residential environmental litigation

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CONTINUING LEGAL EDUCATION:RESIDENTIAL ENVIRONMENTAL LITIGATION

Presented to:Kansas Association for JusticeCrown Center SeminarDecember 4, 2009Kansas City, Missouri

Presented by:Edward L. RobinsonJoseph & Hollander, P.A.500 N. MarketWichita, KS 67214316.262.9393 Phone316.262.9006 [email protected]


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122.12.233.13.1.13.1.23.1.33.23.2.13.2.23.34

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TABLE OF CONTENTS

IntroductionTypes of Property

Damage to ResidenceDamage to Other Real Property

Typical Litigation ScenariosPurchaser of Contaminated Property

Liability of SellerLiability of Real Estate AgentLiability of Home InspectorOwner of Property that Becomes Contaminated

By ContractorBy Adjacent Landowner

Renter of Contaminated PropertyInsurance IssuesCategories of DamagesRemediation and Restoration of Contaminated Property

Page 2 of 11Copyright 2009 by Edward L. Robinson. All rights reserved.


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7 INTRODUCTIONResidential environmental litigation can be complex, involving federal, state and localenvironmental laws as they apply to residences, surrounding surface property and subsurfaceresources. It should be contrasted with commercial environmental litigation, which involves ahost of other issues and federal laws.In order to properly represent a client whose property has been contaminated by theintentional or negligent act of another, one must tread carefully, knowing the traditional statutesand common law have in many cases been modified and/or abrogated for residentialenvironmental disputes. Failure to understand these intricacies may result in the investment ofsubstantial resources for legally meritless claims.Understanding the legal and factual issues arising in residential environmental litigation

depends on the proper categorization of property, client and adversary. These materials shouldnot be considered an all-encompassing resource for those wishing to practice in the area ofresidential environmental litigation. Rather, they are an introduction to the most commonsituations and applicable laws and statutes. Should you have questions about anything containedherein, please do not hesitate to contact me.8 TYPES OF PROPERTYThe term "residential" as used herein includes dwellings and the real propertysurrounding them. Although residential contamination often affects the client's dwelling as well

as the surrounding real property, there are times when the damage does not affect both.8.1

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DAMAGE TO RESIDENCEThe types of contamination to one's residence commonly involves mold, asbestos orother construction materials. Claims for contamination to one's residence are generallygoverned by state law.

DAMAGE TO OTHER REAL PROPERTYThe types of contamination to real property typically involves an adjacent landownerallowing pollutants to enter the property of your client, causing damage. These claims can be

governed by federal environmental laws, as well as state common law.

Page 3 ofllCopyright 2009 by Edward L. Robinson. All rights reserved.


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9 TYPICAL LITIGATION SCENARIOSResidential environmental disputes typically fall into one of three categories: a newhomeowner purchases contaminated property; an existing homeowner suffers contamination byan adjacent landowner or contractor; or a renter inhabits contaminated property.

9.1 PURCHASER OF CONTAMINATED PROPERTYThe most common litigation scenario involves a purchaser who discovers the property iscontaminated or otherwise defective after the purchase. Due to the increasing prevalence ofmold (and most recently, Chinese drywall) in homes, sellers have a significant financialincentive to either fail to disclose these issues or affirmatively conceal them to make the propertymarketable.

9.1.1 LIABILITY OF PROPERTY SELLERSThe liability of sellers for failing to accurately state the condition of the property has beenhotly litigated in the last ten years , and the cumulative effect has been a wholesale abrogation ofa buyer's right to rely on a seller's statements. Claims for intentional misrepresentation (fraud),negligent misrepresentation, breach of contract and violation of the Kansas Consumer ProtectionAct are most common in these situations.

9.1.1.1 INTENTIONAL MISREPRESENTATIONPrior to the 1990s, the common laws of fraud by silence and fraudulent misrepresentation

applied in the same way it applied to other situations? Therefore, if a seller misrepresented thecondition of a home, the seller could be held liable for hislher fraud?With the advent of standard-form purchase agreements, typically drafted and encouraged

by local Realtor associations, the law of fraud has become less available to home buyers againstdishonest sellers. Even though Seller's Property Disclosure Statements are used as a matter ofcourse in residential real estate transactions, form purchase contracts require buyers to take theextra step of expressing in the contract the statements of the seller on which they were relying or

