Underground utility strikes are not uncommon in construction.  When these strikes occur, utility operators often aggressively pursue their claims for damages.  Utility carriers not only seek repair damages, but also “loss of use” damages.  These loss of use damages can escalate quickly. It is important for contractors and their counsel to be aware of the legal positions they can assert when negotiating or defending against a utility carrier’s loss of use claim.

There have been a growing number of complaints as to utility carrier’s abuse of the application of loss of use damages.  Utility carriers have been accused of charging contractors loss of use damages, even though customers were still charged for the service.[1] There have also been complaints as to the exorbitant damages claimed for loss of use in comparison to the repair costs.  For example, in one case, a utility carrier claimed almost $2.5 million in loss of use damages, even though the total repair cost only $28,979.[2]

In making a claim for loss of use damages in Texas, utility carriers have customarily relied upon Texas law measuring the damages for the loss of use of injured property as the reasonable cost of renting a replacement.[3]  Carriers will often calculate their loss of use damages based on the reasonable cost of renting the service, cable, or pipeline from another carrier for the period of time it took them to repair the cable and to normalize traffic.  However, carriers argue that they need not actually rent a substitute or show any amounts actually expended during the period of loss in order to recover damages.

The landscape of the law in this area may be evolving.  In Tex. Elec. Util. Const., Inc., the Eastern District of Texas ruled that, since MCI had conceded that there were no loss profits or loss of business opportunities from defendant’s cutting of its cable, and since it was impossible to rent the cable capacity for less than 30 days, the plaintiff was seeking a measure of damages that were too speculative.[4]  In making this ruling, the court relied upon Berry Contracting, Inc. v. Coastal States Petrochemical Co.[5]

In Berry, a natural gas line was ruptured by the defendant, resulting in the temporary shutdown of a refinery operated by Coastal.  Coastal claimed that it had been deprived of the use of its refinery for 49 hours and that it was entitled to damages in an amount equal to the reasonable market value of the use of the refinery for such period.  The court rejected Coastal’s claim, stating there “is no evidence that Coastal could have actually rented their plant for 49 hours.”

Other states have analyzed loss of use damages in underground utilities cases, and their rulings may also be helpful for contractors in Texas.  In 2012, the Eleventh Circuit certified the following question of law to the Georgia Supreme Court:

Under Georgia law, may a telecommunications service provider whose cable is severed recover loss of use damages measured by the rental value of substitute cable when it has not rented such cable or otherwise incurred any monetary loss apart from the cost of repair?[6]

The Supreme Court answered the question in the negative.[7] Specifically, the Court held that “MCI cannot recover loss of use damages [measured by the hypothetical value of renting substitute equipment] absent some showing of monetary loss apart from the cost of the repair.”[8]

The Fourth Circuit certified a similar question to the Virginia Supreme Court.  OSP Consultants, Inc. severed one of MCI’s underground fiber optic cables.  Under Virginia law, it was not clear whether MCI was entitled to loss of use damages because it was not required to go outside its network to replace the capacity lost when the cable was severed.[9]  The Supreme Court of Virginia held that, since plaintiff used its redundant capacity in the ordinary course of business and did not reserve it expressly for emergencies, MCI was not entitled to loss-of use damages.

In 2016, the Western District of Kentucky found that if it allowed the carrier to measure its damages by the costs associated with an imaginary rental of electrical current, it would result in a windfall for plaintiff and put it in a position better than before the cable was cut.[10]

These are just some of the federal and other states’ courts decisions discussing loss of use damages in underground utility strike cases.  When contractors are presented with demands for loss of use damages from utility carriers as a result of an accident, contractors and their counsel should demand evidence supporting these figures and can better advocate against these high damages by relying upon the current trend in the law governing loss of use damages.