Opinion
We granted review to determine whether comprehensive liability insurers who insure only for tangible property losses owe a duty to defend in a dispute involving the right to use an implied easement. Case law and treatises have always acknowledged that actions over easement ownership, interference, or the right to use an easement concern “pure rights in property” or intangible rights only. (See
Gunderson v. Fire Ins. Exchange
(1995)
*875
In line with Gunderson, we conclude, in contrast to the Court of Appeal, that an insurer providing a liability policy that covers damage to tangible property on the insured’s premises has no duty to defend an easement dispute. For reasons explained below, we therefore reverse the Court of Appeal judgment and remand the matter for proceedings consistent with this conclusion.
I. Facts and Procedural History
Plaintiffs Zubair M. Kazi and Khatija Kazi (the Kazis) purchased land (Parcel A) from the State of California’s Santa Monica Mountains Conservancy (Conservancy). C. David Tollakson and Lynn L. Tollakson (the Tollaksons) also purchased Conservancy land (Parcel B). In an informational booklet, the Conservancy informed prospective buyers that Parcels A and B shared a common driveway 20 feet in width that straddled the boundary line between the two parcels. The deeds made no reference to any express easement for a common driveway. When the Tollaksons bought Parcel B, however, they relied on the representations made in the informational booklet to assume an implied easement existed on Parcel A for a “common driveway, for ingress, egress, and a right of way over and across Parcel A, parallel to the Boundary Line and for a width of not less than ten feet, all of which is appurtenant to Parcel B . . . .”
In order to facilitate building on their property, the Kazis graded an access road on Parcel A, at or near the boundary line of Parcel B. Although the access road did not involve Parcel B, the Tollaksons complained to the Kazis that the grading interfered with their claimed implied easement and right-of-way over the Kazis’ parcel, effectively ousting them from use and possession of their own Parcel B. When the Kazis denied the existence of an implied easement over Parcel A, the Tollaksons sued them in May 1990.
The Tollaksons’ complaint against the Kazis asserted causes of action for (1) declaratory and injunctive relief, (2) quiet title, (3) trespass to the common driveway easement, and (4) ejectment from the common driveway easement. Each cause of action essentially alleged that the Kazis’ access road obstructed the Tollaksons’ alleged implied easement over Parcel A. The complaint specifically noted that the entire dispute concerned the “right of way over and across Parcel A, parallel to the Boundary Line and for a width of not less than ten feet, all of which is appurtenant to Parcel B . . . .”
*876 The Tollaksons also alleged in their complaint that they purchased their parcel from the Conservancy with the understanding that each parcel would be served by a common driveway straddling the property boundary line. They admitted, however, that the Conservancy never conveyed to them or to the Kazis any deed for an express easement in the common driveway. The Tollaksons complained that the Kazis “denied the existence of an easement” over their parcel for purposes of the common driveway, and that they “have been grading and constructing on Parcel A in contravention of the existence of such common driveway easement and have obstructed the same, denying [the Tollaksons] the benefits of such easement.” The complaint alleged no physical damage to either parcel, but essentially asserted that the Tollaksons would not have purchased Parcel B without the easement over Parcel A for the common driveway because without it, Parcel B was not buildable.
The trespass claim sought $4,000 per month in damages and alleged that interference with the alleged implied easement diminished Parcel B’s value by $400,000. The ejectment claim sought payment of $4,000 per month in damages for obstructing the easement. The Kazis denied the existence of an implied easement over Parcel A and refused to acknowledge any access interference.
In August 1990, the Kazis tendered defense of the Tollaksons’ complaint to their liability insurance carriers, defendants Farmers Insurance Exchange (Farmers), the primary insurance carrier, State Farm Fire and Casualty Company (State Farm), and Truck Insurance Exchange (Truck). These policies covered property damage and personal injury, which included a duty to defend and indemnify the Kazis in an underlying lawsuit involving third party property damage or personal injury. Farmers insured the Kazis under a Farmers E-Z-Reader Car Policy that included a “Comprehensive Personal Liability Insurance Endorsement” providing liability coverage for “damages which an insured becomes legally obligated to pay because of . . . property damage resulting from an occurrence to which this coverage applies.” The policy defined property damage as “physical injury to or destruction of tangible property, including loss of its use.” The insurers did not intend these policies to cover disputes involving claims over intangible property rights.
