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Farm Family Casualty Insurance Company v. Budd

A-3629-06T2 (N.J. Super. App. Div. 2008) (Unpublished)

EASEMENTS; INTERFERENCE — A homeowner’s insurance company is obligated to provide coverage for an implied easement claim where there is no evidence that its insured, in taking actions violative of the easement holder’s rights, knew that its actions would cause any harm or damage to the easement holder or to the easement holder’s property.

A property owner owned two adjacent lots, each of which was maintained as rental property. One of the lots was sold and then resold to a married couple. The couple became aware that the artesian well on their property supplied water to both lots. Months later, the buyers’ attorney informed the adjacent property owner/landlord that the couple was going to cut off the water supply to the adjacent lot within ten days. Following a complaint by the owner/landlord of the threatened lot to the county health department, it was agreed that the owner/landlord would have sixty days in which to find a new water source. At the end of the sixty day period, the owner brought an action against the couple, claiming that there was an implied easement for the use of the water given the many years of permissive access.

Following a lower court order that enjoined the couple from disrupting the adjacent property’s water supply, the water supply was cut off by the husband of the couple who claimed not to have known of the lower court’s order when it was issued. A subsequent order by the lower court to have the water reconnected was hindered when the couple called the police and requested that the adjacent property’s owner and his plumber, who arrived to restore the water supply, be removed from their land. The tenants moved out from the adjacent property, and months later, the house on that lot was destroyed in a fire. Within three months of the fire, the adjacent property’s owner died.

The adjacent property owner’s wife, individually and as administrator of his estate, brought an action against the couple on a claim that her late husband had retained a fifty percent ownership interest in the well for his permanent use and that he also had an agreement with the original buyer, the couple’s predecessor, which was broken by the couple. The estate also asserted numerous claims against the couple regarding the losses incurred by the adjacent property owner, including claims that the stress from the dispute caused him physical and mental illness, bodily injury, and ultimately death from cardiac illness. During the course of the proceedings, the couple sued their homeowners’ insurance company for defense and indemnification for the adjacent property owner’s estate’s claims. The insurance company maintained that it was not responsible for providing coverage for the intentional actions of a policyholder. Both actions were consolidated by the lower court. It dismissed all of the estate’s claims except for the claim regarding the implied easement. A mistrial regarding the estate’s claims was declared and the parties then reached a settlement in which the estate received a monetary award. The lower court found that the insurance company had to provide coverage for the implied easement claim and also that there was no evidence that the buyer who shut off the water supply knew that his actions would cause any harm or damage to the adjacent property owner or his property. The insurance company was required to reimburse the couple for their attorneys’ fees and for part of the settlement paid to the estate.

On appeal, the Appellate Division found that the claims made against the couple by the estate for bodily harm and losses of the property’s value were covered under the insurance policy. However, it found that factual issues existed as to whether the husband, when shutting off the water supply, intended to cause harm to the adjacent property owner and his property. The Court disagreed with the lower court’s finding that because the couple may have had a contractual right to shut off the water supply, that they could not have intended any harm, pointing to testimony by the couple in which they expressed their displeasure with the number of people who resided in the rented house on the adjacent property, the condition of that house, and the actions of the tenants in that house. The couple also admitted that they knew that the adjacent property owner’s other house would be rendered uninhabitable if they cut off the water supply. The Court concluded that the evidence was not so one-sided to have been decided as a matter of law and that the lower court’s grant of summary judgment in favor of the couple and the award to them from the insurance company were reversed for further proceedings.


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