Opinion ID: 2585557
Heading Depth: 2
Heading Rank: 2

Heading: Case Law and Easement Property Rights

Text: In Gunderson, the Court of Appeal concluded that disputes involving the loss of use of an easement or obstruction of an easement involve only pure rights in property or intangible rights in property. ( Gunderson, supra, 37 Cal.App.4th at p. 1119, 44 Cal.Rptr.2d 272.) Gunderson held that a homeowners liability insurance policy did not require the insurer to defend or indemnify the insureds in an easement action because there was no claim of a tangible property loss. ( Ibid. ) The insureds in Gunderson purchased land believing they owned an easement. The plaintiff, who owned the servient estate, filed a complaint to quiet title, for declaratory relief, for fee title, and for injunctive relief to enjoin the insureds from using her property. ( Id. at p. 1110, 44 Cal.Rptr.2d 272.) The defendants tendered the defense to their liability insurer, which had issued a homeowners liability insurance policy that defined property damage to include `physical injury to or destruction of tangible property, including loss of its use.' ( Id. at p. 1117, 44 Cal.Rptr.2d 272.) The insurer refused to defend the action on the ground that the complaint alleged no tangible property damage, excusing it from any defense obligation. ( Ibid. ) The trial court agreed with the insurer. It concluded that the undisputed facts established no ambiguity in the complaint to alert the insurer to a duty to defend. In disputes involving the right to use or obstruction of an easement, an intangible property right, it found no potential for coverage under the liability insurance policy. ( Id. at p. 1112, 44 Cal.Rptr.2d 272.) On appeal, the insureds claimed potential insurance coverage existed on a loss of use theory. ( Gunderson, supra, 37 Cal. App.4th at p. 1117, 44 Cal.Rptr.2d 272.) According to the insureds' theory, if the plaintiff in the underlying easement action had lost, her land would have been encumbered by an easement that would have restricted her use of her tangible property. ( Ibid. ) The Gunderson court, however, disagreed with the insureds and affirmed the trial court decision. ( Id. at p. 1119, 44 Cal.Rptr.2d 272.) The court reasoned that the plaintiffs failure to allege physical damage to any tangible property that sat on the alleged easement (e.g., to a fence that crossed the property) eliminated any claim for a tangible property loss that would have given rise to a potential for liability coverage. ( Ibid. ) Gunderson emphasized that a dispute over use of an easement, always considered intangible property, simply did not involve damage to tangible property. ( Ibid. ) The court observed that the lawsuit alleged only nonphysical injuries from the [plaintiffs] assertion of adverse claims to the easement, including depreciation of the value of [the plaintiffs] property.... `Understood in its plain and ordinary sense, `tangible property' means `property (as real estate) having physical substance apparent to the senses' [citation]. To construe the explicit words `tangible property' to include intangible economic interests and property rights requires a strained and farfetched interpretation, doing violence to the plain language of the policies. Such an interpretation would rewrite the policies to fasten on the insurers a liability they have not assumed. [Citations.]' Thus, pure rights in property, such as those claimed to have been lost by [the plaintiff] in her underlying complaint, are by definition not the kind of physical damage or injury to tangible property necessary to trigger coverage under the Policy provisions. [Citation.] ( Id. at p. 1119, 44 Cal.Rptr.2d 272.) Other states that have considered the question have also concluded that general liability insurance policies do not provide coverage for intangible property loss. (See, e.g., Columbia Nat. Ins. v. Pacesetter Homes, Inc. (1995) 248 Neb. 1, 532 N.W.2d 1, 6, 8; Guelich v. American Protection Ins. Co. (1989) 54 Wash.App. 117, 119, 772 P.2d 536.)
