Damages recoverable on tort theories in construction cases.

• Author: Sido, Kevin R.

DEFENSE COUNSEL cringe at the thought of damages--whether tort, contract or statutory. After all, clients are not supposed to lose on liability, so why should they have to think about damages?

But our clients occasionally do lose. As few cases are tried, effective settlements require effective damage analyses. Damages usually are the highlight of plaintiffs' cases, so defendants must meet that challenge head on. Defense counsel must learn the theories of damages, not just with some disdain but even more fluently than plaintiffs' attorneys, lest catastrophe follow.

TORT DAMAGE THEORIES

Within the realm of tort-based actions, the vast preponderance of cases involving architects, engineers, contractors and sureties are grounded in negligence, including negligent misrepresentation. The striking feature of the negligence cause of action is that the plaintiff must prove damages or the action fails. Put another way, damages are not presumed or inferred by the existence of liability. Rather, as Section 907, Comment a, of the Restatement (Second) of Torts states, the absence of damages is fatal to the cause of action in negligence.

Parties engaged in construction are, of course, subject to occasional charges of the tort of interference with contract, which are covered by Sections 766, 766A and 776B of the Restatement. For example, a general contractor might bring an action against an engineer under the intentional tort theory so as to avoid the economic loss defense.(1) In this tort, however, the "pecuniary loss resulting to the other from the failure of the third person to perform the contract" is generally measured by contract theories of damages, according to the Restatement. Proof of liability for trespass to land carries with it a presumption of at least nominal damages, according to Sections 163 and 907 of the Restatement. Similarly, defamation in the "per se" category causes damages to be presumed. Damages available in bodily injury causes of action by workers or passersby of a construction site are beyond the territory surveyed by this article. Delay damages usually arise in contract actions.

DAMAGES RECOVERABLE IN TORT

1. Contrasted with Contract

   If one were not told that tort and contract law are "supposed to" have separate theories of damages, the purported distinctions learned in law school between the competing theories often would seem not to exist. For example, the Restatement in Section 901, Comment a, points out that the law of torts attempts primarily to restore the injured party to as good a position as held prior to the tort. The substance of many different opinions on tort damages in the construction setting suggests that the "rules" on the proper measure of damages are simply guides and not legalistic formulae to be followed in some sort of arbitrary or inflexible way. Substantial justice is the desired result, rather than legalistic adherence to harsh commandments of the law. Using different words, the Restatement notes that when a loss involves pecuniary injury only, compensatory damages are designed to place the plaintiff in a position substantially equivalent in a pecuniary way to that which he would have occupied had no tort been committed.

   Any personal injury lawyer knows that if the fact of damages is apparent, even if without mathematical certainty, awardable damages exist. So too, defense lawyers might concede that property damages occasionally can benefit from that leniency. Nonetheless, defense counsel should be equally ready with common law cases to argue that if the damage is indeed capable of dollars and cents computation, such computation must be supplied lest the proof fail.(2)

   As noted above, technical distinctions in the damages recoverable in tort, as compared to contract, may better be left behind in law school. The rules for tort and contract damages might be stated differently, but they are basically the same.(3)

   In jurisdictions where the economic loss doctrine prevails, however, the contrast between tort and contract can be a significant distinction. Generally, a party to a contract may recover damages that are the proximate result of the breach. This statement is often qualified, however, by requiring foreseeability of the damages. Those damages must be contemplated at the time the parties entered into the contract. On the other hand, in tort cases, the defendant is usually argued as being liable for "all consequences" that "naturally result" from the wrongful act or omission, regardless of whether those damages are anticipated or contemplated.

   Law school memories of Palsgraf v. Long Island Railroad Co.(4) flash before us. Public policy, foreseeability and the "natural and probable results" as determined by courts are the key in tort cases. Alternatively, in contract matters virtually the same analysis of foreseeability or contemplation occurs, but with a deeper factual inquiry into the minds of the contracting parties rather than the public at large.

