Millers Mut. Fire Ins. Co. of Texas v. Wildish Const. Co.

• Decision Date: 06 July 1988
• Docket Number: J-2,CA
• Citation: 306 Or. 102,758 P.2d 836
• Parties: The MILLERS MUTUAL FIRE INSURANCE COMPANY OF TEXAS, a Texas corporation, Plaintiff, v. WILDISH CONSTRUCTION COMPANY, an Oregon corporation, Petitioner/Cross-Respondent on Review, and Wayne F. Barnes and Cynthia G. Barnes, husband and wife, Respondents/Cross-Petitioners on Review. TC 82 -4537-A37930, SC S33913, S34064.
• Court: Oregon Supreme Court

Page 836

758 P.2d 836

306 Or. 102

The MILLERS MUTUAL FIRE INSURANCE COMPANY OF TEXAS, a Texas corporation, Plaintiff, v. WILDISH CONSTRUCTION COMPANY, an Oregon corporation Petitioner/Cross-Respondent on Review and Wayne F. Barnes and Cynthia G. Barnes, husband and wife Respondents/Cross-Petitioners on Review.

TC 82 -4537-J-2, CA A37930, SC S33913, S34064.

Supreme Court of Oregon In Banc.

Argued and Submitted Dec. 2, 1987.

Decided July 6, 1988.

Michael H. Long, Eugene, argued the cause for petitioner/cross-respondent on review. With him on the petition was Flinn, Brown & Roseta, Eugene.

Sidney E. Ainsworth, Ashland, argued the cause for respondents/cross-petitioners on review. On the brief and response were Jack Davis and Davis, Ainsworth, Pinnock, Davis & Gilstrap, P.C., Ashland. CAMPBELL, Justice.

This case involves a cross-claim filed by the defendants Barneses against the defendant Wildish Construction Company for damages caused to their residence by the construction company's blasting operations. At the close of the Barneses' case-in-chief the trial court allowed Wildish Construction's motion for a directed verdict on the grounds that the Barneses had not offered any proof under the proper measure of damages. The Barneses appealed to the Court of Appeals, which reversed and remanded. Millers Mut. Fire Ins. Co. v. Wildish Const. Co., 84 Or.App. 464, 734 P.2d 890 (1987).

Wildish Construction filed a petition for review in this court claiming that the Court of Appeals erred: (1) In allowing the Barneses to argue for the first time on appeal that there was legally sufficient evidence from which the jury could determine the diminution in the fair market value of the residence resulting from the blasting; and (2) in holding that there was such evidence in the Barneses' case-in-chief in the trial court.

The Barneses also filed a petition for review requesting that we modify the Court of Appeals' decision by remanding the case to the trial court with instructions that the correct measure of damages resulting from the blasting is the cost of restoration of the residence and not the diminution in value. We allowed both petitions for review. We reverse the decision of the Court of Appeals and affirm the decision of the trial court.

To understand and decide the above issues it is necessary to review the evidence. We do so in the light most favorable to the Barneses. Wiggins v. Barrett & Associates, Inc., 295 Or. 679, 669 P.2d 1132 (1983).

In 1976 the Barneses purchased a house and lot on the Rogue River in Shady Cove in Jackson County. The house was on two levels and was approximately 3,800 square feet in size. It was constructed in 1952. It was unusual in that both the exterior perimeter walls and the interior partition walls were built with concrete blocks. The Barneses intended to make the house their retirement home.

In April 1980, Wildish Construction began blasting with explosives along the Rogue River near the Barneses' property in connection with the installation of the Shady Cove sewer system. Wildish Construction's insurance company inspected the Barneses' house before the blasting started. The representative of the insurance company found no problems and stated: "I can't believe it. This house is built like a fortress. I found two cracks." The blasting in the area of the Barneses' property continued off and on through January 1981. The ground upon which the Barneses' house was located was disturbed by the blasting and began to settle. At first the Barneses thought that their house had been severely damaged but could be repaired. The insurance carrier for the Barneses was the plaintiff, The Millers Mutual Fire Insurance Company of Texas. It arranged with a contractor to repair the damage to the Barneses' property.

Later, after extensive repairs did not stop the water leaks and the cracking continued, the Barneses reached the conclusion that the house would have to be razed and rebuilt from scratch. One civil engineer testified that the settling of the house could not be stopped and that the only way to solve the problem was to build a new structure. He testified that to replace the 3,800 square foot house with concrete block construction would cost $60 per square foot, or $228,000, and to replace it with a wood structure would cost $45 per square foot, or $171,000. Another engineer, who was the Director of Medford's Building Department, testified that the damage was impossible to repair. He stated that the house was "sophisticated rubble" and that attempting to repair it would be like having a "ten dollar saddle on a five dollar horse."