As noted ( ante, 103 Cal.Rptr.2d at p. 6, 14 P.3d at p. 227), the Court of Appeal here attempted to distinguish Gunderson on the ground that the underlying complaint in that case did not allege any physical injury to or destruction of [the underlying plaintiffs] property, as was required to trigger coverage by the definition of `property damage' in the subject policy. The Court of Appeal concluded that unlike the Gunderson complaint, the Tollaksons' complaint alleged that the Kazis' act of paving the driveway in such a way as to render the land impassable and unusable to the Tollaksons constituted physical injury or damage, just as if the Kazis had dug a hole or erected a fence across the land. The Court of Appeal believed that the `pure rights in property' claimed to have been lost by [the Gunderson plaintiff] in her complaint were to hold her property in fee simple, free of any easement, and to be free of the insured's use of her property which she claimed caused her property to depreciate. It was these rights, and not the right to the use and enjoyment of an easement, which the Gunderson court pronounced to be `intangible economic interests and property rights' and not within the definition of `tangible property.' ... ([ Gunderson, supra, ] 37 Cal.App.4th at pp. 1117-1119, 44 Cal.Rptr.2d 272.) The Court of Appeal misapplied Gunderson's rule. The Gunderson court did note that if the plaintiff had alleged physical property damage (e.g., to a fence or other physical property standing on the alleged easement), the insurer might or might not have had a duty to defend the insureds in an action for that actual physical damage. ( Gunderson, supra, 37 Cal. App.4th at p. 1109, 44 Cal.Rptr.2d 272.) The court did not decide the issue, however, because there were no allegations involving damage to tangible property in that case. ( Ibid. ) Contrary to the Court of Appeal's position, Gunderson did not hold that allegations of physical damage to land burdened by an easement (or other intangible property interest) would give rise to a duty to defend or indemnify for loss of use or obstruction of the easement. The liability insurance policy in Gunderson, as here, required that the complaint allege damage to tangible property in order to trigger a duty to defend or indemnify the claimed loss. ( Ibid. ) Thus, the Kazis' grading a driveway over their own Parcel A and the 10-foot strip they owned that was subject to an easement dispute did not change the nature of the underlying Tollakson action into an action for tangible property loss. Grading over the insureds' own land that may have been subject to an implied easement did not change the easement's intangible nature, nor could it ever change the character of the easement right-of-way the Tollaksons claimed. ( Gunderson, supra, 37 Cal.App.4th at p. 1119, 44 Cal.Rptr.2d 272.) It is the nature of the easement right that was at issue, not the physicalities that may relate to it. ( Ibid. ) As Gunderson made clear, a loss of pure rights in property is not the physical damage or injury to tangible property required to trigger a duty to defend or indemnify under general liability insurance policies. Because an easement interest conveys no property rights to the land subject to the easement, it exists only to benefit the easement holder's property. Interference with an easement frustrates the right of access by the easement holder to the burdened property, regardless of the method used to obstruct it, i.e., whether the easement is cordoned off or is physically damaged. In either case, the remedy is the same: the plaintiff must request that the obstruction be removed. ( Scruby v. Vintage Grapevine, Inc. (1995) 37 Cal. App.4th 697, 703, 43 Cal.Rptr.2d 810.) The damages are also the same in either case: the dominant estate's loss of rental value and diminished property value, or loss of the easement's fair market value. In neither case, however, may an easement holder sue for damages to the underlying property, which the owner of the servient estate holds in fee title. Decisions in analogous situations support this conclusion. In Schaefer/Karpf Productions v. CNA Ins. Companies (1998) 64 Cal.App.4th 1306, 1319, 76 Cal. Rptr.2d 42, the Court of Appeal held that the comprehensive general liability insurance policy did not provide coverage for the plaintiffs losses. There, the insured videotape duplication company had inadvertently copied the plaintiff television producer's family special, The Best Christmas Pageant Ever, onto used cassette videotapes containing pornography. Unfortunately, the family special was shorter than the pornography, when viewed by purchasers of videotapes of the plaintiffs television show. The plaintiff asserted that its resulting lost profits were due to the damaged tapes, which were tangible property (the insurance policy covered damage to tangible property). ( Id. at p. 1317, 76 Cal.Rptr.2d 42.) The Court of Appeal disagreed, reasoning that the plaintiffs damages did not flow from a physical injury to the tapes, but from the injury to the plaintiffs concept of a story about a Christmas pageant, which was intangible property. ( Id. at p. 1316, 76 Cal.Rptr.2d 42.) Similarly, here the damages did not flow from any injury to the land, but from the alleged injury to the Tollaksons' right to an easement over Parcel A, which is intangible. In Lucker Mfg. v. Home Ins. Co. (3d Cir.1994) 23 F.3d 808, 810 ( Lucker ), the circuit court held that the design concept for a product was not tangible property under a comprehensive general liability insurance policy. The insured's actions caused the plaintiff to have to revise its design plans. The circuit court agreed with the carrier that where the real value of a design is in the idea, not in the physical plans that memorialize that idea, any loss in value of the design represents a loss in value of the idea, which is intangible. ( Id. at pp. 812-813.) Lucker reasoned that none of the losses Lucker sought from [the insured] represented a loss in value of the storage medium in which the design ... was embodied.... The recovery Lucker sought was for the loss of use of the design itself.... For this reason, we hold that Lucker's loss of use of the ... design was not loss of use of tangible property. ( Id. at p. 820.) Similarly here, the alleged loss in value of the Tollaksons' property was from the loss of the use of the easement over the Kazis' property, not damage to the physical medium, or the property itself. The real harm was the loss of use, which is intangible. In Waller, we held that intangible economic losses, which fell outside the liability policy coverage, caused the emotional trauma that investors suffered. ( Waller, supra, 11 Cal.4th at p. 22, 44 Cal.Rptr.2d 370, 900 P.2d 619.) We stated that it is widely understood by both insureds and insurers that such policies are not intended to cover economic losses.... [T]he damages alleged in [the underlying] complaint flowed from intangible property losses.... ( Id. at p. 15, 44 Cal.Rptr.2d 370, 900 P.2d 619.) Like Waller, here the damages flow from an intangible lossloss of use. Again, no damages are claimed, or could be claimed, for the loss of value to the underlying land itself.
