When a negligent driver causes damage to another vehicle in an accident, most states allow the owner of the damaged vehicle to recover damages in tort for the reasonable cost of repairing or replacing the vehicle along with the monetary value of being without the vehicle for a reasonable period while the vehicle is being repaired or replaced. States differ on the ability to recover for this “loss of use” damage and the amount that can be recovered. When rental cars, taxi cabs, tractor-trailers, and other commercial vehicles are damaged, the calculations of “loss of use” or even “lost profit” damages become more complicated and controversial. Whether you are a vehicle owner, a fleet manager, or an insurance claims professional looking to enforce subrogation rights, thoroughly understanding the ramifications and parameters of loss of use claims in all 50 states can make the difference between a large recovery and no recovery at all.
First-Party Loss of Use
When a vehicle is damaged in an accident, the owner can make a claim against his or her auto insurance policy, if it provides collision and/or comprehensive coverage. If the policy provides such coverage, the owner can make a claim for loss of use of the vehicle during the repair period. These “first-party” loss of use claims involve the insured making a direct claim against his or her auto insurer following a collision, even if someone else was responsible for the collision. Loss of use coverage usually provides a replacement (rental) vehicle or reimbursement for transportation costs while the insured’s vehicle is being repaired or replaced following a covered loss.
First-party loss of use claim calculations and formulas vary from state to state and the ability of an insured owner to make a claim for such a loss depends on the insurance policy. First-party loss of use claims are sometimes determined by a three-part formula that calculates the number of days the vehicle was out of service multiplied by the daily rental rate of a similar property.
- One day is equal to four labor hours, representing the average number of hours that a vehicle is worked on per day.
- Two weekend days are added for every five repair days, assuming every repair begins on a Monday to allow for the fewest weekends possible.
- Three administrative days are allowed to obtain an estimate, take the vehicle to the shop, and retrieve the vehicle.
For example, if the estimate requires 26 labor hours, then the formula works as follows: 26 labor hours divided by 4 = 6.5; add 2 weekend days = 8.5; add 3 administrative days = 11.5; multiply 11.5 by a daily rental rate $100.00 = a loss of use charge of $1,150.00. Another common loss of use calculation for first-party claims is $30 for 30 days or a total of $900. Below is an example of an auto policy’s declarations page showing rental reimbursement of $30/day with a maximum of 30 days or $900 total per claim.
|Honda Civic – Coverage||Limits||Deductible|
|Collision Insurance||Actual Cash Value||$650|
|Comprehensive Insurance||Actual Cash Value||$500|
|Towing and Labor Costs||$120||n/a|
|Rental Reimbursement||$30/Day, Max of $900||n/a|
If the insured’s vehicle requires over 30 days to repair, the insured will usually be responsible for transportation costs beyond the 30 days allowed in the policy above. An auto policy may or may not provide for first-party loss of use coverage and, unless it is provided for in the policy, it is usually not recoverable. Typical policy language regarding loss of use claims is as follows:
Coverage for transportation expenses and loss of use damages begins 48 hours after you report the theft to us and ends the earliest of:
(1) when the auto has been recovered and returned to you or its owner;
(2) when the auto has been recovered and repaired;
(3) when the auto has been replaced; or
(4) 72 hours after we make an offer to settle the loss of the auto is deemed by us to be a total loss.
A “third-party” loss of use claim is different.
Third-Party Loss of Use
When a “third-party” tortfeasor causes an accident that results in repairable damages to an insured’s vehicle, tort law usually (a few no-fault states do not) allows the owner of the damaged vehicle to sue the tortfeasor and recover all damages allowable under tort law. These damages vary from state to state.
Recovery of loss of use is a key element of auto property subrogation. States differ as to whether and when a vehicle owner may recover the value of loss of use of a vehicle as an element of damage from a responsible tortfeasor during the time a damaged vehicle is being repaired or replaced. This is known as “third-party” loss of use damages. Loss of use may refer to the inability to use a vehicle, living quarters, business facility, or equipment due to damage caused by the negligence of a third party. However, where auto insurance is involved, we are usually talking about vehicle damages in a collision, and loss of use would be the amount claimed for the reasonable rental value of a replacement vehicle during the time it takes for a vehicle to be repaired, or in some instances, a new vehicle to be purchased. Usually this period of time must be “reasonable,” meaning the damages will be limited to a period in which it would reasonably take to have the vehicle repaired. For a 50-state chart that covers the ability of a vehicle owner (or a subrogated carrier) to seek recovery of damages for third-party loss of use, see Loss of Use In All 50 States.
