Portland General Elec. Co. v. Taber

• Decision Date: 05 March 1997
• Citation: 934 P.2d 538,146 Or.App. 735
• Parties: PORTLAND GENERAL ELECTRIC COMPANY, an Oregon corporation, Appellant, v. Harry TABER, Respondent, and Farmers Insurance Company of Oregon, an Oregon corporation, Intervenor-Respondent. DCV 95-5138; CA A92400.
• Court: Oregon Court of Appeals

Page 538

934 P.2d 538

146 Or.App. 735

PORTLAND GENERAL ELECTRIC COMPANY, an Oregon corporation, Appellant, v. Harry TABER, Respondent and Farmers Insurance Company of Oregon, an Oregon corporation Intervenor-Respondent.

DCV 95-5138; CA A92400.

Court of Appeals of Oregon.

Argued and Submitted Jan. 23, 1997.

Decided March 5, 1997.

Lee S. Aronson argued the cause for appellant. On the brief was Valencia R. Tolbert, Portland.

Thomas W. Brown argued the cause for respondent. With him on the brief were Wendy M. Margolis, Robert E. Barton and Cosgrave, Vergeer & Kester, L.L.P., Portland.

L.E. Ashcroft argued the cause for intervenor-respondent. With him on the brief was Ashcroft & Rinehart, Salem.

Before DEITS, P.J., and De MUNIZ and HASELTON, JJ.

HASELTON, Judge.

Plaintiff Portland General Electric (PGE) appeals, assigning error to the entry of summary judgment in favor of defendant Taber and intervenor Farmers Insurance Company of Oregon. The sole issue presented is whether the proper measure of damages when a motorist negligently destroys a wooden power pole is: (a) the undepreciated cost of the lost pole or (b) the full replacement cost of a new pole. The trial court determined that, as a matter of law, PGE's recovery was limited to the lost pole's undepreciated value. We affirm.

The material facts are undisputed. PGE owns and operates an electrical distribution system, which includes approximately 235,000 wooden power poles. The age of the poles varies, with roughly 40 percent being in service for more than 40 years; the oldest is 84 years old. Among the factors that affect the life of any individual pole may be rot and decay, insect infestation, lightning strikes, other accidental destruction, and systemic relocation or restructuring. Improved treatment processes have extended the useful life of properly treated wooden poles. PGE does not replace poles on a fixed schedule, but, instead, inspects and treats poles on a seven-year cycle and replaces them on an "as necessary" basis.

PGE depreciates its poles, as a capital asset, for tax and accounting purposes. Poles are depreciated as a group, rather than individually, based on the projected useful life of all wooden transmission poles in the system. The projected useful life, for tax and accounting purposes, is 37 years.

There is no market for used power poles, and such poles have no salvage or retirement value. Historically, until 1993, whenever one of its wooden transmission poles was negligently damaged or destroyed, PGE calculated its damages for the loss of the pole as the original cost of the pole less any depreciation previously taken (the "undepreciated cost" method). Thus, if a 17-year-old pole was damaged or destroyed, PGE would invoice damages for 20/37 of the pole's total original cost. ¹ On July 1, 1993, PGE altered its methodology and began invoicing allegedly liable third parties for the full replacement cost of a new power pole, rather than the undepreciated cost of the damaged pole. Under the new "full replacement cost" method, if the third party actually pays the full cost of the new pole, PGE does not depreciate the new pole for tax and accounting purposes. If the third party pays for part of the new pole, PGE depreciates the balance of the cost.

On June 20, 1994, defendant Taber's pickup truck struck and damaged a wooden power pole owned by PGE, which had been installed in 1934 and was still fully functional. PGE brought this action, seeking to recover damages of $2,213 for removing and replacing the damaged pole and $407.85 for the cost of the new pole itself. Defendant agreed to pay PGE $2,213 for costs, exclusive of the actual cost of the new pole, but disputed PGE's claim for the full replacement cost of a new pole. In particular, defendant asserted that the "undepreciated value" measure of damages should control and that, under that method, PGE was not entitled to any damages, because the pole's actual age (60 years) exceeded the 37-year average useful life that PGE assumed for depreciation purposes.

On September 12, 1993, a car driven by intervenor Farmers' insured, Johnson, struck and damaged a PGE power pole that had been installed in 1976. As with Taber, PGE sought to recover the full cost of a new pole ($908.22), ² rather than the pole's undepreciated value ($467.73). Farmers moved to intervene, ORCP 33, in the Taber litigation because the issue presented there, as to the correct measure of damages, was identical to that raised by PGE's claim against Johnson. Farmers sought a declaration that the "undepreciated cost" method was the correct measure of damages. Neither PGE nor Taber objected, and the trial court allowed Farmers' intervention.