The Truck personal umbrella policy provided coverage for “damages that you must pay . . . because of personal injury . . . covered by this policy; [and] reasonable expenses that you incur in the investigation, defense and settlement of a claim or suit because of personal injury or property damage covered by this policy . . . .” The policy defined personal injury to mean, in pertinent part, “injury arising out of. . . [*[[] . . . wrongful entry or eviction, or other invasion of ... a person’s right of private occupancy . ... HQ *877 Property damage means damage to or loss of use of tangible property.” The State Farm homeowners liability insurance policy defined property damage to mean “physical damage to or destruction of tangible property, including loss of use of this property.” The policy’s “loss of use” provision covered payment to maintain the insureds’ own standard of living if the insured loss rendered the insureds’ “residence premises” uninhabitable.
Before the insurers responded to the demand for a defense, the Kazis settled the Tollakson action on the eve of trial in November 1990. As part of the settlement, the parties agreed that the mutual common driveway alleged in the complaint did not exist. Instead the Kazis agreed to record a deeded easement in a portion of Parcel A to enable the Tollaksons to construct and maintain a separate driveway on Parcel B. The settlement agreement also gave the Kazis an option, at the Tollaksons’ expense, to “process a lot line adjustment” so that the easement the Kazis granted to the Tollaksons would become part of Parcel B. Following the settlement, State Farm reimbursed the Kazis for the fees and costs it found reasonably attributable to the six-month defense and settlement.
Not satisfied with the reimbursement, the Kazis filed the present bad faith action against their insurers, suing them for breach of contract, breach of the duty of good faith and fair dealing, and negligent handling of their claim. The insurers’ answer to the complaint asserted that they had no duty to defend or indemnify the Kazis in the underlying Tollakson lawsuit because it involved an easement dispute and their policies did not cover intangible property actions. Truck and Farmers also cross-complained against the Kazis in declaratory relief, seeking a declaration that they had no duty to defend the Kazis, that their policies provided no coverage for the Tollaksons’ claims, and that they had no duty to indemnify the Kazis for their costs.
The trial court granted State Farm’s motion to sever the issues and try first the duty to defend question. It ruled in the insurers’ favor, finding that because the easement dispute involved intangible property rights only, and no physical damage or occurrence on the Tollaksons’ property, the com.plaint on its face did not trigger the duty to defend. The court added that the Tollaksons’ complaint did not allege any claim for tangible property damage to Parcel B, and they therefore were not seeking the type of damages that were potentially covered under the liability insurance policies. It therefore granted the insurers’ motion for nonsuit, concluding that they “had no duty to defend the Kazis in the Tollakson action because there was no potential for coverage under any of the policies for personal injury or property damage.” Based on its coverage conclusion, the court found no breach of contract and no breach of the duty of good faith and fair dealing.
*878 The Court of Appeal reversed the trial court judgment. It acknowledged that easement rights are “referred to as ‘intangible’ rights,” but stated that was not the case in insurance contracts. The court observed that an easement holder may not “be able to see, hear, smell or touch [his] ‘right,’ ” but concluded that an insured can physically transform an alleged implied easement from an intangible piece of property to a tangible form by obstructing access to it, or grading it, as the Kazis did here. The court held that the insurers had a duty to defend the Kazis against the Tollakson action because the Kazis’ grading and paving a driveway on their own property, allegedly subject to an implied easement, amounted to more than a loss of use claim; it constituted property damage to tangible property under each of the Kazis’ liability policies.
