Texas Recognizes Loss-of-Use Damages in Total Destruction Cases

Factual Background

In J&D Towing, LLC v. American Alt. Ins. Corp., 59 Tex. Sup. Ct. J. 214, 2016 Tex. LEXIS 4 (2016), the facts of the case before the court involved nothing out of the ordinary. On December 29, 2011, as the plaintiff was driving his fairly new truck that he bought for business purposes, a car struck his truck on the passenger side and rendered the truck a total loss. (Texas tort law deems a vehicle to be a total loss when damages far exceed the economic feasibility of its repair.) Shortly after the accident, the insurance company of the ill-fated car driver settled with the plaintiff for the policy limit for property damage in the amount of $25,000.

The plaintiff, however, believed that he was entitled to be compensated for the inability to use his truck immediately following the accident up until he was able to buy a replacement so that he could resume his business. Consequently, the plaintiff filed an underinsured motorist (UIM) claim with his insurance company, seeking compensation for the lost use of his truck.

When the insurance company denied the plaintiff's claim, he sued the company for the loss-of-use damages, asking the jury to award him $27,866.25 or $29,416.25, depending on whether the jury would award for a 9- or 10-week period of the plaintiff's inability to use his truck.

At trial, the defendant raised no dispute as to the amount of damages that the plaintiff sought, maintaining that it owed no loss-of-use damages in this total-loss-of-truck case because Texas law only permitted such recovery in partial loss of personal property cases. Believing that it had an ironclad defense, the defendant offered no evidence and filed motions for summary judgment and an instructed verdict.

The trial court, however, denied the defendant's motions, and the jury awarded the plaintiff $28,000 in loss-of-use damages. The defendant filed a motion for judgment notwithstanding the verdict (JNOV) that the trial court denied. After the court entered the judgment for $22,500 plus interest and court costs, the defendant filed an appeal.

In its appellate brief, the defendant once again failed to dispute the amount of the damages that the plaintiff sought and continued essentially the same line of argument as at the trial. The appellate court agreed with the defendant and overturned the trial court's decision, finding that it abused its discretion in submitting the issue to the jury and erroneously denied the defendant's JNOV motion. The plaintiff appealed to the Texas Supreme Court, which found the plaintiff's argument that Texas law should allow loss-of-use damages recovery in total destruction of personal property cases just as it allows such a recovery in partial destruction cases to sound "in fairness and common sense."

Court's Rationale

In its opinion, the court underscored that the longstanding distinction between the total and partial destruction of personal property cases is not merely illogical, but it is also inequitable. To buttress its position, the court went into some detail in surveying Texas precedent, the law of other jurisdictions, treatises, and Restatements on the issue of loss-of-use damages in total destruction cases. The court repeatedly alluded to the theme it introduced in Craddock v. Goodwin, 54 Tex. 578 (1881), that in tort cases, "[t]he thing to be kept in view is that the party shall be compensated for the injury done."

The overarching principle behind this theme, the court mentioned, is that actual damages, of which loss-of-use damages constitute a part, exist to put plaintiffs in their rightful position. It is largely these two principles that steered the court in pronouncing the loss-of-use damages in total destruction cases to be permissible.

Importantly, the court rectified the defendant's interpretation of Pasadena State Bank v. Isaac, 228 S.W.2d 127 (Tex. 1950), by explicating that, in that case, the court limited its inquiry to the proper measure of damages in partial destruction cases, and, contrary to the defendant, it remained silent on the issue of damages in total destruction cases. Thus, the case before the court presented the opportunity to finally pronounce what the law on the loss-of-use damages in total destruction cases in Texas will be, especially given the fact that courts of appeals differed on the issue.¹

Those courts of appeals reluctant to allow recovery of loss-of-use damages in total destruction cases largely justified their reluctance by saying that to do otherwise would be tantamount to endorsing double recovery. In other words, their position was that loss-of-use damages are already included in the damages ordinarily allowed in total destruction cases.² In addition, these courts tended to assume that, since razed property is ordinarily replaced with no delay, no loss-of-use damages can arise. Other courts found this assumption to be fallacious because a speedy replacement may fail to occur for a host of very plausible reasons. Meanwhile, plaintiffs would remain bearing concrete economic losses.

In agreeing with these courts of appeals, the court pointed out that, since the mid-twentieth century, the case law and treatises reveal a "clear consensus that loss-of-use damages are available in total destruction cases." Specifically, the court mentioned approximately 16 high courts around the nation and lower appellate courts in more than 6 other jurisdictions³ that recognize such damages, finding the consistency in their reasoning to be compelling. The court agreed that the distinction maintained between recovery of loss-of-use damages in partial and total destruction cases is untenable, especially given the fact that recovery of damages under both scenarios comports equally well with the notion of full and fair compensation for causing the injury.

However, while the court permitted recovery for loss-of-use damages in total destruction cases, it nonetheless placed limitations on their availability. To make the recovery possible, plaintiffs will, first of all, need to establish that the damages are "foreseeable and directly traceable to the tortious act." Second, the damages must in no way be "speculative." Lastly, plaintiffs can only claim the damages for periods not unreasonably lengthy in replacing the destroyed personal property.

Acknowledgment

The author would like to thank and acknowledge the contributions to this Commentary by Ekaterina "Katya" Long, an associate with Cooper & Scully's Dallas office.

¹ The court cited City of Canadian v. Guthrie, 87 S.W.2d 316 (Tex. Civ. App.—Amarillo 1932, no writ), for the majority rule that denies the loss-of-use damages in total destruction cases.

² The court observed that these courts' positions have been subject to criticism by Austin's and Fort Worth's courts of appeals. See generally Morrison v. Campbell, 431 S.W.3d 611 (Tex. App.—Fort Worth 2014, no pet.); Mondragon v. Austin, 954 S.W.2d 191 (Tex. App.—Austin 1997, pet. denied).

³ Among the jurisdictions that do recognize loss-of-use damages in total destruction cases are Florida, Louisiana, Indiana, New York, Washington, and Tennessee.