Things get a little more complicated if the vehicle is declared a “total loss.” For information on how and when an insurance company will declare a vehicle to be a “total loss”, see the article and chart. Many states allow a plaintiff to prove damages for loss of use of a damaged vehicle by establishing the reasonable rental value of a substitute car for the time reasonably required to repair or replace it. Long v. McAlister, 319 N.W.2d 256 (Iowa 1982). Georgia allows for third-party loss of use damages if the vehicle is repairable, but not if it is a total loss. MCI Communications Services v. CMES, Inc., 728 S.E.2d 649 (Ga. 2012). Yet other states have flip-flopped on the issue. For example, for many years Texas law allowed a person whose vehicle was totally destroyed to recover only the value of the lost vehicle, while a person whose vehicle is repaired may also recover the loss of use of the vehicle. Mondragon v. Austin, 954 S.W.2d 191 (Tex. Civ. App. – Austin, 1997). In 2016, it changed its mind and the Texas Supreme Court announced for the first time that owners of vehicles determined to be a total loss could also recover loss of use damages. J & D Towing, LLC v. Am. Alternative Ins. Corp., 478 S.W.3d 649 (Tex. 2016).
Third-party claims for loss of use vary and depend greatly on state law. Some states have not set forth rules, formulas, or calculations to be used in awarding such damages, but simply require that they be causally related to the negligence of the third-party tortfeasor. Some states limit loss of use damages by declaring they cannot exceed the value of the vehicle. Others have no such limit. Mondragon, supra. In one recent Texas case, a totaled Toyota 4Runner with over 170,000 miles became the subject of prolonged first-party litigation between the owner and his insurance company over the vehicle’s value. Balderas-Ramirez v. Felder, 537 S.W.3d 625 (Tex. App. 2017), rev. denied (Apr. 6, 2018). The loss of use damages would have been over $120,000, so the court ruled these damages must be “reasonable.”
The stakes get much higher and the law becomes more confusing when the owner claiming loss of use damages to a vehicle is a commercial rental car company, fleet operator, or trucking company.
Rental Car Company and Fleet Loss of Use
Many states have special rules and laws governing the recovery of loss of use by a rental car company or fleet operator. For example, California provides that loss of use is not recoverable by a rental car company from a renter or authorized driver, but it may be recovered from third parties who cause damage to rental vehicles. Amazingly, this is true even though the rental car company has other vehicles available for rent. Cal. Civil Code § 1936 (c). Many states have addressed no special rules or limitations to recover third-party loss of use damages by a car rental company or fleet operator. Wisconsin law does not allow a car rental company to collect for loss of use, administrative fees, or any other charges not specifically permitted by the statute, or any amounts already collected from a renter or authorized driver. Wis. Stat. Ann. § 344.574. It does allow recovery of such damages from a third party. In some states, such as Tennessee, case law rather than statutory law provides the answer. In Tennessee, case law allows for recovery of third-party loss of use damages by a car rental company when a rental vehicle is damaged, for the time necessary for the vehicle to be repaired. Tire Shredders v. ERM, 15 S.W.3d 849 (Tenn. 1999).
When a commercial vehicle such as a tractor-trailer, taxi cab, or rental vehicle is involved, the landscape changes considerably. A taxi cab company, for example, would argue that, because of an accident, it lost the use of one of its taxicabs and, therefore, the leasing income from that vehicle during the time it takes to purchase and outfit a replacement taxicab. In 2012, the Alabama Supreme Court for the first time determined that loss of use damages could be recovered by a commercial taxicab owner even when the taxicab was totaled because to do otherwise would allow for an element of damages for a damaged commercial vehicle that is repairable that it does not allow for a damaged commercial vehicle that is a total loss. Ex parte S & M, LLC, 120 So.3d 509 (Ala. 2012). Most states have held that if, besides damages to a commercial vehicle, the commercial vehicle owner has lost its use for a period of time while the vehicle is undergoing repairs, that owner may recover the value of the use of the vehicle to himself during the period reasonably required for making actual repairs, or repairs which could have been made with ordinary diligence. In Kentucky and Mississippi, for example, one whose commercial vehicle has been damaged solely from negligence of another may recover loss of use for a period of time reasonably required to repair it. Dean Truck Line, Inc. v. Greyhound Corp., 186 So.2d 240 (Miss. 1966).