Wildish Construction, on cross-examination of a witness who testified for the Barneses, introduced two separate proofs of loss, signed at different times, in which the Barneses swore that the "actual cash value of said property involved at the time of the loss was $168,000" and that the "whole loss and damage" was the same amount.

In December 1982, Millers Mutual filed its complaint in this case against Wildish Construction, seeking to recover approximately $60,000 that it had paid under its policy for the "damage and depreciation" of the Barneses' property resulting from Wildish Construction's blasting operations. The Barneses were joined as defendants because they refused to assign their claim against Wildish Construction to the plaintiff.

In the due course of events, the Barneses filed a SECOND AMENDED ANSWER AND CROSS CLAIM against Wildish Construction for damages in excess of the insurance payments. The cross-claim in part alleged:

"Defendants BARNES were damaged by said ultrahazardous activity of Defendant WILDISH CONSTRUCTION CO. in the amount of $228,000, representing the cost of replacement of the subject residence. The sum of $16,271.50 was expended by Defendants BARNES in a good faith effort to repair the subject residence and the structure is not repairable.

"V.

"In the alternative, in the event that the cost of replacement of the structure is not the proper measure of said Defendants' damages, Defendants BARNES were damaged in the sum of $103,000.00, representing the diminution in the fair market value of the subject residence as a result of Defendant WILDISH CONSTRUCTION CO.'s ultrahazardous activities, together with the costs of $16,271.50 incurred in a good faith effort to repair the residence."

After the trial had started, Millers Mutual and Wildish Construction reached a settlement. The complaint against Wildish Construction was dismissed and the trial proceeded on the Barneses' cross-claim against Wildish Construction.

On the fourth day of the trial, after the Barneses had rested, Wildish Construction moved for a directed verdict on the grounds that the proper measure of damages was the diminution in the fair market value of the property and that the Barneses had not offered any evidence under that standard. The trial court granted the motion and dismissed the cross-claim of the Barneses with prejudice.

The Barneses appealed to the Court of Appeals, alleging that the trial court erred in granting Wildish Construction's motion for a directed verdict. In that court the Barneses argued:

"The cost of restoring the structure is the proper measure of damages in cases such as this where the plaintiff's homestead is involved. The Barnes proved the cost of repair. They presented evidence that restoration of the structure will involve reconstruction, so the cost of repair here is the cost of replacement.

"The Barnes also proved the diminution in value of the residence even if the cost of replacement were not the proper measure. They presented substantial evidence of the residence's value both before and after the Wildish's excessive blasting."

As to the Barneses' first contention, the Court of Appeals agreed with the trial court and held that when a house is totally destroyed, the measure of damages is the fair market value at the time of the loss. However, the Court of Appeals agreed with the Barneses' last contention and reversed and remanded. Millers Mut. Fire Ins. Co. v. Wildish Const. Co., 84 Or.App. 464, 734 P.2d 890 (1987).

I. Did the Barneses Argue to the Trial Court that the Proper Measure of Damages was the Diminution in the Market Value of their Residence?

The law is well settled that when a case has been heard on a certain theory in the trial court, it must be so continued on appeal. The parties to an appeal are restricted to the theory upon which the case was tried in the lower court. Leiser v. Sparkman, 281 Or. 119, 122, 573 P.2d 1247 (1978). One of the reasons for the rule is to allow the trial judge an opportunity to correct errors by calling the errors to the trial judge's attention. Arney, Gohn v. City of North Bend, 218 Or. 471, 475-76, 344 P.2d 924 (1959).

In this case there is no question but that Barneses pled as an alternative measure of damages the diminution in the fair market value of their residence. See paragraph V of SECOND AMENDED ANSWER AND CROSS CLAIM, ante at 838. However, they did not introduce any evidence to support the allegation. The case was not tried on that theory in the trial court.

The proofs of loss, claiming damages in the amount of $168,000, were introduced on cross-examination of one of the Barneses' witnesses by Wildish Construction for the purposes of impeachment, not as substantive evidence. Later, Wayne F. Barnes testified that the $168,000 represented the maximum limit of his insurance policy with Millers Mutual Fire Insurance Company. Nowhere in the record is there any other reference by any witness that the $168,000 represented the fair market value of the property. The sum of $103,000 alleged in the Barneses' alternative pleading was never mentioned during the evidence at the trial.

On the argument of Wildish Construction's motion for a directed verdict, counsel for the Barneses argued that cost of repair or replacement was the proper measure of damages and that the...