Measure of damages in property loss cases.

• Author: Reis, John W.

Proving damages in a large property loss case is often tedious, sometimes complex, and occasionally treacherous. The drudgery of itemizing the damages is difficult enough. The battle over entitlement to economic damages is no less daunting. Once entitlement is established, the weary litigant may have little time or energy left to fully analyze the proper legal standards for recovering those damages. This article is intended as a survival manual of sorts--a guide through the law on the proper measure of property damages in Florida. (1)

General Rule of Recovery

For both real and personal property losses, the general rule of recovery is that a property owner can recover the cost of replacement, repair, or restoration of property, unless the damage is permanent and the restoration cost will exceed the diminution in the fair market value of the property, in which case the damages are limited to the diminution in fair market value. (2) More succinctly stated, an award of damages to property is generally limited to the restoration cost or the diminution in fair market value, whichever is less. (3) Thus, for example, in U.S. Steel Corp. v. Benefield, 352 So. 2d 892, 894-95 (Fla. 2d DCA 1977), cert. denied, 364 So. 2d 881 (Fla. 1978), the court held that the plaintiff, a property owner, could not recover the full cost of restoring 26 damaged acres of land but was instead limited to the diminution in value, where the restoration cost was $13,084 but the property's entire value was only $12,116 ($466 per acre).

Establishing "Fair Market Value"

The term "fair market value" is defined as "the amount of money which a purchaser willing but not obliged to buy the property would pay to an owner willing but not obliged to sell it, taking into consideration all uses to which the property is adapted and might in reason be applied." (4) Three well-recognized guides to appraisal have evolved, all of which take the property's pre-loss physical depreciation into account: "(1) the cost approach; (2) the comparable sales approach; and (3) the income or economic approach." (5)

In the appraisal and insurance industries, the term "actual cash value" is often used to describe the pre-loss value of certain property, such as vehicles or appliances or structures. Appraisal guides, such as the Kelley Blue Book (6) for vehicles or the Marshall & Swift guide (7) on structures, can help estimate the actual cash value. Although no published Florida case has directly addressed the use of these insurance appraisal guides to determine diminution in market value, language from one Florida case indicates that the term "actual cash value" is "generally synonymous with" fair market value.

In American Reliance Insurance Company v. Perez, 689 So. 2d 290 (Fla. 3d DCA 1997), homeowners brought a class action against their property insurer on the meaning of the term "actual cash value." In determining that the term was not ambiguous, the court essentially equated "actual cash value" with "fair market value," stating as follows:

The insurer contends that the policy language is unambiguous--that when an insured elects not to repair or replace damage to the insured building, then the insured is entitled to be paid only the "actual cash value," i.e., an amount less a deduction for prior depreciation, because the damaged portion, not being new, had suffered actual physical depreciation before the hurricane damage.... We find that the controlling language is not ambiguous. The expression "actual cash value" is an often-used appraisal term, generally synonymous with "market value" or "fair market value." (8) "Stigma" Damages

Damaged property sometimes carries a "stigma" associated with the event that caused the damage even after repairs have been made, especially in cases involving numerous construction defects, mold damage, or termite infestation. The owner of such property often will desire not only the repair costs, but also the additional diminution in value associated with the stigma.

In Orkin Exterminating Company, Inc. v. DelGuidice, 790 So. 2d 1058 (Fla. 5th DCA 2001), for example, the homeowners sought, and the jury awarded, $300,000 against a pest control company for the lost market value associated with the stigma of repeated termite infestations. The Fifth District reversed the award based on a provision in the parties' contract which limited the homeowners' remedy to retreatment and repair of the damage, but went on to note that stigma/diminution damages would otherwise have been recoverable under the following circumstances:

[T]he diminution in value damages of $300,000 could have properly been presented to the jury if competent substantial evidence had been presented that the cost to repair existing termite damage and the cost of providing effective termite eradication procedures would have constituted economic waste. In other words, had evidence been presented that the cost of repair was substantially greater than the diminution in value, diminution in value would have been the proper standard to apply. (9) Under this holding, stigma damages are recoverable in Florida as an element of the diminution in market value when reparation is either impracticable or exceeds the overall diminution in value; however, such damages are not recoverable in addition to the repair cost when the diminution in value exceeds the repair cost. (10)

Proof Through a "Qualified" Witness

Courts require that proof of lost fair market value be established by competent, substantial evidence through a "qualified" witness. (11) Generally, the use of expert testimony is preferred. (12) However, most courts will allow a nonexpert owner to testify to the value of his or her own property. (13) The rule is "based on the owner's presumed familiarity with the characteristics of the property, his knowledge or acquaintance with its uses and purposes, and his experience in dealing with it." (14)

Burden to Establish Lesser Figure

Because the owner is generally limited to the lesser of the restoration cost or the diminution in value, one issue which occasionally arises at trial is whether the owner has the burden to introduce both figures in order to establish which one is the lowest. One Florida case holds that an owner seeking repair costs need not prove that repair costs exceeded diminution in market value, (15) but another case holds that an owner seeking the diminution in value must show that repairs were either impracticable or in excess of the diminution in value. (16) Close analysis of the two cases highlights the distinction.

In American Equity Insurance Co. v. Van Ginhoven, 788 So. 2d 388 (Fla. 5th DCA 2001), plaintiff introduced evidence of, and was awarded at trial, a restoration cost of $48,144.50 for damages to a swimming pool caused by a contractor. On appeal, defendant argued that the damages should have been limited to the difference between the value of the land before and after the damages occurred. In its opinion, the court allowed the award to stand, noting that neither party introduced evidence to establish that the $48,144.50 was higher than the diminution in value:

In the instant case, Fernandez proved that the costs associated with replacing the pool and repairing the damages less significant upgrades, was $48,144.50. The record fails to demonstrate that this cost exceeded the value of the pool in its original condition or its depreciation in value. Moreover, Fernandez demonstrated that replacing and repairing the damage was practicable by actually having it done. Accordingly, American Equity has failed to demonstrate on appeal that the trial judge erred in awarding Fernandez the cost associated with replacing her pool and repairing the other damaged property. (17) Conversely, in DelGuidice, the plaintiff introduced evidence of diminution in value caused to a house infested with termites but failed to establish that restoration would be either impracticable or in excess of the diminution in value. The court reversed the award and limited the remedy to the contract's exclusive remedy of repair, but also stated that it would have affirmed the diminution award if the plaintiff had shown the remedy of repair to be impracticable or "wasteful," i.e., in excess of the diminution value.

The distinction between the two cases is that the plaintiff in Van Ginhoven established the practicability of restoration by actually performing it, whereas the plaintiff in DelGuidice apparently abandoned the repair efforts and introduced no evidence that restoration was practicable.

The cautious practitioner should thus establish the practicability of restoration when seeking restoration costs or the impracticability/ wastefulness of restoration when seeking diminution in value, leaving it to the opposing party to show that the alternative remedy is practicable, quantifiable, and lower. (18)

Going Beyond the Lesser Figure

Limitation to the lesser of the restoration cost or the diminution in value of an item of property does not necessarily prevent a party from introducing the higher figure into evidence. For example, the replacement cost of damaged property can be introduced as relevant evidence on the question of the diminution in value, or vice versa, in order to assist the...