Texas Supreme Court: Loss-of-Use Damages Allowed in Total Loss Cases

Are loss-of-use damages, such as lost profits, allowed in Texas when an insured has recovered fair market value on a commercial vehicle that is deemed a total loss after an accident? The Texas Supreme Court thinks so, despite an insurer’s argument to the contrary.

In decision released Jan. 8, the Texas Supreme Court reversed the decision in J&D Towing, LLC vs. American Alternative Insurance Corp. (AAIC), in which a state appeals court overruled a trial court and found in favor of the insurance company.

The case stems from an accident in which the only tow truck owned by J&D Towing was struck by another vehicle, rendering it a total loss.

All parties agreed that the accident, and resulting loss, was caused by the driver of the car that ran into the passenger side of the tow truck, which was on its way to repossess a vehicle.

J&D believed the 2002 model tow truck was worth between $19,000 and $20,000 at the time of the accident. The at-fault driver’s insurer offered an amount several thousand dollars less than that. After several rounds of negotiation, J&D ultimately reached a settlement of $25,000, the limit for property damage on the other driver’s policy.

“J&D then filed a claim with AAIC under an underinsured-motorist policy issued by AAIC, requesting compensation for the loss of use of the truck,” the Supreme Court’s opinion states. The assertion was that the funds from the property damage settlement were insufficient to compensate for loss-of-use damages.

AAIC denied J&D’s claim and cancelled the policy.

J&D sued the insurer and represented to a jury that loss-of-use damages between the time of the accident, Dec. 29, 2011, and March 8, 2012, totaled “either $27,866.25 or $29,416.25, with the difference being whether the jury awarded damages for a nine-week period or a ten-week period.”

Instead of presenting evidence at trial, “AAIC challenged the availability of loss-of-use damages in its motion for summary judgment and motion for an instructed verdict. AAIC’s argument may be summarized as follows: (1) its underinsured-motorist policy only offers to pay J&D damages that J&D is ‘legally entitled’ to recover; (2) Texas law does not permit recovery of loss-of-use damages in total-destruction cases; (3) it is undisputed that J&D’s truck was totally destroyed; therefore, (4) J&D is not legally entitled to recover loss-of-use damages; and (5) AAIC is not obligated to pay under the policy,” the opinion states.

The trial court denied both motions and the jury awarded J&D $28,000 in damages for the loss of use of the truck. AAIC had argued that Texas law does not permit loss-of-use damages in total destruction cases, but the trial court was unconvinced.

It was determined that the truck was worth $19,500 at the time of the accident. The court reasoned that AAIC was entitled to a credit of $5,500, the difference between the amount of property damage “that did not cover the value of the truck but instead partially compensated J&D for its loss-of-use damages.”

The trial court then entered a judgment for J&D in the amount of $22,500 plus interest and court costs.

AAIC appealed. The appeals court agreed with the insurer’s argument that Texas law does not permit loss-of-use damages in total-destruction cases and reversed the trial court’s judgement and award.

“J&D then appealed to this Court, raising an argument that sounds in fairness and common sense: Texas law permits loss-of-use damages in partial-destruction cases, and the same should be true in total-destruction cases. The court of appeals’ distinction, J&D claims, is not only illogical but is also against the great weight of jurisdictions that have eliminated that archaic distinction,” the Supreme Court’s opinion states.

The Texas Supreme Court recognized that appeals courts in Texas have not been consistent in their opinions on whether loss-of-use damages are permitted in total destruction cases.

“We, therefore, find ourselves at a crossroads. We have never expressly permitted or prohibited loss-of-use damages where personal property has been totally destroyed, but our general loss-of-use-damages caselaw emphasizes full and fair compensation, which ostensibly cuts in favor of permitting these damages in total-destruction cases. Conversely, most Texas courts of appeals have opted for a prohibition of loss-of-use damages, over the compelling dissenting view that such a prohibition is nonsensical and inequitable,” the opinion states.

Early caselaw and early legal treatises across the majority of U.S. jurisdictions historically prohibited loss-of-use damages in total-destruction cases while permitting such damages in partial-destruction cases, the Court wrote. The reasoning behind that prohibition is not entirely clear, the Court conceded.

Despite historical outcomes, “recent caselaw and treatises have shifted away from the prohibition. And the reasons for the shift appear to coalesce around one simple point: The 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 wrote.

The Court ultimately agreed with the trial court and concluded that Texas law does permit loss-of-use damages in total-destruction cases. But, the Court also offered the caveat that: “Permitting loss-of-use damages in total-destruction cases, however, is not a license for unrestrained raids on defendants’ coffers.”

The high court declined to rule on the jury charge or the amount of loss-of-use damages awarded.