Opinion ID: 2585557
Heading Depth: 3
Heading Rank: 2

Heading: The Court of Appeal's application of Gunderson

Text: 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.