California Court Holds Offensive Odors Are Not Property Damage
In its recent decision in Travelers Property Casualty Company of America v. Mixt Greens, Inc., 2014 U.S. Dist. LEXIS 39548 (N.D. Cal. March 25, 2014), the United States District Court for the Northern District of California considered whether an underlying claim involving allegations of harm caused by odors emanating from the insured’s restaurant triggered coverage under a general liability policy.
Mixt Greens, Inc. and Cal-Murphy LLC operated adjoining restaurants in an office building in San Francisco. Nop 560 Mission LLC (“Nop”) and Hines Interests LP (“Hines”) owned and operated the building, respectively. Cal-Murphy sued Nop and Hines for numerous causes of action based on offensive odors generated by cooking oil used in Mixt Greens’ grill that in turn were emitted into Cal-Murphy’s space. Mixt Greens, Travelers’ named insured, was named in causes of action for trespass, nuisance and injunctive relief. Nop and Hines tendered their defense to Travelers as additional insureds.
Travelers eventually filed the declaratory relief action seeking a determination that it did not have a duty to defend or indemnify Mixt Greens and Nop/Hines. The parties submitted cross-motions for partial summary judgment on the duty to defend issue.
Travelers’ motion was based on the position that Cal-Murphy’s claim did not trigger either prong of the definition of “property damage” in the Travelers’ general liability policy. Cal-Murphy’s answers to interrogatories stated that the claims of physical damage were: (1) grease in the exhaust duct which was a fire hazard and (2) that “noxious fumes and offensive odors … permeated Cal-Murphy’s space and caused loss of use of the space.” Travelers argued that the duct was not Cal-Murphy’s property and that Cal-Murphy’s damages were calculated by loss of sales, earnings and profits, and were not based on the cost of repairing or replacing any tangible property, or any actual loss of use of that property. The defendants countered that Cal-Murphy was claiming loss of use of tangible property as opposed to making an economic damages claim.
The Travelers’ policy defined “property damage” as “physical injury to tangible property” including resulting loss of use and “loss of use of tangible property that is not physically injured.” The court stated that consistent with that definition, the policy covered loss of use of tangible property even if it were not physically injured. The term “tangible property” was said to mean “things that can be touched, seen, and smelled”, or “’having physical substance apparent to the senses.”
With this in mind, and finding that Cal-Murphy was not required to close its business as a result of the alleged odors, the court granted Travelers’ motion for summary judgment, holding:
Here, the Underlying Action does not involve any potential liability for damages on account of “property damage” as that term is defined in the Mixt Greens policy. The only damages Cal-Murphy seeks from Mixt Greens in the Underlying Action are for economic losses. The fact that Cal-Murphy does not seek to recover the cost of repairing or replacing any tangible property, and that no part of its restaurant was ever closed because of the odors — not even for an hour — compels the conclusion that Cal-Murphy’s losses, which are purely economic, are not covered under the policy and Travelers is not obligated to defend Mixt Greens or Hines/NOP in the Underlying Action.