In disagreeing with the trial court’s interpretation of the complaint, the Court of Appeal also concluded “that the Tollakson complaint against the insureds may be read to allege damage to Parcel B, owned in fee simple by the Tollaksons, and on this basis also gave rise to a duty to defend under [the Kazis’] insurance policies.” In other words, the Court of Appeal believed the complaint alleged physical damage to Parcel B, in addition to obstruction of an implied easement over Parcel A.
In justifying its conclusion, the Court of Appeal purported to distinguish
Gunderson,
which held that obstruction and loss of use of an alleged easement that reduced property value were not covered under a liability insurance policy’s property damage provision.
(Gunderson, supra,
II. Discussion
A. An Insurer’s Duty to Defend Claim for Loss to Intangible Property
A standard general liability insurer has a duty to defend and indemnify for a loss to tangible property only. The property loss section of these policies provides coverage for physical injury, loss, or destruction of
*879
tangible property, and the focus of the property damage coverage is the property itself.
(Waller v. Truck Ins. Exchange, Inc.
(1995)
We have consistently observed that insurance companies must defend insureds for actions that give rise to a potential for indemnity.
(Gray
v.
Zurich Insurance Co.
(1966)
Courts first determine whether insurers have a duty to defend by “comparing the allegations of the complaint with the terms of the policy.”
(Waller, supra,
Regarding the complaint, insurers must defend a lawsuit that
“potentially
seeks damages within the coverage of the policy.”
(Gray, supra,
When damages that the liability policy covers flow from damages that the policy does not cover, no duty to defend exists. In
Waller,
emotional distress (bodily harm that that particular liability policy covered) flowed from the economic loss that the comprehensive liability policy did not cover.
(Waller, supra,
Our conclusion will rest on a determination whether the Court of Appeal erred in failing to consider the easement’s legal meaning in light of the insurance contract. First, we look to the policies’ definition of the term “tangible property.” “Tangible property” is not ambiguous, and coverage therefore does not turn on alternative meanings. Consistent with an insured’s reasonable expectations, “tangible property” refers to things that can be touched, seen, and smelled. (See
Warner
v.
Fire Ins. Exchange
(1991)
It is especially important to distinguish an easement right from fee simple property ownership. (See
Highland Realty Co.
v.
City of San Rafael
(1956)
An easement is therefore an incorporeal or intangible property right that does not relate to physical objects but is instead imposed on the servient land to benefit the dominant tenement land.
(City & County of San Francisco v. Calderwood
(1867)
As a matter of law, therefore, an easement, representing only a nonpossessory right to use another’s property, is not tangible property. As we will conclude, any damages the Tollaksons claimed were for economic loss due to loss of use of the easement. We will therefore conclude that the several liability insurance policies before us provided the Kazis with no potential coverage, and therefore no duty to defend, the Tollaksons’ claim for intangible losses.
B. Case Law and Easement Property Rights
1. Gunderson
In
Gunderson,
the Court of Appeal concluded that disputes involving the loss of use of an easement or obstruction of an easement involve only “pure
*882
rights in property” or intangible rights in property.
(Gunderson, supra,
On appeal, the insureds claimed potential insurance coverage existed on a loss of use theory.
(Gunderson, supra,
2. The Court of Appeal’s application of Gunderson
As noted (ante, at p. 878), the Court of Appeal here attempted to distinguish Gunderson on the ground that the underlying complaint in that case “did not allege any physical injury to or destruction of [the underlying plaintiff’s] property, as was required to trigger coverage by the definition of ‘property damage’ in the subject policy.” The Court of Appeal concluded that unlike the Gunderson complaint, the Tollaksons’ complaint alleged that “the Kazis’ act of paving the driveway in such a way as to render the land impassable and unusable to the Tollaksons constituted physical injury or damage, just as if the Kazis had dug a hole or erected a fence across the land.” The Court of Appeal believed that the “ ‘pure rights in property’ claimed to have been lost by [the Gunderson plaintiff] in her complaint were to hold her property in fee simple, free of any easement, and to be free of the insured’s use of her property which she claimed caused her property to depreciate. It was these rights, and not the right to the use and enjoyment of an easement, which the Gunderson court pronounced to be ‘intangible economic interests and property rights’ and not within the definition of ‘tangible property.’ . . . ([Gunderson, supra,] 37 Cal.App.4th at pp. 1117-1119.)”