ISee, e.g., Katzenmeier v. Oppenlander, 39 Kan. App. 2d 259,178 P.3d 66 (2008) (holding that buyerswaived their right to rely on seller's representations and relied on their own inspections, therefore summaryjudgment was appropriate); Brennan v. Kunzle, 37 Kan. App. 2d 365, 154 P.3d 1094, rev. denied 284 Kan. 945(2007); Phillips v. Tyler, 35 Kan. App. 2d 256,264, 129 P.3d 656, rev. denied 281 Kan. 1378 (2006); McLellan v.Raines, 36 Kan. App. 2d 1, 140 P.3d 1034 (2006); Alires v. McGehee, 277 Kan. 398,403,412,85 P.3d 1191 (2004);Hamtil v. J.c. Nichols Real Estate, 22 Kan. App. 2d 809, 811, 923 P.2d 513 (1996); see also Westerbeke, Survey ofKansas Tort Law: Part II, 50 Kan. L. Rev. 225, 280 (2002).2 See, e .g . , Fox v. wilson, 507 F.2d 252, 266 (Kan. 1973) .

3Id.Page 4 of 11

Copyright 2009 by Edward L. Robinson. All rights reserved.


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waive their right to rely on any statements, including anything contained I I I the PropertyDisclosure.The ability of a seller prevent a buyer from relying on the seller's statements regardingthe condition of the property has been repeatedly challenged, and the Kansas Court of Appealsrecently held that such terms were unenforceable as a matter of public policy.4 Unfortunately,the Kansas Supreme Court recently granted review of this decision,5 and will (hopefully) soonsettle this issue once and for all. Until then, buyers should not presume that they may rely on a

seller's statements unless they take affirmative steps to protect themselves.69.1.1.2 NEGLIGENT MISREPRESENTATION

The issues and concepts discussed supra regarding intentional misrepresentation applyequally to claims for negligent misrepresentation.9.1.1.3 BREACH OF CONTRACT

Claims for breach of contract are also common when sellers fail to be entirely forthrightregarding the condition of the property. In a residential transaction, the purchase contract andseller's property disclosure statement are considered one document. In the cases prior toOsterhaus v. Toth, Kansas appellate courts reasoned that since the buyers released the sellersfrom any obligation to disclose adverse information, any false statements made by the sellers didnot breach their duty to disclose as expressly stated in the two documents. Therefore, under thecurrent state of the law, claims for breach of contract likely are barred (again, this is dependenton the Kansas Supreme Court's much-anticipated decision in reviewing Osterhaus).9.1.1.4 KANSAS CONSUMER PROTECTION ACT

Although the Kansas Consumer Protection Ace (KCP A) generally applies to homepurchase transactions, the typical home seller would not be considered a supplier, so the KepAwould not apply to a dispute between a buyer and seller.

9.1.2 LIABILITY OF REAL ESTATE AGENTS4Osterhaus v. Toth, 39 Kan. App. 2d 999 (2008); see also Hanson v. The Hackman Corp, 2008

Kan.App.Lexis 795 (Oct. 3, 2008)5http://judicial.kscourts.org:7780iplsicoaiCLERKS_ OFFICE.list_case_ detail?i_case_ number=9784 7 &i_ca

se name=.- 6The author has developed a system called RealAssist to help home purchasers protect themselves during

the Course of a residential transaction.7K.S.A. 50-623 et seq.Page 5 of IICopyright 2009 by Edward L. Robinson. All rights reserved.


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The relationship between home buyers and the real estate agents representing the partiesis governed by the Brokerage Relationships in Real Estate Transactions Act (BRRETA), KS.A.58-30,101 et seq. BRRETA states that a seller's agent "shall not disclose any confidentialinfonnation about the client unless disclosure is required by statute or rule and regulation orfailure to disclose the infonnation would constitute fraudulent misrepresentation." K.S.A. 58-30,106(c). This obligation is also on appeal in Osterhaus v. Toth, and hopefully the KansasSupreme Court will soon lay this issue to rest.9.1.3 LIABILITY OF HOME INSPECTORS

In 2008, the K.ansas legislature passed the Kansas Home Inspeetors ProfessionalCompetence and Financial Responsibility Act, K.S.A. 58-4502 et seq. Since then, the KansasHome Inspector Registration Board has worked on preparing rules and regulations, which willsoon be published.8 Prior to this legislation being enacted, home inspectors were allowed tolimit their liability to the purchase price of the home inspection; regardless of how negligent theinspector was or how big a problem he/she missed. Now, home inspectors not only must beregistered (which requires either substantial previous experience or meeting minimum educationand testing requirements), but also may not limit their liability to less than $2,000.00, and mustcarry insurance of not less than $10,000.00.10 Under this legislation, inspectors may contract forgreater liability.Importantly, actions against home inspectors must be brought within one year of theinspection (thus altering the traditional statute of limitations for negligence and fraud).ll Thetransaction between a home purchaser and a home inspector clearly falls within the Kansas

Consumer Protection Act, which has a three-year statute of limitations. It is not clear whichwould govern if a home buyer brought suit against a home inspector, but it is likely that beeausethe home inspector legislation is specific in nature, courts may rule that even KCP A claims mustbe brought within one year.

