Texas Rule Change: Supreme Court Holds Loss of Use Damages Are Recoverable Where Property Total Loss

In J & D Towing, LLC v. American Alternative Insurance Corporation, No. 14-0574, 2016 WL 91201 (Tex. Jan. 8, 2016), the Texas Supreme Court considered J & D Towing, LLC’s (“J & D”) claim for loss of use damages under its underinsured motorist insurance policy, after J & D’s only towing vehicle was totally destroyed in an accident.  After discussing decades of Texas case law limiting loss of use damages to cases involving partial destruction, the Court held that the owner of totally destroyed personal property may recover loss of use damages, in addition to the property’s fair market value immediately before the injury.  The Court’s holding reverses over 60 years of prior case law prohibiting recovery of loss of use damages in total destruction cases, and brings Texas in line with the majority of jurisdictions.

J & D is a vehicle towing company located in Huntsville, Texas. On December 29, 2011, an accident with a third party rendered J & D’s only truck a total loss.  J & D claimed the value of the truck exceeded $19,000, and also sought its loss of use damages based on its inability to conduct business.  Although the third party’s insurer offered to pay the truck’s value, the third party insurer refused to pay for any loss of use damages.  After nearly two months, J & D settled its claim for the third party’s policy limits of $25,000.

J & D then sought recovery of its loss of use damages under its underinsured motorist policy.  While the payment from the third party’s insurer exceeded the fair market value of the old truck by $5,500, J & D asserted that the additional $5,500 only compensated for a small portion of its loss of use damages.  J & D’s underinsured motorist insurer, American Alternative Insurance Corporation (“American”), denied the claim, asserting the policy only provided coverage for amounts J & D was “legally entitled to recover.”  American argued that Texas law precluded recovery of loss of use damages when the property at issue was totally destroyed.    Although the insuring agreement applied to “‘property damage’ caused by an ‘accident,’” there was no discussion of the policy’s “property damage” definition.  While the policy in J & D Towing provided underinsured motorist coverage, the “property damage” definition within commercial general liability policies typically includes loss of use.  In contrast, the terms of underinsured motorist coverage vary widely and are often driven by state legislation.  Because the Court chose not to discuss the “property damage” definition in J & D Towing, the effect of that definition on the Court’s holding concerning loss of use damages is unclear.

After American denied the claim, J & D filed suit to recover the disputed damages.  At trial, American did not contest J & D’s loss of use damage model, or supply its own alternative damage model, choosing instead to contest only the legal recoverability of such damages.  The jury awarded $28,000 for loss of use to J & D, and the trial court reduced the award by the $5,500 already paid by the third party’s insurer.  On appeal, a Waco appellate court reversed and rendered, holding that the trial court abused its discretion in submitting the loss of use instruction to the jury.

The Texas Supreme Court noted the logical inconsistency in allowing recovery of loss of use damages when property was partially destroyed, but not when property was totally destroyed.  The Court also noted that limiting the remedies available in a total loss scenario hindered the general goal of providing “full and fair” compensation for an injury.  To explain the origin of the inconsistency, the Court traced the history and progression of loss of use jurisprudence in the United States.  After much criticism of the approach taken for over 60 years by the majority of Texas courts—i.e., that recovery of loss of use damages is limited to partial destruction—the Court cited the “sea change in both caselaw and legal treaties” on the availability of loss of use damages in total destruction cases.  As noted in the opinion, the following courts have held that loss of use damages are available in total destruction cases:

High Courts

Lower Appellate Courts

Federal Courts



District of Colorado



Third Circuit (New Jersey law)



Third Circuit (Pennsylvania law)


New York

Eighth Circuit (South Dakota law)

District of Columbia










North Carolina


West Virginia


The Court found persuasive the “near uniformity in the reasoning underlying these decisions.”  Applying their logic, the Court was unconvinced that any distinction between partially and totally destroyed personal property for loss of use purposes was warranted.  In the Court’s view, property owners may incur loss of use damages just as readily in total destruction cases as partial destruction cases.  Moreover, the Court quoted the “guiding principle of Texas tort law: ‘The thing to be kept in view is that the party shall be compensated for the injury done.’” In order for this “full and fair compensation” principle to remain intact, the Court held that loss of use damages must be available in both partial and total destruction cases.

Ultimately, the Court in J & D Towing departed from a line of Texas cases limiting recovery of loss of use damages to cases involving partial destruction of property.  However, the Court decided the case on the narrow legal issue of whether loss of use damages were available at all, leaving for another day any decision how such damages should be measured or whether they were measured correctly in J & D Towing.

The opinion makes clear that recovery of loss of use damages is not absolute, and Texas courts can (and should) consider the circumstances of each particular case in determining whether to award loss of use damages and how much loss of use damages would be warranted to provide “full and fair compensation.”  In particular, the damages should only be awarded for a period “reasonably necessary” to obtain replacement property.  Further, the damages cannot be too remote; rather, they must be “foreseeable and directly traceable to the tortious act.”  Although “mathematical exactness is not required,” the damages must not be speculative.

Lastly, the Court described J & D’s truck as a “total loss,” but in discussing the law regarding loss of use damages, the Court repeatedly referred to “totally destroyed” property.  In a footnote, the Court briefly commented on the distinction between a “total loss” vehicle and “totally destroyed” vehicle, noting that Texas law treats a total loss vehicle as “totally destroyed subject to the total-destruction measure of damages.”  A vehicle is a “total loss” when it is not absolutely impossible to repair it, but the damages are so extensive that “repair would not be economically feasible.”  Although not argued by American, the Court opined that in a total loss scenario, the liable party may be entitled to a credit for the vehicle’s salvage value where the owner retains the vehicle.

When handling total loss cases, policyholders and insurers should consider the J & D Towing holding and carefully examine the facts and circumstances of each loss to determine whether and how much loss of use damages will be appropriate.  To discuss any questions you may have regarding the issues addressed in this posting, or how they may apply to your particular circumstances, please contact Gregory Hudson at (832) 214-3909 or ghudson@cozen.com.  You may also contact Will Craven at (214) 462-3037 or wcraven@cozen.com.

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For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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