On January 8, 2016, the Texas Supreme Court released a decision that reversed a 60-year trend in Texas auto insurance litigation. In J&D Towing, LLC vs. American Alternative Insurance Corp. (AAIC), the Court reversed a confusing trend of prohibiting the recovery of loss-of-use damages in total loss cases.
Traditionally, claimants whose damaged property can be repaired are entitled to recovering the cost of repairs as well as loss-of-use damages. Because claimants whose property is totally destroyed often replace the property immediately, and because courts have tried to limit the possibility of double recovery, claimants who have suffered a total loss have only been entitled to the fair market value of the lost property.
Though it has been the norm in Texas courts for decades, the Fort Worth Court of Appeals decided in Morrison v. Campbell in 2014 that “there is no compelling or logical reason to treat loss of use claims differently in destroyed property cases than we do in repairable property cases.” The Court was not trying to establish a new general rule, but ruled that a claimant should be able to recover loss-of-use damages on top of the fair market value of lost property when an insurer delays payment on a total loss.
This 2014 ruling helped support J&D Trucking’s successful appeal to the Texas Supreme Court concluded two years later.
Chronology of the case: How J&D Towing, LLC vs. American Alternative Insurance Corp. (AAIC) upended a 60-year tradition
- In December 2011, on its way to repossess a vehicle, J&D Towing’s only tow truck was struck in the passenger side by a car. All parties agreed that the accident was caused by the third party driver.
- After two months of negotiation, J&D reached a settlement for the limit for property damage on the other driver’s policy, $25,000, which exceeded the assessed value of the truck by $5,500.
- J&D filed a claim with its own insurer, AAIC, under its underinsured-motorist policy, asking for compensation for loss of use of the truck for 9-10 weeks.
- AAIC denied the claim, canceling the policy.
- J&D sued AAIC for damages totaling either $27,866.25 or $29,416.25.
- AAIC argued that J&D is not legally entitled to loss of use damages, because Texas law does not permit the recovery of these damages in cases of total destruction.
- The trial court ruled in favor of the towing company, awarding J&D $22,500 in damages for the loss of use of the truck (after subtracting the $5,500 already paid on top of the value of the truck).
- AAIC appealed. The state appeals court overruled the trial court. It ruled in favor of the insurer, agreeing that Texas law does not permit loss-of-use damages in total-destruction cases.
- J&D appealed to the Texas Supreme Court. The Court acknowledged that appeals courts in Texas have been inconsistent in allowing or prohibiting loss-of-use damages in total destruction cases. The Court decided in favor of J&D Towing, concluding that loss-of-use damages should be available in total loss cases.
The Texas Supreme Court was careful to encourage future total loss cases to be considered according to their own particular circumstances, and provided some guidelines. The ruling leaves many unanswered questions in its wake, such as how damages in total loss cases should be measured, whether the new ruling will be abused by claimants as previously feared, and whether insurers will be motivated to settle claims more efficiently. The full impact of this historical decision will be felt in the coming years.
Bean, Philip K. “Litigation Update: Loss-of-Use Damages in the Event of a Total Loss,” Kane Russell Coleman & Logan PC. Published in Lexology. Aug 31, 2015. http://www.lexology.com/library/detail.aspx?g=c8f15a4a-b006-42f8-a0c9-468169d2e630
Craven, William, and Gregory Hudson. “Texas Rule Change: Supreme Court Holds Loss of Use Damages Are Recoverable Where Property Total Loss,” Property Insurance Law Observer. Jan 15, 2016. http://propertyinsurancelawobserver.com/2016/01/15/texas-rule-change-supreme-%20court-holds-loss-of-use-damages-are-recoverable-where-property-total-loss/
Jones, Stephanie K. “Texas Supreme Court: Loss-of-Use Damages Allowed in Total Loss Cases,” Insurance Journal. Jan 21, 2016. http://www.insurancejournal.com/news/southcentral/2016/01/21/396028.htm
“Loss of Use Law and Legal Definition,” US Legal. http://definitions.uslegal.com/l/loss-of-use/
McGrath, Richard A. “When Is A Loss A Total Loss?” McGrath Insurance Group, Inc. http://www.mcgrathinsurance.com/node/164
“What is Double Recovery?” Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed. http://thelawdictionary.org/double-recovery/