In a triumph of common sense over legal formalism, the Texas Supreme Court held for the first time that the owner of wrongfully destroyed property may recover damages for the loss of the use of that property. This decision brings Texas in line with the majority of jurisdictions that have rejected the traditional rule limiting the owners of totally destroyed property to a recovery only of the market value of the property.
The decision came down on January 8 in a case styled “J&D Towing, LLC v. American Alternative Insurance Corporation. In that case, a tow truck was totaled in a collision with a negligent driver who carried only the minimum liability insurance. The tow truck company settled with the driver’s insurance company for the property damage limit of the driver’s policy. Like many individual Texans, the tow truck company carried underinsured motorist (UIM) coverage to protect itself in this type of situation. While the driver’s insurance was enough to cover the value of the truck itself, it was not enough to cover the tow truck company’s lost profit for the time it took to replace the tow truck, so the company brought a claim under its UIM insurance.
The tow truck company won at trial, but the judgment was reversed by the court of appeals, which held that Texas law adheres to the traditional distinction between partially destroyed and totally destroyed property when measuring damages.
Under the traditional rule, the owner of partially destroyed property-that is, property that can reasonably be repaired-may receive three types of damages: (1) the reasonable cost of repairing the property; (2) “diminished value,” or the difference between the property’s value immediately before the accident and its value after any repairs; and (3) the value of the owner’s lost use of the property for the time it reasonably takes to repair the property. Loss of use can be measured in a number of ways-such as the reasonable rental value of the property, the reasonable cost to rent a replacement, or lost profits of the property was used in a business. Regardless of how it is measured, the point is to fully and fairly compensate the owner.
Conversely, the owner of totally destroyed property-that is, property so damaged that a reasonable person would not repair it-was limited only to the market value of the property. This could be a very harsh rule if the property had a low market value, such as an older car, which might be considered “totaled” even if it would be cheaper to repair the car than to buy a replacement. Even if the owner decided to repair the property anyway, the owner was limited to recovery the property’s market value if the repair cost exceeded the market value. Further, the owner could not recover any damages for lost use, based in part on the unrealistic assumption that the owner could instantly purchase a replacement.
Most legal treatises in Texas have espoused this view for more than a hundred years, as have most (but not all) Texas courts of appeals, but the Texas Supreme Court had never ruled on the issue. Now it has, and it has abolished the distinction between partially- and totally-destroyed property for determining loss of use damages. The Court held that the concept of “full and fair compensation” demanded that the owner of totally destroyed property be compensated for loss of use, and that there was no just reason for denying such damages for totaled property while granting it for repairable property.
The Court cautioned that there were limits to these damages, however. The lost use should be limited to the reasonable period of time it takes to replace the property, and the damages must be foreseeable.
Defendants or insurance companies may argue that the lost use damages should be limited to the market rental value of the destroyed property-which would be low indeed in the case of a 20-year-old car. However, another measure of loss of use damages is the reasonable cost to rent a replacement, and we would argue that is the measure most applicable to personal cars and trucks. After all, there are few places to rent a 20-year-old Honda if that is what you were using to get around, and you depend on your car in your day-to-day life. To be “made whole,” the owner of a totaled car should be compensated for the cost to rent a reasonably equivalent vehicle at a normal car rental company for the amount of time it would take a reasonable person to purchase a replacement car.
This decision could be a game-changer for people whose cars are damaged in wrecks with negligent drivers, who have often seen insurance companies declare their cars a “total loss” and then immediately refuse to pay for a rental car. After J&D Towing, insurance companies who do so will now run the risk of having their insured sued for loss of use damages.