The Court of Appeal misapplied
Gunderson’s
rule. The
Gunderson
court did note that if the plaintiff had alleged physical property damage (e.g., to a fence or other physical property standing on the alleged easement), the insurer might or might not have had a duty to defend the insureds in an action for that actual physical damage.
(Gunderson, supra,
Thus, the Kazis’ grading a driveway over their own Parcel A and the 10-foot strip they owned that was subject to an easement dispute did not
*884
change the nature of the underlying Tollakson action into an action for tangible property loss. Grading over the insureds’ own land that may have been subject to an implied easement did not change the
easement’s
intangible nature, nor could it ever change the character of the easement right-of-way the Tollaksons claimed.
(Gunderson, supra,
Because an easement interest conveys no property rights to the land subject to the easement, it exists only to benefit the easement holder’s property. Interference with an easement frustrates the right of access by the easement holder to the burdened property, regardless of the method used to obstruct it, i.e., whether the easement is cordoned off or is physically damaged. In either case, the remedy is the same: the plaintiff must request that the obstruction be removed.
(Scruby v. Vintage Grapevine, Inc.
(1995)
Decisions in analogous situations support this conclusion. In
Schaefer/Karpf Productions v. CNA Ins. Companies
(1998)
In
Lucker Mfg. v. Home Ins. Co.
(3d Cir. 1994)
In
Waller,
we held that intangible economic losses, which fell outside the liability policy coverage, caused the emotional trauma that investors suffered. (Wa
ller, supra,
3. Actual physical damage to Parcel B
The Kazis also persuaded the Court of Appeal that the Tollaksons’ complaint alleged actual physical damage to the Tollaksons’ own Parcel B. Indeed, the Court of Appeal erroneously interpreted the underlying complaint to allege that the Kazis had graded and trespassed on Parcel B, as well as on the land on Parcel A subject to the claimed easement. Grading and trespassing on the neighbors’ land would certainly seem to be “property damage” under the terms of the liability policies and would, if true, probably have triggered coverage independent of the intangible property issue discussed above, at least as to the trespass and ejectment causes of action.
As the insurers observe, however, the Tollaksons’ complaint alleged only the intention to convert the 10-foot strip on the Kazis’ own Parcel A. In other words, the only property loss claimed in the Tollakson lawsuit was that the Kazis were interfering with the Tollaksons’ ability to use an easement *886 across Kazis’ own property. Nonetheless, because the Tollaksons alleged that the Kazis graded Parcel A and obstructed Parcel B’s right-of-way over the “Common Driveway Easement,” the Kazis convinced the Court of Appeal that the Tollaksons were actually seeking to recover for physical injury to Parcel B. In turn, the Court of Appeal reasoned that the Tollaksons’ complaint stated a claim that was potentially covered under the Kazis’ liability insurance policies indemnifying third party property damage and personal injury.
As a plain reading of the Tollaksons’ underlying complaint reveals, and as defendant insurers correctly assert, however, the only property in dispute in the Tollakson lawsuit was the 10-foot strip of property on Parcel A where the Kazis built an access road to their building site in the vicinity of the Tollaksons’ property boundary line. The Tollaksons’ complaint alleged that the Kazis’ grading of the 10-foot strip of property on Parcel A, which was subject to an implied common driveway easement to Parcel B, obstructed it and interfered with their right to use Parcel A as a right-of-way to Parcel B. Nowhere did the complaint allege any physical damage to the Tollaksons’ parcel, including that parcel’s 10-foot strip of property that would have constituted the other half of the implied easement.
