Viewpoint: Recovery of In-House Repair Costs and Loss of Use

One of the most heavily contested types of subrogation cases we encounter involves recovery of the reasonable cost of repairs performed in-house by a commercial fleet, trucking company, auto dealership, or rental car company whose vehicle has been damaged due to the negligence of a negligent third party. The liability carrier for the tortfeasor frequently balks at paying the commercial fleet owner’s reasonable repair costs simply because they were able to take advantage of its own in-house employees and replacement parts rather than incurring the cost of a third-party repair shop. This article will discuss the proper standard for determining the measure of damage to a repairable fleet or commercial vehicle, especially when the commercial vehicle is repaired in-house by its owner.

The general rule of damages to personal property in collision cases has been stated succinctly by Professor McCormick in his leading treatise on the law of damages:

When personal property is wrongfully injured:

(a) The normal standard of recovery is the difference between the value just before, and just after, the injury.

(b) But if the damaged property is reasonably susceptible of repair, the owner may recover the reasonable cost of repair, plus the difference between the value of the property before the injury and after the repair, unless the value is enhanced, in which event the increase in value would be deducted from the cost of repair.1

Should a tortfeasor be fortuitously responsible for less than the full, reasonable costs of repair simply because he happened to damage a commercial vehicle whose owner has an in-house repair facility and employees trained and capable of making sophisticated vehicle repairs?

The commercial vehicle owner still must pay the salaries, FICA, health insurance premiums, 401k contributions, and vacation time for each employee it must keep on its employment rolls whether there are vehicles to repair or not. It must purchase the materials, equipment, diagnostic machines, and tools necessary to perform the increasingly complex task of repairing and maintaining cars, trucks, and other equipment in-house. It must pay for its employees to obtain continuing training and certifications. The commercial vehicle owner must also take on the role of a third-party repair shop and incur the cost of maintaining a repair and maintenance facility—a repair facility that must be air conditioned, cleaned, repaired, and for which taxes must be paid. Why would they not be entitled to recover more than merely the hourly wages paid to their repair and maintenance personnel, along with the discounted cost of repair parts they may have on hand?

The cost to the fleet industry of having in-house maintenance and repair facilities has also been steadily rising. Increased vehicle complexity, an increase in unscheduled maintenance, delays in getting replacement parts, inflationary price pressures, and a paucity of qualified mechanics have all contributed to the growing expense of performing repairs in-house.

Recovering the reasonable costs of repair requires proof that such costs were reasonable. Where a commercial vehicle owner undertakes to repair a damaged vehicle and does so with the genuine aim of mitigating business losses, he can usually recover the reasonable cost of repairs plus the diminution in value of the vehicle as repaired. Such recovery is not defeated by the simple fact that this sum exceeds the difference between the market value of the vehicle before and immediately after the injury.2 However, in determining the reasonableness of the plaintiff’s course of action, the court may consider whether damages have been mitigated in light of all the expenses incurred.

States will vary on what evidence is necessary to sustain a viable claim for damage to a repairable vehicle. However, with sufficient evidence, all states will allow recovery for damage to a repairable vehicle, even when the repairs are done in-house. We typically recommend that commercial automobile companies have a third-party estimate prepared, as this will serve as evidence of the reasonable cost and necessity of repairs. But what happens when the cost incurred through in-house repairs varies from that which is included in the estimate?

Some jurisdictions will simply allow the estimate to serve as evidence of the reasonable cost of repair, thereby serving as sufficient evidence to prove damages, allowing recovery of the estimated total. This means that the repair estimate will be sufficient even when the in-house repair work was more efficient and less costly.

In most jurisdictions, the estimate will serve as important evidence of the reasonableness and necessity of repairs, but it will not be entirely sufficient to prove up damages. Instead, the company must produce additional evidence of the costs that were paid for the repair parts and items necessary for the repair of the vehicle. Many companies who have in-house repair services do not keep exact time logs sufficient to show the labor time spent repairing a specific vehicle with requisite specificity. In these situations, a third-party estimate can be utilized to show the appropriate labor cost for the individual job. The injured company could then use the estimate to show the reasonable amount of hours necessary for repair and the market cost for hourly labor. The amounts actually paid for parts would be combined with the estimated labor to provide a reasonable damage calculation that would likely be sustainable in litigation. Alternatively, if adequate logs are recorded, the company could use those exact hours and multiply by the estimate (or other industry standard) hourly rate to determine the appropriate recoverable labor cost.

Recently we have seen many liability adjusters contesting repair invoices and refusing to adequately compensate injured parties for the reasonable costs of repairs, simply because the work was done internally. This is wrong! If the plaintiff can show that the repairs were reasonable and necessary, then there is no reason why the damages cannot be fully recovered. The evidence necessary to sustain your claim will be dependent on both jurisdiction and company specific variations.

The following is a review of case law that can serve as additional support for recovery of repair work done in-house.

