Growing Acceptance of Value Assurance Plans to Address Diminution of Property Value Claims
Some 25 years ago, I published an article in the Journal of Trial Advocacy that discussed the benefits of implementing Value Assurance Plans (“VAPs”) as a strategy for dealing with community anxiety over the impact of environmental contamination on property values. The article praised the creative approaches implemented by two well-known U.S. companies–Eastman Kodak Company (“Kodak”) and E.I. du Pont de Nemours Company (“Du Pont”). Kodak developed a VAP for neighborhoods in and around its Rochester, New York headquarters in 1988 following the discovery of contaminated groundwater in bedrock under its property fence line. Du Pont rolled out a VAP in Pompton Lakes, New Jersey in 1989 after it signed a voluntary Administrative Consent Order with the State of New Jersey to remediate both its former plant site and neighboring homeowners’ yards, which had become contaminated with elevated levels of metals. Since Kodak and Du Pont’s implementation of those early programs, VAPs have become both widely accepted and broadly utilized. Furthermore, they are recognized as significant components of a corporate environmental response plan.
Although VAPs vary in scope and functionality, in essence, a VAP is a promise to protect homeowners if an environmental concern in the community has adversely affected the sales price of a home so that the homeowner cannot realize the full value of his property. A VAP establishes a formula for determining a property’s fair market value in the absence of the environmental concern, and protects the value over time by compensating the owner for the difference between the fair market value and a lower sales price, to the extent the lower sales price is attributable to the environmental issue. A VAP is rarely a stand-alone solution to an environmental issue, but is generally part of a process of dialogue with the community to better understand and address residents’ actual interests and concerns. Further developments in the use of VAPs, particularly in the context of toxic tort litigation as a means of resolving diminution of property value disputes without litigation, are discussed in an article titled “Value Assurance Programs” that I co-authored with Jennifer M. Moore, which appeared in the IADC’s Toxic & Hazardous Substances Litigation Committee Newsletter in July 2009.
Another leap forward in the evolution of VAPs is discussed by Jerry M. Dent II, and Christina M. McLean, of Alvarez & Marsal Dispute Analysis & Forensic Sciences, LLC, in a paper titled, “Value Assurance Programs: A Case Study in the Model City“. The paper was presented at the 2011 ABA TIPS Annual Spring CLE and Leadership Forum. The Dent/McLean article discusses how a VAP was incorporated in an Alabama state court’s Final Judgment and Order Approving Settlement and Dismissing Claims in the Charlie Almon et al. v. McWane, Inc., et al (“Almon”) class action, a case in which the plaintiffs alleged that McWane, through the operation of a foundry, had caused widespread contamination by hazardous substances in surrounding neighborhoods. A testament to the VAP’s widespread acceptance is evidenced by the fact that only about one-fifth of 1% of the more than 64,000 potential parcels covered under the VAP chose to opt-out of the proposed settlement. The Dent/McLean article is noteworthy because it is written from the perspective of experts with broad experience in environmental economics and real estate advisory consulting. Increasingly, as judges presiding over unwieldy multi-party toxic tort disputes have come to recognize the value of VAPs from the standpoint of achieving a principled negotiation, VAPs have become accepted components of court-sanctioned settlement agreements as in Almon. At the same time, state attorneys general and regulators are urging the formation of VAPs as a partial solution in situations that often generate anger, fear and frustration in affected communities due to diminution of property value concerns.
I am following with interest a VAP implemented in early 2016 by Corning, Incorporated (“Corning”) in Corning, New York. Alvarez & Marsal was retained by Corning to help structure its VAP and is assisting in the VAP’s ongoing administration. In June 2014, Corning entered into an Order on Consent and Administrative Settlement with the New York Department of Environmental Conservation to determine the nature and extent of fill materials present in a Study Area within which some 121 property owners reside. Whatever challenges, legal and otherwise, Corning may face in connection with the cleanup in upstate New York, the adoption of a VAP is likely to help assuage community members’ concerns over the potential loss of their home equity.
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