Loss of Use is Property Damage
The homeowner's insurer brought an action against the insured condominium unit owner and against the owner of the unit neighboring the insured seeking a declaration that the insurer had not duty to defend in the lawsuit against the insured. This case is Citation Insurance Company v. Newman, 2011 WL 3595410 (Mass.App.Ct.).
A dispute arose between Hanratty (the insured) and his neighbor, Newman, over a through-the-wall air conditioner that projected into a yard area to which Newman held an exclusive easement. Newman sued Hanratty demanding damages on the theories of nuisance, trespass, and defamation. Hanratty forwarded the complaint to his insurer, Citation, and the insurer agreed to defend, subject to a reservation of rights. With the underlying action pending, Citation filed a declaratory judgment action seeking a determination that its policy did not provide coverage for the claims asserted against its insured. Hanratty countersued, alleging that the insurer had wrongfully refused to fully pay for the defense. Then, he settled with Newman and assigned his counterclaim to her.
The Superior Court Department entered summary judgment in favor of the insurer. Newman appealed and contended that Citation had a duty to defend Hanratty and that, since he assigned his claims to her, she is therefore entitled to certain attorney's fees and costs incurred by her and Hanratty in the underlying litigation.
Newman argued that Citation had a duty to defend Hanratty since her claim alleging trespassing and nuisance amounted to a loss of use of her yard. She said that when the air conditioner was operating, it was noisy and projected a blast of hot air over her yard area. This created a substantial and unreasonable interference with her use and enjoyment of her property. Citation argued that Newman's claims did not allege property damage as defined in Hanratty's policy. In particular, Citation said that any possible physical damage or loss of use suffered by Newman affected only an easement that she possessed. And, according to Citation, an easement is merely an intangible interest in the property of another and so, does not constitute tangible property as required by the policy definition of property damage.
The appeals court said that the nature of Newman's interest in the yard does not make any difference. The court said that an easement is an interest in real property, albeit one that is nonpossessory. The salient difference between an easement and an estate is only that the holder of an easement does not possess the realty as does an estate owner; rather the holder may use the land burdened by the easement to the extent defined by its terms. This does not make the easement an intangible interest.
The court ruled that whether the claimant owns, rents, or holds an easement to real property, the property itself is tangible. And, a claim about loss of use of that property is a claim for loss of use of real and tangible property as required by the definition in the policy. The ruling of the trial court was vacated.
Editor's Note: The court's ruling that loss of use is property damage is not out of line since the policy defined property damage as including loss of use. What is worth noting here is that the court found an easement, that is, a right to use property, should not be considered as merely an intangible interest.
The court quoted a leading treatise on the subject: “all estates, interests, and rights in property are without material substance; each is an abstract concept recognized in the law. It is only the property itself that physically exists.” And since the use of that physical property was infringed by the insured, the claim for property damage by the claimant should have been defended by the insurer.