PGE then moved for summary judgment, and Taber and Farmers cross-moved, on the dispositive replacement cost issue. The trial court granted Taber's and Farmers' cross-motions for summary judgment. PGE appeals.

The question is one of first impression in Oregon. That question seems simple. Nevertheless, it has engendered a substantial division of opinion in other jurisdictions. ³ That disagreement suggests, quite correctly, that although the question is straight-forward, the answer is not.

Despite that complexity, the overarching principles that guide our inquiry are clear. In assessing compensatory damages for tortious injury to property, the measure of damages is to be determined " 'not only by what might be right for an injured person to receive in order to afford just compensation, but also by what is just to compel the other party to pay[.]' " Mock v. Terry, 251 Or. 511, 513, 446 P.2d 514 (1968) (quoting Hansen v. Oregon-Wash. R. & N. Co., 97 Or. 190, 201, 188 P. 963, 191 P. 655 (1920)). Generally, where property has been damaged, the measure of damages is the difference in value before and after the injury. Cutsforth v. Kinzua Corp., 267 Or. 423, 439, 517 P.2d 640 (1973). Similarly, where property is destroyed, the measure of damages is generally the market value of the property. Prettyman v. Railway etc. Co., 13 Or. 341, 343, 10 P. 634 (1886). Where, however, the property that is damaged or destroyed had no market value, "other means of valuation must necessarily be resorted to in order to appraise the property[.]" Id. at 344, 10 P. 634. See also Erickson Hardwood Co. v. North Pacific Lumber, 70 Or.App. 557, 568, 690 P.2d 1071 (1984), rev. den. 298 Or. 705, 695 P.2d 1371 (1985).

Here, it is undisputed that there was no market and, hence, no market value for used wooden power poles. Accordingly, our task is to identify the appropriate "other means of valuation," Prettyman, 13 Or. at 344, 10 P. 634, that justly compensates plaintiff while not unfairly assessing defendant.

The parties espouse starkly contrasting methodologies, with PGE invoking the "full replacement cost" rule adopted in 14 states and Taber and Farmers urging a variation of the "depreciated value" approach adopted in five states. Each contends that the other's approach yields unconscionable windfalls, but that its own achieves, or at least approximates, just compensation. As described below, there is--notwithstanding their Manichean oversimplification--some merit in both positions.

The original, and most frequently quoted, "full cost of replacement" case is N.J. Power & Light Co. v. Mabee, 41 N.J. 439, 197 A.2d 194 (1964). The premise of that holding, which is reiterated in virtually every "majority rule" decision, is that, because it is impossible to predict the life of any particular power pole, only the full cost replacement ensures that the power company will be fully compensated for its loss:

"If the life of every pole were 36 years and if it were clear that each pole would be replaced at the end of that period defendants could well urge that a new pole clearly conferred a benefit beyond the amount of the damage done. The difficulty is that there is no discernible life expectancy of an individual pole and that although the period of 36 years is used for accounting purposes, the pole that was destroyed might well have served for a much longer period and the new pole may last for but a few years. Moreover, because of changes in circumstances or in technology, it cannot be known whether the pole would ever have been replaced. In short, at least upon the record before us, we cannot say with reasonable assurance that the installation of a new pole did more than remedy the wrong done. An injured party should not be required to lay out money, as defendants' approach would require, upon a questionable assumption that one day its worth will be recaptured." Id. 197 A.2d at 195-96. ⁴

See also Puget Sound Power & Light Co. v. Strong, 117 Wash.2d 400, 403, 816 P.2d 716, 717 (1991) (rejecting argument that full cost of replacement would confer windfall on utility: "We would agree with that reasoning if the actual life expectancy of a specific pole could be determined. It cannot.").

Conversely, the minority "undepreciated cost" rule turns on the premise that requiring a party to replace a used power pole with a new pole confers an unfair windfall on the utility and that relating damages to the pole's undepreciated cost, representing the loss of the balance of the average projected useful life, effects fair compensation. Younger v. Appalachian Power Company, 214 Va. 662, 202 S.E.2d 866, 868 (1974), exemplifies that view:

"The record shows that Appalachian periodically inspects its transmission system and replaces poles deteriorated in normal usage. From this experience, Appalachian can determine the average useful life of poles in the system. Since in the normal course of doing business Appalachian must bear the expense of replacement costs at some reasonable ascertainable future time, recovery from a tortfeasor of full replacement costs at an earlier time would overcompensate the injury sustained. Thus, if a pole deteriorated in normal usage was to be replaced and an automobile damaged it an hour...