Two Texas vehicle owners driving identical vehicles are involved in accidents caused by a negligent tortfeasor. Both contact their insurance company regarding their damaged vehicles. Both must wait for an appraiser to inspect the vehicle and write a report. One vehicle is repairable, the other is considered “totaled.” The owner of the vehicle being repaired obtains a rental car the day of the accident and has transportation until he gets his vehicle back. The owner of the totaled vehicle must wait for his claim to be processed, reports to be written, salvage to be determined, and a check in the amount of the market value of his vehicle to make its way to him – a process that could take one week to several months. The entire time he is without the use of his totaled automobile. In pursuing the third-party tortfeasor, Texas law allows the owner of the repaired vehicle to recover loss of use (i.e., rental charges) damages. It does not allow the owner of the totaled vehicle to recover such damages. The logic and underlying reasoning for the disparate treatment of these two vehicle owners is lacking in Texas and the time is right to allow for the owner of a totaled vehicle to recover loss of use damages.
In Texas, the owner of a damaged vehicle may elect between two methods of measuring the property loss in order to be made whole under the liability coverage of the tortfeasor’s policy. He may recover the difference in the market value of the property before and after the accident resulting from the injury or the reasonable cost of repairing the property, provided such repairs are economically feasible. Pasadena State Bank v. Isaac, 228 S.W.2d 127 (Tex. 1950). However, these are only part of the damages sustained by both of the vehicle owners above.
Loss Of Use
Vehicle Repairable. The plaintiff may prove and recover damages for loss of use of a repairable vehicle by establishing the reasonable rental value of a substitute car for the time reasonably required to repair or replace it. Pasadena State Bank v. Isaac, 228 S.W.2d 127 (Tex. 1950). Proof of the reasonable rental value of a hypothetical substitute automobile is sufficient evidence to support an award for loss of use. Id. The owner doesn’t need to actually rent a replacement vehicle in order to recover loss of use damages. Mondragon v. Austin, 954 S.W.2d 191 (Tex. Civ. App. – Austin, 1997). Furthermore, damages for loss of use of a repairable automobile are not limited a matter of law to the total value of automobile. Id.
In Luna v. North Star Dodge Sales, Inc., the Texas Supreme Court discussed the appropriate method by which to measure loss of use damages for deprivation of the use of a repairable car. The Court noted the “period of compensatory loss of use will be the amount of time the plaintiff was deprived of the loss of use of the automobile.” Luna, supra. The Court did not expound upon this statement except to explain that it is not wise to formulate a bright-line rule for the valuation of loss of use damages in all cases.
In addition, it appears that loss of use damages are not limited to the total value of the car as a matter of law. Mondragon, supra. In Mondragon, it was argued that it is nonsensical to limit damages in a total destruction case to the value of the car and simultaneously allow damages in a partial destruction case to exceed the value of the car. However, they said that this rule probably exists because the Supreme Court in Hanna v. Lott, 888 S.W.2d 132 (Tex. App. – Tyler 1994, no writ), assumed – incorrectly – that a person does not suffer loss of use damages when a car is a total loss because the car can be replaced immediately. Texas courts have allowed loss of use damages even when the result was to award damages that exceeded the total value of property that had been only partially damaged. Metro Ford Truck Sales, Inc. v. Davis, 709 S.W.2d 7850 (Tex. App. – Fort Worth), affirmed on rehearing, 711 S.W.2d 145 (Tex. App. – Fort Worth 1986, writ ref’d n.r.e.) (Court awarded $74,016 for loss of use of a truck purportedly valued at $48,500); McCullough–Baroid Petroleum Svc. v. Sexton, 618 S.W.2d 119 (Tex. Civ. App. – Corpus Christi 1981, writ ref’d n.r.e.) (Court awarded $30,880 for loss of use of equipment valued at $30,000). However, the story is quite different if the vehicle is totaled as opposed to being repairable.
Where A Vehicle Is A Total Loss. A person whose vehicle is totally destroyed may only recover the market value of the lost vehicle, while a person whose vehicle is repaired may also recover the loss of use of the vehicle. Hanna, supra; Pasadena State Bank, supra; Mondragon, supra. In 1950, the Texas Supreme Court announced this rule more as a statement of what they believed the current law was at the time, and the Court cited to several Court of Appeals decisions which ostensibly stated as such. American Jet, Inc. v. Leyendecker, 683 S.W.2d 1218 (Tex. App. – San Antonio 1984, no writ) (damaged airplane); Carson v. Bryan, 532 S.W.2d 711 (Tex. Civ. App. – Amarillo 1976, no writ); Cogbill v. Martin, 308 S.W.2d 269 (Tex. Civ. App. – Waco 1957, no writ); City of Canadian v. Guthrie, 87 S.W.2d 316 (Tex. Civ. App. – Amarillo 1932, no writ). The Court stated:
It is our understanding of Texas law that if a chattel has been totally destroyed as a result of a tort, no additional recovery is allowed for the unavailability or loss of use of the property while it is being replaced.
The issue in the Hanna case, however, was the recovery of loss of earning capacity due to a totaled vehicle – not recovery of loss of use. The case had nothing to do with loss of use. Therefore, the pronouncement of the loss of use rule constitutes mere dicta – expressions by the court that do not embody the resolution or determination of the specific case before the court. As a result, the foundation underlying the prohibition of loss of use recovery in cases involving totaled vehicles in Texas is ripe for a change.
The Hanna Court reference to a vehicle being totally destroyed in 1950 bears no resemblance to the concept of a vehicle being “totaled” under today’s claims adjusting guidelines and practices. A minor rear-end collision to a fifteen-year-old Mercury Marquis can result in the vehicle being totaled. A car is “totaled” when the cost of repair plus the probable salvage when sold is more than the actual cash value of the vehicle. Insurance companies determine the costs and vehicle values based on their own formulas for repair work, using internal guidelines and practices. Some vehicles are totaled if the repairs are found to be at 51% of the car’s value, while other companies in some instances use 80%. The result is a dramatically different set of legal rights and damages recoverable by the owner of a repairable vehicle as opposed to a vehicle which has been “totaled” by the insurance company. Precisely when a vehicle is “totally destroyed” as contemplated by the Hanna Court is unclear. A clunker that runs could technically be totaled if the side view mirror was knocked off.
The Court in Mondragon noted the inconsistency of the loss of use rule in total loss vs. repairable vehicle cases, stating that this is because of the incorrect assumption by the Hanna Court that a person does not suffer loss of use damages when a car is a total loss because the car can be replaced immediately. That Court stated that, “the better policy might be to reconsider permitting loss of use damages in total destruction cases.” Mondragon, 954 S.W.2d at 196. With the proper facts, the Texas Supreme Court will likely allow such loss of use recovery.
The laws of all 50 states with regard to loss of use damages, along with every issue imaginable relating to automobile insurance subrogation, can be found in our book entitled, Automobile Insurance Subrogation In All 50 States. This book can be previewed HERE.
If you have a collision subrogation case in Texas involving a totaled vehicle, consider letting Matthiesen, Wickert & Lehrer, S.C. handle the matter in order to take the case up to the Texas Supreme Court and fix the glaring discrepancy in collision damages allowed under such facts. If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at [email protected].