Recovery of In-House Repair Costs

When a vehicle is damaged due merely to the negligence of another, and not totally destroyed, a universal rule for determining the measure of damages is not simply stated. One rule for measuring damages in such a case is the difference between the value of the property immediately before and immediately after the injury, but in many cases the rule is alternatively stated as being the reasonable cost or value of repairs necessary to restore the property to the condition it was in at the time of the injury, assuming that the repairs may be made at a reasonable cost. When a commercial vehicle is damaged, however, the measure of damage becomes the reasonable cost of repair, with due allowance for any difference between the original value and the value after the repairs, and the loss of use of the vehicle.3

In a 2008 New York case, New York City Transit Auth. v. Horner, a New York City Transit Authority (“NYCTA”), a fleet vehicle was damaged due to the negligence of the defendant.4 The damages in Horner were calculated by adding the amount of repair work billed by plaintiff’s in-house mechanics, as reported in an “estimate of damages,” to the amount estimated for plaintiff’s loss of use of a damaged bus. Defendants argued that plaintiff’s evidence on damages should not be admitted because:

(1) this was an estimate, and an expert was needed to establish the necessity for the repairs made and the reasonableness of the amount charged for parts and labor; and

(2) plaintiff’s loss of use is not warranted because the plaintiff failed to present evidence establishing plaintiff’s loss of its revenue from that particular bus while it was out of service.

Regarding plaintiff’s in-house mechanics’ bill, which was termed an “estimate of damages,” the defendants relied on Parilli v. Brooklyn City R.R.5 In Parilli, the court said that it was not sufficient to prove the amount paid without proof that such repairs were necessary, and that the repair costs were reasonable. The court in Horner looked to New York Polyclinic Medical School and Hospital v. Mason–Seaman Transp., in which a car repair shop employee testified to the contract price for repair, which the court said was insufficient to prove the amount of damages to the car.6 However, neither the Parilli case nor any of the cases cited defendant requires a damaged party to produce an expert witness to prove necessary and reasonable damages.

A vehicle owner may prove its damages for the repair of a vehicle simply through credible testimony of a person with knowledge about the costs involved.7 The court in Parilli found the employee of the New York City Transit Authority to be such a person.

The costs of labor and materials in New York Polyclinic were also that of in-house mechanics working for the NYCTA, a public authority bound by the provisions of the Public Authorities Law (see PAL § 1200, et seq.). The statute sets forth how such an authority may establish wages and determine the costs of goods (see PAL § 1204). The plaintiff asked the court to extend that provision to read that all expenditures for repair by the NYCTA are inherently reasonable. The court could not make that assumption and said that estimates are generally “no more than a guess as to the cost of repairs and, as such, damages cannot be awarded on the basis of such conjecture or guesswork.”8 However, a court may find that an itemized and detailed estimate has probative weight.9 Furthermore, the proof of damages in New York Polyclinic was actually a paid bill, despite the plaintiff referring to it as an “estimate of damages,” because it listed the actual wages paid for plaintiff’s mechanics and the actual amounts paid for the parts. Together with the credible testimony of the plaintiff’s employee, the plaintiff, through its mechanic’s bill proved the costs associated with returning the bus to service in the amount of $3,882.02.

In an action for damage to a vehicle, the plaintiff establishes a prima facie case of damages by submitting a paid repair bill, and the defendant then had burden of going forward with any evidence he may have had to mitigate or abate damages, or otherwise show them to be unreasonable.10 Generally, where damages to an automobile are such that they may reasonably be repaired, restoring the vehicle to substantially its condition prior to the injury, the measure of damage is the fair and reasonable cost of repairs and a paid bill is sufficient prima facie evidence of the amount of damages absent suspicious circumstances.11 A plaintiff fulfills the requirements necessary to establish a prima facie case of damages and the defendant then had the burden of going forward with any evidence he may have had to mitigate or abate the damages by showing the amount to be less, even when the repairs are done by the corporate plaintiff itself or a subsidiary corporation. Brooks, supra.

To prove the cost of repair, the plaintiff can offer evidence of the costs of parts and replacements and the reasonable and necessary cost of labor.12 The plaintiff must prove the cost of repair was both reasonable and necessary.13

The owner of a fleet vehicle does not always have to use the words “reasonable” and “necessary” when offering evidence about repairs.14 The owner is required, however, to present evidence of damages sufficient to justify a jury’s conclusion that the repair costs were reasonable and necessary. Having a third-party estimate of damages performed is always a viable option. In one Illinois decision, the owner of a commercial truck which was damaged in collision was entitled to simply present repair estimates from outside firms, even though owner had done repair work in-house.15 The State of Iowa, for example, has a Department of Administrative Services (DAS) which is responsible for the acquisition, management, policies, operation, maintenance, repair and disposal of state-owner fleet vehicles used for the transportation of state of Iowa employees in their official duties. Iowa requires an outside repair estimate before its DAS Fleet Services can begin a repair. They provide DAS with a list of independent auto body shops contracted (for a small fee) to provide repair estimates. See HERE. Such a program is the easiest way to ensure recovery of the full “reasonable costs of repair” even though the actual costs of repair (thanks to in-house facilities capable of repairing vehicle for much lower allocated costs) is less than the estimate.