2. Specific Damages: Repair, Replacement and Diminution in Value

   Virtually nowhere else in tort theory for construction cases is there as irreconcilable an area as that dealing with physical harm to personal property or real property, including fixtures. In jurisdictions in which there are many reported decisions, that law may well be found to be explicable only by reference to a determination to find substantial justice in damages, and the repair versus diminution in value dichotomy is often hopelessly irreconcilable.

   Factually, the question, stated in its simplest format, is whether the aggrieved plaintiff is entitled to the costs incurred or to be incurred in repairing the damage or is to be compensated according to the diminution in value between the value before the tort and the value immediately thereafter. Not surprisingly, able counsel for the respective parties typically throw rigid application of the existing precedent out the window or into the brief depending on what is perceived as "fair."

   The Restatement at Sections 928 and 929 offers the plaintiff the choice of the difference in value versus the reasonable cost of repair and restoration. It even goes on to note in Section 928 that, as to chattels, due allowance should be granted for the difference in value between the original value and the value after repairs, apparently recognizing the common sense notion that repair science is often an imperfect art.

   Defense counsel should research precedent in their own jurisdictions to develop a sense of the parameters of the damages theories that have been accepted or rejected, but the imaginative practitioner also will check cases elsewhere, whether tort or contract, that might seem to suggest a "fairer" rule for the particular case. Just as one example, an annotation identifies dozens and dozens of different types of property as if to suggest that different rules apply to different features of a building or personality.(5) The identification of such details includes cast iron tubs, hog confinement buildings, wells, trees, appliances and so forth. Swimming pools even have their own annotation.(6)

   To be sure, courts have made a sizable distinction (whether tort or contract) between a building used as a plaintiff's home versus office buildings, apartment buildings and other investment properties. Section 929(l)(c) of the Restatement, for example, recognizes that a homeowner can both cause repairs to be made to the property, even if economically wasteful, and recover the "discomfort and annoyance to him as an occupant."

   In planning a damages defense for the repair versus diminution in value approach, the following checklist is helpful, although it is by no means all encompassing or necessarily based on distinctions recognized in all jurisdictions:

   1. Is a repair even technically feasible by ordinarily available workmanship? Alternatively, is appropriate opinion evidence available for diminution in value?

   2. Is the damage so extensive as to require removal and replacement, lest economic waste occur?

   3. Is the damage to the plaintiff's home rather than to non-owner-occupied buildings?

   4. To what extent is public safety at risk if repairs, rather than replacement, is attempted?

   5. Can a repair be made consistent with applicable building codes or has the fixture only been permitted to survive by a grandfathering allowance--for example, an elevator?

   6. In jurisdictions where a distinction exists between total loss and partial loss, is the extent of destruction or damage so severe that precedent will be laid aside in favor of a "just" result?

   7. Does the jurisdiction recognize a distinction between permanent and non-permanent damage?

   8. Has the plaintiff already reduced the diminution in value to a fixed number by (a) actual performance of the repairs or replacement or (b) by sale of the property? If so, what evidentiary presumptions are recognized to flow from plaintiff's action--that is, to what legal or practical sense can the defendant challenge the plaintiff's numbers?

   9. What if the plaintiff believes that there is a choice of recovery based on diminution or repairs and fails to offer any evidence of the other? Is the case law so clear that the methodology the plaintiff offered will be followed so that no directed verdict motion will lie?(7)

   An example of how hopeless or at least difficult it can be to sort out the various decisions in a state with many holdings in the area is Williams-Bowman Rubber Co. v. Industrial Maintenance, Welding and Machining Co.(8) That case presented theories of tort and contract for damages to both real and personal property from a fire resulting during remodeling work performed by the defendant.

   The federal district judge's memorandum opinion summarizes thoroughly and quickly the Illinois law on damages to personal property in a manner perhaps consistent with many other jurisdictions:

   If the personal property is repairable, then the

   measure of damage is the reasonable cost of repairs.

   ...