8In the interest of full disclosure, the anthor has heen a member of the Kansas Home Inspector RegistrationBoard since it was formed in 2008.9See, e.g., Molerv. Melzer, 24 Kan. App. 2d 76, 942 P.2d 643 (1997).10K.S.A. 58-4509 (2008); H.B. 2315 (2009).IIK.S.A. 58-4512( d) (2008).



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9.1.4 PRODUCT LIABILITY ISSUESAlthough newer homes are considered by some to be constructed of higher qualitymaterials, relatively new homes may be built with materials that are the subject of class actionlawsuits. Examples include, but are not necessarily limited to: The installation ofdrywall supplied from China12 Weyerhauser brand exterior hardboard siding13 ABTCO/ABITIBI hardboard sidingl4

If a client discovers hislher home was installed with such materials, there may be a questionwhether the seller was aware of this problem at the time of the sale. In sueh cases, the failure todisclose such known defects would be subject to the limitations discussed above regarding sellerliability. If the seller was not aware of such problems, the proper course would be to submit aclaim to proper entity and determine whether a claim should also be submitted to the client'sown insurance company (see below).9.2 OWNER OF PROPERTY THAT BECOMES CONTAMINATED

Residential property is not always contaminated at the time of purchase. In some cases,the property becomes contaminated through a contractor or an adjacent landowner. These casespresent their own challenges.9.2.1 CONTAMINATION BY CONTRACTOR

A common example of contamination is when a contractor, either during a remodel orremediation/restoration of property following casualty, makes matters worse by contaminatingthe property with construction materials o r materials existing in the house (such as asbestos) thatwere stable prior to the contractor's involvement.If the contractor was involved due to remediation/restoration following casualty, It ISimportant to determine whether the client's first-party insurer chose the contractor. If so, theinsurance company may be involved for negligently recommending that contractor. If the clientchose the contractor themselves, the common claim is for negligence, and less commonly for

violations of the KCPA (for example, if the contractor has a history of such problems). Theprimary problem in such cases is the contractor's insurance coverage. Many insurance policiescontain exclusions for environmental damage, so one must proceed with caution in these cases.

121illJ:1:llwww.cpsc.gov/info/drywalVindex.html.13http://www.weyerclaims.com!14 b l'www.a teoe [email protected]:h9Qm



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9.2.2 CONTAMINATION BY ADJACENT LANDOWNERCases involving contamination by an adjacent landowner are each unique, but have somecommon threads. The typical claim in these cases is for trespass and negligence. However,some of these cases involve complex issues of federal environmental law.For example, if the client's property contains "waters of the United States" and thatproperty is contaminated by a "pollutant", as those terms are used in Federal Water PollutionControl Act/Clean Water Act, the client may bring an original action as a private attorneygeneral in the United States District Court. In some such cases, attorney's fees may be recoveredalong with actual damages.Another example is if the adjacent landowner releases "solid waste" or "hazardous

waste" as those terms are used in the Solid Waste Disposal Act/Resource Conservation RecowryAct. As above, in these cases the client may bring an original action in United States DistrictCourt, and in some cases may recover attorneys' fees.Cases involving pollution by adjacent landowners such as feedlot or industrial facilitieswill almost invariably implicate federal environmental laws, so such cases should be evaluatedand prosecuted accordingly.

9.3 RENTER OF CONTAMINATED PROPERTYIt appears to be increasingly common for rental property to become contaminated withmold. In such cases, the relationship between the landlord and tenant will be governedexclusively by the Kansas Residential Landlord and Tenant Act (''RLLTA,,)15 The RLLTA is

generally concerned with the disposition of rents and deposits, but does provide for the recoveryof damages in certain, limited situations. They are:

-Noncompliance by the landlord with the rental agreement;-Noncompliance with K.S.A. 58-2553; or-Noncompliance with tenant's rights listed in K.S.A. 58-2559(a).16Unless the tenant can show that the property contamination falls into one of these threecategories, their claim likely will be limited to a possible refund of rent.

15K.S.A. 58-2540 et seq.16See K.S.A. 58-2559(b).Page 8 of 11Copyright 2009 by Edward L. Robinson, All rights reserved.


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10 INSURANCE ISSUESPerhaps due to the increased prevalence of residential environmental claims, manyinsurance companies are waiving coverage for damage due to mold or other environmentalcontaminants. Because of these waivers, it is important to be mindful of how a claim issubmitted to avoid such waivers.

