If a good gets wrongfully damaged (including being wrongfully taken away), then the owner as injured party is entitled to full compensation for the resulting material loss. Think of a car that was damaged in a traffic accident, or a building that partially collapsed due to neighbouring ground works. In case of damaged goods, the loss consists of the deprivation of (the undamaged nature of) the good itself, not the price of the good.
In its case law, the Belgian Supreme Court (Cour de Cassation) has emphasized that such material loss is first of all remedied by restitution of the deprived good or by awarding the injured party the amount needed to repair the damaged good. In the example of the damaged car, think of the costs for having the car repaired at a service station by a car mechanic.
If the damaged good cannot be restored to its original state, the injured party is entitled to the replacement cost of the good, being the amount needed to acquire an equivalent good. Let’s assume, in our example of the damaged car, that as a result of the accident the car was a complete write-off, damaged beyond repair. The owner would then be entitled to the amount needed to buy an equivalent car to replace the used, damaged car. An equivalent car means, among other things, a car in an equivalent state and of an equivalent age, particularly regarding its wear and tear. If the damaged car was already eight years old (and already showed some signs of wear), the replacement cost would have to enable the owner to replace the damaged car with an equivalent, eight years old (thus second-hand) car. But what if such an equivalent car is not readily available on the (second-hand) market?
If the damaged good cannot be repaired and no equivalent good is available, the only remaining option for the owner wishing to replace the damaged good is to acquire a new one. Since, in that case, the old damaged good is replaced by a brand-new one, the question arises as to who should bear the additional charge for exchanging old for new. Is the injured party entitled to the price of a new good or only to the actual value of the old good?
In its previous case law, the Belgian Supreme Court derived from the principle of full compensation that the injured party was entitled to the replacement cost, which equalled the actual value of the damaged good. That meant that a court had to deduce a so-called coefficient of wear and tear from the value of the new good in order to correct for the difference in value between the new good and the old, used good that had been damaged. The same was true, according to the Belgian Supreme Court in case of goods pertaining to the public domain, such as a highway bridge, even though the claimants argued that such goods have a functional value (being usable for the public) rather than an actual economic value.
That case law was heavily criticized, as it meant that in case of a damaged good that could not be repaired and for which there was no equivalent good available, the owner wishing to replace it was unable to do so without bearing the costs for the difference in value between the old good and the new one. In the damaged car example, the owner wishing (and most probably needing) to replace the damaged car (in order to have a working, serviceable car again), could only do so if the owner payed for the upgrade to a new car. Although one could argue that the owner has been placed in a better position by the upgrade than before, one should also bear in mind that the enrichment was forced upon the owner that just wanted (and needed) a serviceable car but never or not necessarily a new one.
Yet, a judgment of the Belgian Supreme Court of 17 September 2020 marks an important shift in that criticized case law. After reiterating the principle of full compensation, the Court stated that the injured party is, in principle, entitled to the amount of compensation needed to repair the damaged good without reducing that amount with a coefficient of wear and tear. Although one could point out that the previous case law concerned a “wrecked good” whereas the latest judgment dealt with a (merely) “damaged good”, the latter was passed by the Court as a full court (in plenary session) and emphasises the right to reconstruct the injured party’s property. It does seem to herald a new case law that in principle excludes the coefficient of wear and tear.
The shift has immediate consequences for legal practice, particularly for clauses in insurance contracts relating to material damage to goods:
- First, clauses limiting the compensation to the actual value of the damaged good are now considered to derogate from the ordinary law, thus constituting liability limiting clauses. Such causes are subject to restrictions. For example, they may not erode the contract.
- Second, in case of clauses applying a coefficient of wear and tear, the injured party is now entitled on the basis of ordinary law to more compensation than covered by the contractual clauses. One should be aware of the impact on liability insurances.
- Third, because of the new case law, references to the ordinary law now mean references to the absence, in principle, of a coefficient of wear and tear. Insofar as insurance premiums have been calculated taking into account such coefficient, one might expect some changes in that respect.
The latest judgment marks only the beginning of a new line of case law, as it excludes the coefficient of wear and tear “in principle”, thus leaving room for future exceptions. Legal doctrine has already suggested potential exceptions: cases of abuse of right, the attribution of benefits generated for the injured party by the wrongful act, and contractual derogative clauses (within the boundaries set by imperative law and public order).
Legal practitioners thus ought to keep one eye on (re)drafting contracts and the other on the developing case law regarding the exceptions to the principled exclusion of a coefficient of wear and tear.