The Kazis also persuaded the Court of Appeal that the Tollaksons' complaint alleged actual physical damage to the Tollaksons' own Parcel B. Indeed, the Court of Appeal erroneously interpreted the underlying complaint to allege that the Kazis had graded and trespassed on Parcel B, as well as on the land on Parcel A subject to the claimed easement. Grading and trespassing on the neighbors' land would certainly seem to be property damage under the terms of the liability policies and would, if true, probably have triggered coverage independent of the intangible property issue discussed above, at least as to the trespass and ejectment causes of action. As the insurers observe, however, the Tollaksons' complaint alleged only the intention to convert the 10-foot strip on the Kazis' own Parcel A. In other words, the only property loss claimed in the Tollakson lawsuit was that the Kazis were interfering with the Tollaksons' ability to use an easement across Kazis' own property. Nonetheless, because the Tollaksons alleged that the Kazis graded Parcel A and obstructed Parcel B's right-of-way over the Common Driveway Easement, the Kazis convinced the Court of Appeal that the Tollaksons were actually seeking to recover for physical injury to Parcel B. In turn, the Court of Appeal reasoned that the Tollaksons' complaint stated a claim that was potentially covered under the Kazis' liability insurance policies indemnifying third party property damage and personal injury. As a plain reading of the Tollaksons' underlying complaint reveals, and as defendant insurers correctly assert, however, the only property in dispute in the Tollakson lawsuit was the 10-foot strip of property on Parcel A where the Kazis built an access road to their building site in the vicinity of the Tollaksons' property boundary line. The Tollaksons' complaint alleged that the Kazis' grading of the 10-foot strip of property on Parcel A which was subject to an implied common driveway easement to Parcel B, obstructed it and interfered with their right to use Parcel A as a right-of-way to Parcel B. Nowhere did the complaint allege any physical damage to the Tollaksons' parcel, including that parcel's 10-foot strip of property that would have constituted the other half of the implied easement. Indeed, the complaint's actual words illustrate the Court of Appeal's error. As defendant insurers observe, the Tollaksons' complaint alleged only a loss of use of their implied easement over the Kazis' Parcel A as follows: [The Tollaksons] claim that there exists upon Parcel A an implied easement for a common driveway, for ingress, egress, and a right of way over and across Parcel A, parallel to the Boundary Line and for a width of not less than ten feet (the Disputed Property), all of which is appurtenant to Parcel B, and that Parcel B is the dominant tenement and Parcel A the servient tenement of such easement (hereinafter `the Common Driveway Easement'). Thus, under the Tollakson complaint, the term Disputed Property referred to the 10-foot strip of land the Kazis owned in fee simple. In addition, the complaint defined the term Common Driveway Easement to refer to the Tollaksons' easement or right-of-way over that Disputed Property. Therefore, the Tollakson complaint's definition of the Common Driveway Easement included only a portion of Parcel Athe Kazis' propertyand in no way included any portion of Parcel B. When the Tollaksons complained that the grading of Parcel A interfered with the entirety of the Common Driveway Easement, they were complaining that the Kazis' grading and construction involved Parcel A only and did not involve trespass on or destruction of any part of Parcel B. Even the trespass and ejectment allegations involved loss of use and occupation of the 10-foot strip of land that is part of Parcel A, or the Kazis' half of the alleged implied easement. [2] In sum, the Tollaksons' fundamental loss at stake here was their right to use the implied easement over Parcel A and the alleged harm they suffered because of that loss of use. The law is clear, however, that in order to trigger a duty to defend, the Tollaksons had to allege that their own physical property, including the 10-foot strip of land on their parcel that was arguably subject to an implied easement for a right-of-way, was damaged when the Kazis graded their property. Their complaint made no allegations of damage to Parcel B, and hence, there was no possibility of liability coverage for third party property damage in this lawsuit. The Court of Appeal erred in distinguishing Gunderson from the Tollakson action.