning operation was a nuisance just by its character, and the neighbor could not prove that the landlord had actual knowledge of the tenant’s nuisance.  In fact, the neighbor’s claims against landlord in trespass, nuisance, negligence, and under Indiana’s Environmental Legal Action statute were all denied by the court because of landlord’s lack of actual knowledge or involvement in tenant’s activities which caused the environmental contamination.  

There are many circumstances when a property owner is liable to third parties, including the state, due to contamination migrating from his property and impacting others.   A landlord defending certain claims from neighbors can look to Indiana law established since 1909 and further explained in 2010 to evaluate potential liability resulting from a tenant’s environmental nuisance.

Author: Jamie B. Dameron (bio)
Phone: 317.464.1591
Email: jdameron@bamberger.com

In KB, The Indiana Court of Appeals reversed the lower court’s ruling and allowed a home builder’s negligence claim against a former manufacturer who had contaminated the off-site groundwater.  The court explained its reversal on the negligence claim and further explored why the home builder did not have trespass or nuisance claims against the polluter.

KB, the adjacent property owner and home builder, sought damages for Rockville’s contamination of the groundwater at KB’s property.  Rockville and predecessors contaminated the groundwater with TCE, a common and toxic solvent, released during operations from 1969 through 1993.  Rockville stopped using the TCE and removed the product from its property in 1993.  At about the same time, environmental investigations revealed the TCE contamination at Rockville’s property, and by 1997, evidence showed that contamination had migrated “through all of” the off-site, adjacent property later purchased by KB. 

In 1999, KB purchased lots at the adjacent property for residential development.  KB did not perform any environmental due diligence; however, the seller of the off-site property executed affidavits indicating that the property was not contaminated. Investigations a few years later further confirmed that TCE had migrated off-site in the groundwater from Rockville’s property and flowed under KB’s lots, but the seller did not disclose that information to KB.  It wasn’t until 2005, when KB performed its own investigation that it learned of the TCE contamination at its property. 

Trespass requires a showing that 1) plaintiff owned the land at the time of the trespass and 2) the entry onto land was illegal. The Court of Appeals agreed that the trespassing activity ended well before KB owned the adjacent property.  TCE was used or released at Rockville’s property before 1993, had spread under all of the adjacent property by 1997, and KB did not have ownership of the adjacent property until 1999.   The court explained that KB simply did not own the land at the time of the contaminant migration, and therefore, KB did not have a trespass claim.

The nuisance claim also failed based on the timing and characterization of the polluting activity.  The Court of Appeals denied KB’s nuisance claim on grounds different than those relied upon by the lower court.  The lower court dismissed the nuisance claim under the reasoning that damages to KB’s property were not “foreseeable as a matter of law.”   The appellate court disagreed outright and held that “it is undisputable that the environmental damage to KB’s property is precisely the type of harm that a reasonable person would foresee from Rockville’s release of dangerous pollutants.” 

Instead, the Court of Appeals focused on the remedy, which is to “abate or enjoin the nuisance” where a nuisance claim is “designed to cease or lessen the defendant’s continued offensive behavior.”  The question then becomes, what is the nuisance causing behavior when the manufacturer is long gone and no longer owns or operates the property?  In Gray v. Westinghouse, 624 N.E.2d 49 (Ind. Ct. App. 1994), where capacitors in a dump caused PCB contamination in groundwater, the court held that the polluting party may be held liable for nuisance even if it does not own or operate the property where “the nuisance originates.”  However, the court noted that Gray did not discuss the facts that 1) the contamination was caused before plaintiff occupied the adjacent land and 2) the dumping activity had stopped years before plaintiff filed his claim.  

In KB, the court determined that “Rockville’s release of chemicals to the ground caused the harm,” and “Rockville’s contamination of the property ceased in 1993.”   In the words of Chief Judge Baker, “under these circumstances, KB has failed to show that a nuisance existed or was ongoing that could be abated or enjoined.  Put another way, the damage has already been done, and KB’s cause of action against Rockville sounds in negligence.”  It is not clear if the court considered the fact that the plume had migrated through the KB property by 1997, as it did in the trespass claim or if it is limiting the offending behavior in the nuisance claim to Rockville’s on-site releases of TCE to the ground.

With the polluting activity over and the environmental damage done, KB is still left with its negligenceclaim.  KB claimed that Rockville’s negligent conduct caused the contamination and that Rockville was negligent in failing to stop the contamination from migrating.  The Court of Appeals reversed the trial court’s finding that the economic loss doctrine precludes KB from pursuing its negligence claim.  KB did not have any contract with Rockville and did not assert any product liability type claim, so the economic loss doctrine could not bar the negligence action.  The court remanded the negligence cause of action for trial.

KB and Gray, create some uncertainty with environmental trespass and nuisance claims against a polluter who is no longer spilling, dumping or using the contaminant at the property where the nuisance originated.   The cases show that understanding technical evidence involving the pollution migration and the nature of the polluting activity are critical in evaluating how a court may consider the timing of the trespass and the duration of the nuisance causing behavior.

Author: Jamie B. Dameron (bio)
Phone: 317.822.6787
Email: jdameron@bamberger.com

Service contracts should be reviewed carefully before you agree to employ the consultant.  Service contracts often have very limited disclaimers.  These disclaimers may state that in the event the consultant makes a mistake, your liability is limited to the amount of the inspection or another limited dollar amount.  In addition, the contract may give you a very limited time frame in which to present a claim.  Such limited remedies could leave you in an unfortunate situation if a substantial defect is discovered after you own the property.  If you cannot recover from a third party for the defect, you could be positioned like the characters played by Tom Hanks and Shelly Long in the 1980’s movie The Money Pit. 

When contacting a real estate consultant, be sure to ask about the form of their service contract and whether the consultant carries professional liability or error and omissions insurance.  Ask to see a copy of the service contract well in advance of the property inspection.  In addition, you are entitled to obtain a current insurance certificate disclosing the amounts and types of coverages carried by the consultant.  Such background checks may prove invaluable if you later discover a mistake of the consultant.

Author: Jason P. Lueking (bio)
Phone: 317.464.1591
email: jlueking@bamberger.com