When a rental car company suffers damage to a vehicle in its fleet, the issue becomes multifarious, with recovery from the renter under the contract mingling with the right to recover in tort from the third-party tortfeasor. Some argue that a rental car company’s ability to recover damages for loss of the vehicle’s use during the time it is being repaired, and in an amount equal to the reasonable rental value of a substitute vehicle, depends on and subject to the ability of the rental car company to prove: (1) it suffered actual lost profits; and (2) it would have rented the damaged vehicle had it not been damaged.
Third-party loss of use claims by rental car companies are allowed in some states and not in others. In Colorado, car rental companies can recover loss of use damages even if they suffer no financial losses. Koenig v. PurCo Fleet Services, Inc., 285 P.3d 979 (Colo. 2012). The very nature of “loss” to a rental car company is interesting. The concepts of lost profits and reasonable rental value both capture the same loss – that is, an owner’s loss caused by the deprivation of a chattel – but measure the loss differently. Denver Bldg. & Const. Trades Council v. Shore, 287 P.2d 267 (Colo. 1955).
Trucking and fleet operators also have the ability to recovery third-party loss of use tort damages from someone whose negligence caused damage to a fleet vehicle. In some states, actual rental of a replacement vehicle isn’t required. In California and Colorado, the measure of special damages allowable to a trucking company whose truck is wrecked while the company was fulfilling a contract was the reasonable rental value of substitute trucks, whether other trucks were actually rented or not. Meyers v. Bradford, 201 P 471 (Cal. App. 1921); Buchanan v. Leonard, Wiebold & Bartlett, 127 F Supp 120 (D. Colo. 1954). New York requires an actual replacement rental vehicle. Pittari v. Madison Ave. Coach Co., 68 N.Y.S.2d 741 (N.Y. 1947).
Commercial Vehicles and Lost Profits
When a commercial fleet vehicle is involved, significant lost profits can result if a fleet vehicle is taken out of the fleet for repairs or replacement. Some states feel that the reasonable cost to rent a new fleet vehicle isn’t necessarily the damages suffered by the owner. Additional expenses, and even lost profits flowing from the absent vehicle are fair game in some jurisdictions. In North Carolina, the courts allowed the operator of a fertilizer-spreading business to recover lost profits following destruction of a fleet truck that the operator didn’t own but was using with permission of the title holder. Amerson v. Willis, 426 S.E.2d 428 (N.C. App. 1993). North Carolina and Mississippi have rejected loss profits claims by owners of damaged vehicles, unless a substitute vehicle is unobtainable. Roberts v. Pilot Freight Carriers, Inc., 160 S.E.2d 712 (1968); National Dairy Products Corp. v. Jumper, 130 So.2d 922 (Miss. 1961).
Other states boldly proclaim that an appropriate measure of damages for loss of use of a damaged commercial vehicle is “loss of profits.” Etno, Inc. v. Rivers, 644 So.2d 3 (Ala. App. 1994). Still other states say that while damages for loss of use of a commercial vehicle should normally be measured by the cost of hiring another vehicle, where the owner can show that no substitute vehicle was available for rent, loss of profits is the proper element of damages to be recovered. In National Dairy Products Corp. v. Jumper, supra.; Somerville v. Dellosa, 56 S.E.2d 756 (W. Va. 1949).
For more information on subrogating auto property subrogation claims, including loss of use claims for non-commercial passenger vehicles, see our book, “Automobile Insurance Subrogation in All 50 States” published by Juris Publishers. For questions relating to loss of use or auto insurance subrogation, please contact Gary Wickert at email@example.com or Ashton Kirsch at firstname.lastname@example.org.
Ashton T. Kirsch, co-author and attorney at Matthiesen, Wickert & Lehrer, S.C.
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