10.1 FIRST PARTY ISSUESWhen mold or other environmental contaminants are discovered, it is certainly worthconsidering the preliminary step of submitting the claim to the homeowner's first-party insurancecarner. Failure to make this first step may cause a waiver of coverage for an otherwise-coveredevent.Unfortunately, many homeowner's insurance policies contain exclusions for mold orother environmental contaminants. Therefore, it is critical that if the only reasonable avenue forrecovery is the first-party insurance, that claims be made in such a way that avoids thescexclusions. For example, if a client suffers a burst plumbing pipe in the house, and then hires acontractor who causes environmental damage during the repair, it is important that any first partyclaim be for the water damage only, and not for the mold that may have grown due to thepresence of the moisture. In many cases the proper remediation steps will be substantiallysimilar, so if the claim is submitted only for water damage and leaves out the issue ofmold, thereis a greater likelihood of the claim being accepted.The author is unaware of any instances of a homeowner successfully challenging the

mold and environmental contaminant exclusion in an insurance policy, so care should be taken toavoid this pitfall.10.2 THIRD PARTY ISSUES

Just as dangerous as first-party exclusions for mold and environmental contaminants,many insurance policies for contractors have exclusions for environmental damage. In thesecases, the case may be approached in similar way as the first-party claim method outlined supra.However, using this strategy in a third-party situation is much riskier because the insurancecompany may provide a defense without a duty to pay any damages, and the defendant may bewithout the means to pay a judgment. It is the:efore critical that any residential environmentalclaim involve a careful analysis of the responsible parties' insurance policies and/or otherfinancial means.

Sometimes it is impossible to obtain the defendant's insurance policies prior to beginninglitigation, which can present its own difficulties. However, there are some methods of learningmore information before beginning litigation. For example, environmental

Page 9 of IICopyright 2009 by Edward L. Robinson. All rights reserved.


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remediation/restoration contractors typically have independent insurance policies forenvironmental damage. Another acceptable method is having a private investigator uncoverwhat information is available. In any event, anyone practicing in this area should be acutelyaware of the increasingly common mold and environmental insurance exclusions and governthemselves accordingly.11 CATEGORIES OF DAMAGES

The damages recoverable in residential environmental litigation are of course dependentupon the causes of action asserted in any given case. Nevertheless, the following are commonexamples of damages categories sought in such cases:-Damage to Real Property-Damage to Personal Property-Medical Expenses-Pain and Suffering Damages-Out ofPocket Expenses-Lost Income-Attorneys' Fees (for KCPA claims and federal environmental claims)-Punitive Damages (for fraud claims)

This list should not be considered exhaustive. A separate seminar could be taught regardingdamages in residential environmental litigation, especially for valuation of property, so if youhave any questions please do not hesitate to contact me.12 REMEDIATION

PROPERTYAND RESTORATION OF CONTAMINATED

Hardly anyone contemplates owning their current house until they die. Therefore, whendealing with contaminated properties, buyers must consider how they will minimize theconsequences of the contamination when marketing the property to a future buyer, and thereforemaximize the market value of the property.In Kansas, a Seller's Property Disclosure Statement will require a seller to disclosevirtually any contamination problem to future buyers. 17 If a seller fails to have the propertyremediated properly, the result may be a substantial reduction in the market value of the propertyor an outright inability to sell the property.

17Although seUers may be effectively immunized from liability for any misrepresentations during thecourse of a transaction under the current state of the law, an honest seUer will fuUy disclose any contamination orother defects. In addition, if the Kansas Supreme Court affmns the Kansas Court ofAppeals' decision in Osterhausv. Toth [citation], buyers wil l be allowed to rely on a seller's statements (or silence) during the transaction.

Page IO of l lCopyright 2009 by Edward L. Robinson. All rights reserved.


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A three-step framework is accepted for restoring the market value of contaminatedproperty. The first step is to obtain inspections as needed from qualified environmentalinspectors.18 Each inspector will compile a report of the contamination and detail a protocol forremediating and/or restoring the property. The protocol is then given to qualified contractors,who will provide bids for the protocol. Once the contractor has completed the inspector'sprotocol, the inspector will conduct a follow-up inspection to ensure the work has beencompleted to the inspector's protocol, and if it has, the inspector will issue a follow-up reportshowing the contamination has been remediated and/or restored according to acceptedtechniques.

If a homeowner follows this three--step framework, he/she will be able to provide thisinformation to future buyers as part of the property disclosures. Historical property appraisalshave shown either a complete recovery of the lost market value or a net increase in the marketvalue of the property due to a recent passing environmental inspection.

18There are relatively few such inspectors in the State of Kansas. The author will provide contactinformation for such inspectors upon request.


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