It is a well-settled principle in tort law that an individual who suffers tortious injury is entitled to fair compensation for his or her loss. Mass. Port Authy. v. Sciaba Constr. Corp., 54 Mass. App. Ct. 509, 513 (2002); Daniels v. Celeste, 303 Mass. 148, 150 (1939). Fair compensation for property damage, however, depends entirely on the unique nature of each property and the circumstances of the injury. See Sciaba Constr. Corp., 54 Mass. App. Ct. Coastal Oil New England, 45 Mass. App. Ct. 461, 465 (1998). For that reason, "no fixed formula for measuring damages has been derived from this principle." Sciaba Constr. Corp., 54 Mass. App. Ct. at 509.
The General Rule: Diminution in Market Value
"The general rule for measuring property damage is the diminution in market value." Guaranty-First Trust Co. v. Textron, Inc., 416 Mass. 332, 336 (1993) (citations omitted); Trinity Church in Boston v. John Hancock Mut. Life Ins. Co., 399 Mass. 43, 48 (1987) citing Hopkins v. Am. Pneumatic Serv. Co., 194 Mass. 582, 583 (1907).
Applying the diminution in market value rule has two requirements. First, there must be a market for the property. See Sciaba Constr. Corp., 54 Mass. App. Ct. at 514. Market value of a property "is at all times reflected by a steady volume of sales of ordinary commercial and residential properties." Newton Girl Scout Council, Inc., v. Massachusetts Turnpike Authy., 335 Mass. 189, 195 (1956). The fair market value for a property is "the highest price which a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market." Id., citing Epstein v. Bos. Hous. Authy., 317 Mass. 297, 299 (1944).
Drawing from eminent domain cases, there are two accepted methods for calculating fair market value for the ordinary commercial and residential property: (1) "The value which the property's net earning power will support, based upon a capitalization of net income," and (2) the "value indicated by recent sales of comparable properties in the market." Correia v. New Bedford Redevelopment Authy., 375 Mass. 360, 362 (1978) cited in Sciaba Constr. Corp., 54 Mass. App. Ct. at 514 n.5.
Second, the injury must be permanent. See Black, 45 Mass. App. Ct. at 465. When the injury is temporary or "reasonably curable by repairs," the plaintiff is only entitled to the expense of repairs "if less than the diminished market value." Black, 45 Mass. App. Ct. at 465 (internal quotes omitted) citing Belkus v. Brockton, 282 Mass. 285, 287-88 (1933). The repair, the courts reasoned, "essentially results in the restoration of the property to its predamage value." Black, 45 Mass. App Ct. at 466. This is the "Lesser of Two Rule." By awarding the lesser repair costs over diminution in fair market value, the plaintiff is prevented from receiving a windfall "by recovering more than is fair to restore him to his position prior to the loss." Berish v. Bornstein, 2006 Mass. Super. Lexis 330, at *69 (May 22, 2006), aff'd, 2007 Mass. App. Unpub. Lexis 626 (Mass. App. Ct. Dec. 28, 2007) (Rule 1:28 memorandum).
"Accordingly, diminution in value analysis generally has no place in assessing the cost of remediation for temporary injury."Black, 45 Mass. App Ct. at 465-66; see also Guaranty-First Trust, 416 Mass. at 336. The plaintiff has the burden to prove that the injury is permanent or not reasonably curable by repairs. See Black, 45 Mass. App. Ct. at 463, 466.
The Special Purpose Property Exception
Properties that are deemed to be "special purpose" are exempt from the general diminution in market value analysis described above. Where property damage occurs on a special purpose property, the plaintiff may recover the full repair or restoration costs regardless of fair market value. Trinity Church, 399 Mass. at 49.
Special purpose properties require "greater flexibility in the presentation of evidence" because of their unusual or specialized characters or the special value to their owners. Sciaba Constr. Corp., 54 Mass. App. Ct. at 513. Under these circumstances, ordinary methods of damage calculations are disfavored because such calculations may "produce a miscarriage of justice."Correia, 375 Mass. at 363 citing Newton Girl Scouts Council, 335 Mass. at 195.
To qualify for the exception, the plaintiff must show either (1) that there does not exist an active market for the property, or (2) that diminution in fair market value will not be a "fair and reasonable measure of the loss suffered by the owner." Sciaba Constr. Corp., 54 Mass. App. Ct. at 514 citing Newton Girl Scout Council, 335 Mass. at 195. To prove the former, the plaintiff must show the "difficulty of reaching a reliable figure of market value," not that a value is impossible to reach. Correia, 375 Mass. at 366-67.
To prove the latter, the evidence must support an inference that the property is "used for a special purpose, or constructed or improved with special features, or located in a particular place which bestows unique value on its owner." Sciaba Constr. Corp., 54 Mass. App. Ct. at 515 citing Newton Girl Scout Council, 335 Mass. at 194-95 and Commonwealth v. Massachusetts Turnpike Authy., 352 Mass. 143, 147 (1967). The judge, acting as "gatekeeper," has broad discretion to determine whether the property qualifies as a special purpose property. Sciaba Constr. Corp., 54 Mass. App. Ct. at 514. While this exception is based largely on eminent domain jurisprudence, it has been applied in the tort context on at least two occasions, to Trinity Church in Copley Square and to a pier. See Sciaba Construction Corp. v. Massachusetts Turnpike Authority, 54 Mass. App. Ct. 509 (2002); Trinity Church in Boston v. John Hancock Mut. Life Ins. Co., 399 Mass. 43 (1987).
Once the judge determines whether a property qualifies as a special purpose property, a jury must determine whether the costs of repair or replacement are reasonable. See Trinity Church, 399 Mass. at 51. "Where expenditures to restore or to replace to predamage condition are used as the measure of damages, a test of reasonableness is imposed. Not only must the cost of replacement or reconstruction be reasonable, the replacement or reconstruction itself must be reasonably necessary in light of the damage inflicted by a particular defendant." Trinity Church, 399 Mass. at 50. Stated another way, the repair or restoration costs should not be an "uneconomical and improper way of using the property" or "a very large and disproportionate expense to relieve from the consequences of a slight injury." Hopkins v. Am. Pneumatic Serv. Co., 194 Mass. 582, 583-84 (1907), cited with approval in Trinity Church, 399 Mass. at 50.
Reasonableness also requires that the costs be "adequately discount[ed] for obsolescence and inadequacy as well as physical depreciation." Sciaba Constr. Corp., 54 Mass. App. Ct. at 517-18, quoting Massachusetts Turnpike Authy., 352 Mass. at 148. The repair and restoration costs should account for the condition of the property at the time of injury and should not "put the property into a condition substantially better than it was at the time of the injury." Id.
Conclusion
Because of the unique nature of real property, there is no single method for calculating property damage. Moreover, while the law provides a general framework, the issue is ultimately left to the judge's discretion to determine fair compensation.