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New Damages Law with Total Destructions

Wed, 05/25/2016 - 10:44 -- admin25

by Jon Godoy

The Texas Supreme Court’s decision in J & D Towing, LLC v. Am. Alternative Ins. Corp., 478 S.W.3d 649 (Tex. 2016) issued on January 8, 2016 changed a longstanding principle in property damage law. 

In the State of Texas, it had long been understood that loss-of-use damages were recoverable when property was partially destroyed in addition to repair costs, but were not recoverable when property was completely destroyed.  In cases of complete destruction, the property owner was limited to recovering the diminution in the fair market value of the property.  However, in J & D Towing, LLC v. Am. Alternative Ins. Corp. the Texas Supreme Court ruled that “the owner of personal property that has been totally destroyed may recover loss-of-use damages in addition to the fair market value of the property immediately before the injury.”

  The most ordinary application of the old rule occurred when a motor vehicle owner who suffered a total destruction of his vehicle could not be compensated for his rental car expenses in the days or perhaps weeks following the collision while he was researching, locating, and test driving a replacement vehicle.  While the owner of a vehicle involved in a less severe accident, whose vehicle only sustained repairable damage, could recover her rental car expenses while her vehicle was being repaired. 

However, this rule reaches farther than just vehicular claims.  Operators of commercial equipment will now be able to recover lost profits if their commercial property is destroyed by, for example, fire or flood. 

J & D Towing, LLC v. Am. Alternative Ins. Corp. relates to a tow truck owned and operated by a one-truck towing company, J & D Towing, LLC, that was damaged in a motor vehicle collision.  J & D was without its tow truck for approximately two months while it was negotiating a policy limits settlement with the negligent driver’s insurer.  J & D filed suit against American Alternative Insurance Company (AAIC), its insurer, seeking underinsured-motorist coverage because, J & D contended, its policy limit settlement with the negligent driver did not adequately compensate J & D for its loss-of-use damages.

The jury awarded J & D loss-of-use damages and AAIC responded with a motion for a judgment notwithstanding the verdict arguing that (a) Texas law does not allow for the recovery of loss-of-use damages in total destruction cases, and (b) the terms of J & D’s insurance policy with AAIC only require AAIC to compensate J & D for damages it was “legally entitled” to recover.

The Walker County trial court denied AAIC’s motion for a judgment notwithstanding the verdict.  The Tenth Court of Appeals reversed and rendered judgment for AAIC.  The Texas Supreme Court in turn reversed and rendered judgment for J & D.

While many defense attorneys and claims professionals in Texas prior to this opinion would have argued that it was “the law” that a claimant could not recover loss-of-use damages for a total destruction, interestingly, the Texas Supreme Court stated in this opinion that it has never expressly permitted or prohibited the recovery of loss-of-use damages in total destruction cases. 

The Court went on to state that it believed that lower appellate courts had ruled against the recovery of loss-of-use damages in total loss scenarios in an effort to prevent double recovery on the “assumption” that property could be replaced immediately.  However, the Court points out that this assumption is erroneous because “[t]he owner of totally destroyed personal property may suffer loss-of-use damages to the same extent that the owner of partially destroyed personal property may suffer loss-of-use damages – permitting the damages in the latter case and not the former is, therefore, illogical.”  The Court also noted that the modern national trend was shifting away from prohibiting the recovery of loss-of-use damages in total destruction cases.

In coming to its decision, the Court stated the awarding of actual damages functions as “an instrument of corrective justice, an effort to put the plaintiff in his or her rightful position.”  But the Court cautioned, the awarded loss-of-use damages cannot be “too remote,” speculative, or for a period longer than reasonably needed to replace the destroyed property.

Jon Godoy is an attorney at Downs Stanford, PC.  He can be reached at jgodoy@downsstanford.com.

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