Indeed, the complaint’s actual words illustrate the Court of Appeal’s error. As defendant insurers observe, the Tollaksons’ complaint alleged only a loss of use of their implied easement over the Kazis’ Parcel A as follows: “[The Tollaksons] claim that there exists upon Parcel A an implied easement for a common driveway, for ingress, egress, and a right of way over and across Parcel A, parallel to the Boundary Line and for a width of not less than ten feet (the Disputed Property), all of which is appurtenant to Parcel B, and that Parcel B is the dominant tenement and Parcel A the servient tenement of such easement (hereinafter ‘the Common Driveway Easement’).”
Thus, under the Tollakson complaint, the term “Disputed Property” referred to the 10-foot strip of land the Kazis owned in fee simple. In addition, the complaint defined the term “Common Driveway Easement” to refer to the Tollaksons’ easement or right-of-way over that “Disputed Property.” Therefore, the Tollakson complaint’s definition of the “Common Driveway Easement” included only a portion of Parcel A—the Kazis’ property—and in no way included any portion of Parcel B. When the Tollaksons complained that the grading of Parcel A interfered with the “entirety of the Common Driveway Easement,” they were complaining that the Kazis’ grading and construction involved Parcel A only and did not involve trespass on or *887 destruction of any part of Parcel B. Even the trespass and ejectment allegations involved loss of use and occupation of the 10-foot strip of land that is part of Parcel A, or the Kazis’ half of the alleged implied easement. 2
In sum, the Tollaksons’ fundamental loss at stake here was their right to use the implied easement over Parcel A, and the alleged harm they suffered because of that loss of use. The law is clear, however, that in order to trigger a duty to defend, the Tollaksons had to allege that their own physical property, including the 10-foot strip of land on their parcel that was arguably subject to an implied easement for a right-of-way, was damaged when the Kazis graded their property. Their complaint made no allegations of damage to Parcel B, and hence, there was no possibility of liability coverage for third party property damage in this lawsuit. The Court of Appeal erred in distinguishing Gunderson from the Tollakson action.
HI. Conclusion
As the
Gunderson
court held, a loss of “pure rights in property” is not physical damage or injury to tangible property that triggers a duty to defend under a comprehensive liability insurance policy that provides coverage only for such losses.
(Gunderson, supra,
George, C. J., Mosk, J., Kennard, J., Baxter, J., Werdegar, J., and Brown, J., concurred.
The petition of plaintiffs and appellants for a rehearing was denied April 11, 2001.
Notes
By court order, we specifically limited review to (1) whether interference with an easement right is property damage to tangible property giving rise to a duty to defend, and whether the Court of Appeal’s decision conflicts with
Gunderson, supra,
The Court of Appeal’s conclusion that there was physical damage to the Tollaksons’ property was premised on its misunderstanding about the meaning of the “Common Driveway Easement.” The Court of Appeal reasoned that “by alleging that the encroachment and trespass by the Kazis ‘cover[ed] all or a portion of the Disputed Property . . . and the entirety of the Common Driveway Easement,’ the Tollakson complaint alleged property damage to the Tollaksons’ land, Parcel B, giving rise to potential coverage under all of the insurance policies at issue here and requiring the insurers to defend the Kazis in the Tollakson lawsuit. . . . Whatever its deficiencies, the Tollaksons’ pleading stated facts sufficient to demonstrate the Kazis had damaged their possessory and nonpossessory interests in their real property.” But, as defendant insurers observe, and as we have consistently noted, the Tollaksons did not seek to resolve any dispute over the portion of their Parcel B which they, in fact, acknowledged in the complaint was subject to an implied easement for the Kazis’ use. The definitional terms made this clear, and, as we have explained, the rest of the complaint supports this reading.
The Court of Appeal also relied extensively on deposition testimony hinting that the Tollaksons’ attorney initially explored suing the Kazis for interference with Parcel B. But, as the record, shows, the attorney admitted that the Tollaksons were “only claiming an easement here,” or a right to use Parcel A. The attorney’s comment is supported by the face of the complaint, which did not allege that the Kazis physically trespassed onto the Tollaksons’ property.