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3 min read
Overview
Why Should Betterment Matter to Parties Involved in a Property Damage Dispute?
Defendants can use betterment as a defence to limit the damages awarded to plaintiffs. If a party is put into a better position than it was before, it has received a “betterment.” Just as the law does not provide free upgrades, a Toyota stays a Toyota, repaired or replaced, not transformed into a Ferrari. Accounting for betterment when determining the amount of damages prevents plaintiffs from becoming overcompensated for their damages, ensuring that they are put back into their original position and not a better one.
Who Has the Burden of Proving Depreciation, and What Evidence Is Required?
The onus or burden is on the party arguing depreciation to prove it. In property damage lawsuits, while plaintiffs will often seek compensation for property replacement, defendants argue that the damages should be limited to the property’s reduced value or that the court should consider any improvements resulting from the replacement.
Defendants will need to show something beyond speculation, though they may encounter challenges in securing evidence of depreciation. In Kuerbis v. Broderson (Chinook Delivery & Moving), the defendant was found liable for breach of contract and negligence after an improperly installed washer and dryer caused substantial water damage to the plaintiffs’ home. Regarding the calculation of depreciation, Justice Pharo found that the defendant was “faced with a formidable, if not almost impossible, challenge in trying to meet this onus,” as the plaintiffs had not provided a proper breakdown of the costs of repair and the evidence did not specify which items required depreciation nor the depreciable amounts. What is interesting is that, though Justice Pharo acknowledged the difficulty in making a fair assessment for a betterment reduction, he still applied a betterment reduction on the limited evidence before him, judicially estimating the cost of repairs at a depreciable rate of 25%.
If Applicable, How Much Depreciation Should Be Applied?
Betterment is not automatically applied to damages, and Canadian courts have not set out a standard test for situations involving betterment. In certain situations, the replacement cost for property damage may serve as both the starting and end point for determining damages. However, one thing is clear: the application of betterment depends on what is reasonable in the circumstances.
In Lamont Health Care Centre v. Delnor Construction Ltd., Justice Macklin held that the defendants were liable for damages arising from a hospital fire. The hospital argued that it should be entitled to the full cost of replacing the damaged property. However, Justice Macklin concluded that the “wings had outlived their physical and functional value” and determined that the replacement facility with the new wings was much better than the old facility. He noted that the owners of the hospital “knew that the Hospital had deteriorated to an unacceptable level and pushed the government for the approval and funding for a new facility,” and that “[w]hile patchwork repairs and band-aid solutions might have kept the hospital functioning at a reasonable level for a limited time, ultimately it would have been demolished and replaced regardless of the fire.”
The Court made it clear that damages are not automatically reduced by betterment, and that a claimant who has suffered a loss cannot finance the betterment by getting new for old. For two of the wings damaged in the fire, Justice Macklin held that damages should be limited to the actual loss and financing costs of advancing construction. On the other hand, for one of the wings, Justice Macklin found that some renovations blurred the line between necessary restoration and betterment. With no precise way to separate the two, he applied a 50% reduction.
Takeaways
Betterment is a concept used by the courts to try to balance the principles of fair compensation and indemnity, ensuring plaintiffs are restored to their pre-loss position without receiving an unjustified windfall. Both parties should carefully assess this factor when determining damages, since it can significantly lessen the amount of damages owed.
While defendants bear the burden of proving depreciation, the courts have made it clear that imperfect evidence will not prevent damages from being assessed, and they will engage in judicial guesswork to determine what is reasonable. Ultimately, determining betterment is less about mathematical precision and more about principled judgment, often resulting in damages being assessed using common sense, some evidence, and a shrug.
For insurers and claims professionals handling litigation involving damage calculations, knowing how betterment applies can help avoid unwanted conflicts and unwarranted financial gains. Contact Chloe Lynds in Edmonton, Jane Freeman in Calgary, or any member of our Insurance Group for assistance.
