A BRIDGE OVER TROUBLED WATERS: STRAIGHT LINE DEPRECIATION VS. "NEW FOR OLD" RULE.

• Date: 01 January 2019
• Author: Accardo, Keith M.

TABLE OF CONTENTS I. Facts and Holding 248 II. Background 249 A. Deductions from Compensatory Damage Awards 249 B. Federal Regulations Influencing Depreciation 251 III. The Court's Decision 252 IV. Analysis & Conclusion 254 A. Defective Use of the "New For Old" Principle in Maritime Law 254 B. Straight-Line Depreciation Method Flaws in Maritime Damage Allocation 255 C. Significance of No Set Rule for Depreciation in Maritime Law 257 I. FACTS AND HOLDING

In 2008, a motor vessel, owned by Taira Lynn Marine Limited No. 7, L.L.C. (Taira Lynn) and operated by D&S Marine Services, L.L.C. (D&S) allided with the Sunshine Bridge Pier No. 4 fender system while towing two barges in the Mississippi River. (1) Repairs for the bridge resulting from the allision between the vessel and fender system totaled $1,569,544.75. (2) Taira Lynn and D&S conceded to joint liability for the incident yet reserved their right to litigate claims for damages. (3) Louisiana's Department of Transportation and Development (DOTD) then filed suit in the Twenty-Third Judicial District Court for the State of Louisiana for the cost of repairs to the bridge against Taira Lynn and D&S. (4)

The district court rendered a judgment awarding DOTD $720,696.58 plus judicial interest. (5) The district court's reasoning for the reduced award was based on a 50% depreciation rate and a $64,075.80 bid bond credit. (6) Both defendants appealed the district court's judgment and asserted that the district court erred in its finding of a 50% maximum depreciation rate.' On appeal, the appellants argued the district court's application of the Truman-Hobbs Bridge Act of 1940 (Truman-Hobbs) and 33 C.F.R. [section] 277.8(g)(2), suggesting a 50% depreciation value was erroneous, but asserted that the court should have applied the "new for old" principles and straight-line depreciation method to calculate depreciation. (8) In response, the appellee argued there was no established calculation for depreciation for general maritime law, but the pier's condition at the time of the accident should be taken into consideration when determining depreciation rate. (9) On appeal, the Louisiana Court of Appeal, Fifth Circuit held that the 50% depreciation rate was proper for assessing the value of damages because the calculation took into account the Truman-Hobbs Bridge Act, as well as the guidance factors from 33 C.F.R. [section] 277.8(g)(2), and the specific conditions of the Sunshine Bridge. (10) Such conditions included the pier's age, condition, materials, function, and elements it had been exposed to when it was removed, which were compared to identical factors of similar bridges in the Mississippi River. (11)

2. BACKGROUND

   1. Deductions from Compensatory Damage Awards

      "The purpose of compensatory damages in tort cases is to place the injured person as nearly as possible in the condition he would have occupied if the wrong had not occurred." (12) Additionally, when tortious injury occurs to property of an unknown value, damage assessment is calculated by the cost of the property's repairs. (13) However, these standards conflict when essential repairs from tortious injury enhance a property's value. In these situations, the property's increased value is deducted from damages recovered by a plaintiff. (14)

      The "new for old" principle is a rule rooted in the British Marine Insurance Act, (15) which seeks to avoid awarding an injured plaintiff with new and more valuable property when the damaged property's original value was depreciated prior to the tortious act. (16) Application of the "new for old" rule has only been found to be proper in situations when "new" material is used to repair the depreciated and tortiously damaged property. In these situations a certain sum (generally one third) of the cost of the new repair materials for the property is deducted from awarded damages. (1)' For example, the Fifth Circuit held in City of New Orleans for Use and Benefit of Sewerage and Water Bd. of New Orleans v. Am. Commercial Lines, Inc. that the "new for old" rule was not applicable when one of the defendant's tows damaged the plaintiff's protective fender system because the fender system had not deteriorated at the time of the allision. (18) Therefore, the award of damages to repair the fender system was not prone to deduction. (19)

      When the "new for old" rule is an issue in maritime cases, federal courts have rejected the idea that a bridge's service life is independent of its piers. (20) Federal courts have noted that when an integral part of a bridge is replaced, it adds no overall value or life expectancy to the actual bridge. (21) Therefore, in circumstances when integral parts of a bridge have been damaged, courts have held the "new for old" rule could not be properly applied to assess depreciation. (22)

      Historically, however, courts considered straight-line depreciation to be the "correct, long established, and fair method" of calculating deductions in situations where property value was enhanced as a result of repairs from tortious events. (23) The straight-line depreciation method takes the age of the damaged property and divides it by the property's expected lifespan at acquisition to calculate a depreciation analysis. (24) Furthermore, straight-line depreciation has been found to be applicable in situations where damaged property is replaced with materials in which courts have assumed or explicitly found the new replacement material to have identical service life of that of the damaged property before the tortious event occurred. (25) However, courts have determined that although straight-line depreciation may be used as a "handy tool," it is not always the most effective method of determining depreciation for every situation, given that materials may depreciate at a non-linear rate. (26)

      Presently, "there is no fixed rule for the calculation of depreciation in general maritime law." (27) Traditionally, however, when marine vessels tortiously cause damage to land-based structures, "allowance is made for depreciation at the time of the collision." (28)

   2. Federal Regulations Influencing Depreciation

      The Truman-Hobbs Bridge Act was enacted in 1946 to regulate construction and alterations of certain bridges over navigable waters in the United

      States. (29) Embodied within this act is 33 C.F.R. [section] 277.8, a section of Code of Federal Regulations Title 33 of Chapter II Corps of Engineers, Department of the Army. (30) This act sets forth guidelines to determine applicable procedures for apportionment of costs for bridge construction and alterations, (31) as well as guidelines to determine useful service life, or the "period of expected usefulness of an asset," (32) for bridges and some of the bridges' component parts. (33) 33C.F.R. [section] 277.8(g)(2) specifically explains, "[f]or timber structures which have been in existence for more than 50 percent of their estimated service life, the expired service life is held usually at 50 percent providing the structure has been adequately maintained and is in a good state of repair." (34) Although 33 C.F.R. [section] 277.8(g)(2) specifically references service life of railroad bridges, 33 C.F.R. [section] 277.8(g)(2) and 33 C.F.R. [section] 277.8(g)(3) give insight to applicable factors which may be taken into consideration when determining rate of depreciation and expected lifespan of a highway bridge,' (0) including structural deficiencies, location, volume of traffic, and all other factors that may impact service life. (36)

3. THE COURT'S DECISION

   Louisiana Court of Appeal, Fifth Circuit judges reviewed the issue of determining an applicable depreciation rate to award proper damages and held that the "new for old" rule had no application pursuant to the facts of the situation at hand. (37) The court rejected that a 50% depreciation rate...