In Chestnut, et al v. AVX Corporation, Appellate Case 2012-212143 (S.C. Supreme Court August 5, 2014), the State Supreme Court was faced with the issue of whether “stigma damages” could apply for environmental contamination which did not directly impact a plaintiff’s property – but is alleged to have impacted the property value by being near to the pollution.

AVX Corporation had released trichloroethylene (TCE) into the environment over many years of manufacturing in North Myrtle Beach. The plaintiffs in this case, however, did not allege any direct TCE contamination on their properties; instead they claimed that AVX was negligent and that negligence caused the value of their property to diminish due to proximity to the TCE pollution.

The case arrived at the Supreme Court in the earliest possible situation – dismissal of the plaintiffs’ complaint under a Rule 12(b)(6) motion. This appeal is before discovery and only the bare allegations of the complaint were before the Court.

Three of the five Justices reversed the Circuit Court decision on the claim of negligence, leaving the issue of “stigma damages” to a later date after sufficient facts are developed to address this issue. Importantly, however, two of the five Justices vigorously dissented from the decision and made extensive arguments as to why “stigma damages” are not recognized in the state of South Carolina under a theory of negligence.

At the current time, the issue of whether “stigma damages” would be allowed under South Carolina law is undecided. Under this decision, a defendant could be unlikely to avoid trial on the issue since this case reversed a pretrial motion to dismiss. At some point, the appellate courts will have to affirmatively address the issue.

The stakes are huge.

Suppose a property worth a million dollars suffers (by testimony) a ten percent diminution in value by proximity to a pollution event. That is $100,000 in damages for just one plaintiff in a surrounding area of a pollution event.

The possible damages could be huge even if the current property is not for sale and not directly impacted by the TCE pollution. The dissent, in this case, forcefully argues that these types of damages are inherently speculative and make persuasive arguments why “stigma damages” should not be allowed. Businesses and insurance companies may want to seek legislative clarity on this issue to avoid potentially huge damage awards in the future.