In an action for damages to an automobile, it is not ordinarily a condition precedent to recovery of repair costs that the plaintiff should have actually paid for them or incurred liability therefor.16 A Minnesota court in the case of Hanson v. Hall said that the proper measure of damages is the cost of making such repairs, even though the owner has not expended such amount. The court said that the owner was not bound to put the vehicle in substantially the same condition that it was before the collision prior to commencing his action and recovering damages.

States vary, however, on whether a vehicle owner can recover reasonable repair costs if repairs are never performed. In some states, recovery on the basis of cost of reasonable and necessary repairs, plus the value of use during the period necessary for making repairs, has been denied on the ground that the truck was in fact not repaired. In a Tennessee case, the court said, “No repairs having been made, we think the general rule should have been applied and damages measured by the difference in the value of the vehicle before the accident and its value after the accident.”17

The Damages Are Recoverable

As outlined above, states vary, but one thing remains consistent—in-house costs of repairs are recoverable in a third-party claim against the at-fault party. The only question is what evidence is needed to sustain this claim. A valid estimate and/or internal invoice will be sufficient to shift the burden to the Defendant, thereby putting the ball in their court and requiring them to contest the reasonableness and necessity of the repairs.

These claims can be complex and the third-party carrier’s justifications for denial or significant reductions of repair costs can be baffling. If your company faces a scenario where a Defendant is refusing to acknowledge your damages, simply because the work was done internally, then we are here to help.

Footnotes:

1 C.T. McCormick, Damages § 124, at 470 (1935).

2 Accord Cook v. Southern Farm Bureau Casualty Insurance Company, 124 So.2d 183 (La. Ct. App.1960).

3 Mobile Light & R. Co. v. R. O. Harris Grocery Co., 84 So. 867 (Ala. 1920); Crain v. Sumida, 211 P. 479 (Cal. App. 922); Hawkins v. Garford Trucking Co., 114 A. 94 (Conn. 1921); Hodges v. Alford, 194 S.W.2d 293 (Tex. App. 1946).

4 New York City Transit Auth. v. Horner, 873 N.Y.S.2d 513 (N.Y. Civ. Ct. 2008).

5 Parilli v. Brooklyn City R.R., 236 AD 577 (App. Div., 2d 1932).

6 New York Polyclinic Med. Sch. and Hosp. v. Mason-Seaman Transp. Co., 155 N.Y.S. 200 (N.Y. App. Term. 1915).

7 Babbitt v. Maraia, 157 A.D.2d 691 (App. Div., 2d Dept 1990).

8 Murphy v. Lichtenberg–Robbins Buick, 359 N.Y. App. 1978).

9 Miller v. Sanchez, 6 Misc.3d 479 (N.Y. Civ Ct, Kings Cty. 2004) (a single estimate of repair was admissible and sufficient to establish the prima facie reasonable and necessary cost of repair).

10 Brooks v. Capital Fleets, Inc., 123 A.2d 916 (D.C. 1956).

11 Hemminger v. Scott, 111 A.2d 619 (D.C. 1955).

12 Pasadena State Bank v. Isaac, 228 S.W.2d 127, 129 (Tex.1950); see also Foxx v. DeRobbio, 224 S.W.3d 263, 268 (Tex.App.—El Paso 2005, no pet.) (Plaintiff’s own testimony can be sufficient if plaintiff is familiar with reasonable repair costs).

13 JHC Ventures, L.P. v. Fast Trucking, Inc., 94 S.W.3d 762, 769 (Tex.App.—San Antonio 2002, no pet.), disapproved on other grounds, Medical City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55 (Tex.2008); Merchants Fast Motor Lines, Inc. v. State, 917 S.W.2d 518, 523 (Tex.App.—Waco 1996, writ denied).

14 Driver Pipeline Co., 69 S.W.3d at 786; 2 Fat Guys Inv. v. Klaver, 928 S.W.2d 268, 273 (Tex.App.—San Antonio 1996, no writ); Ron Craft Chevrolet, Inc. v. Davis, 836 S.W.2d 672, 677 (Tex.App.—El Paso 1992, writ denied).

15 P.A.M. Transport, Inc. v. Builders Transport, Inc., 568 N.E.2d 453 (Ill. App. 1991).

16 Hanson v. Hall, 279 NW 227 (Minn. 1938); Chambers v. Cunningham 5 P2d 378 (Okla. 1931).

17 Yazoo & M. Valley R. Co. v. Williams, 185 S.W.2d 527 (Tenn. 1985).