Opinion
No. WF 3559
Decided June 8, 1967.
Damages — Broken power pole — Cost of replacement — Depreciation — Administrative and engineering costs — Accounting methods for rate making purposes — Relevance.
1. Damages which may be recovered are only those for injuries which flow directly from, and as a natural and probable result of, the wrong.
2. Evidence that various administrative and engineering costs are allowed to be added to the value of property of a public utility for the purposes of rate making does not establish such costs as properly includible in the damages to be allowed for negligent injury to such property.
3. The proper measure of damages for a broken power pole is the total cost of replacement of the pole and facilities attached thereto, less accrued depreciation of the damaged pole.
Mr. T. B. Underwood and Mr. J. F. Buchman, for plaintiff.
Mr. John D. Jolliffe, for defendant.
For the purpose of this decision the facts, briefly stated, are as follows:
On November 30, 1964, an automobile operated by the defendant ran into and broke a wooden power pole of the plaintiff, Ohio Power Company, causing same to be broken two to two and a half feet above the ground. The breaking of this pole caused damage to it and to other facilities attached to same.
This pole was on Harrisburg Road, Northeast in Canton, Ohio, and was a part of a line of wooden poles with wires and other facilities attached thereto for the distribution of electric current.
This pole was forty feet long and originally installed in 1914. It was carried in the inventory of the company as pole number 162. It was replaced with a new forty-five foot pole, although the defendant was charged for only a forty foot pole. Repairs were made to the facilities carried by the pole, and these repairs and replacement were done by plaintiff's employees.
There is no question of liability to be determined by the court, as the parties stipulated that the defendant was at fault, thereby leaving only the amount of damages to be determined.
The plaintiff contends that the damage which it has suffered is not only the actual out-of-the-pocket expense for materials and labor in replacing the damaged pole and other facilities attached thereto; but, also, includes administrative and engineering costs, as provided for under Uniform Rules of Accounting as prescribed and approved by the Federal Power Commission and Ohio Public Utilities Commission; that this is its system of accounting. These so-called fringe benefits include the following:
"You would have engineers involved, you would have inspectors involved, you would have your distribution superintendent involved; in this case, assuming there were photographs, the photographers would be involved: to a certain extent safety co-ordinators; clerical; stenographic, general office account personnel; the supervisor of transmission and distribution; the division superintendent; division plant record supervisor; division engineer; distribution planner; clerical employees in the transmission and distribution department; and record clerks."
The Court finds very little evidence to support plaintiff's contention, except that this is its system of accounting, developed by study over a period of years, and which system has been approved by the two above named Commissions. Its witnesses' answers, both under direct and cross examination, as to why, and the reason therefor, usually is: "It is our system of accounting which has been approved by the Federal Power Commission and the Public Utilities Commission of Ohio."
Plaintiff further contends that depreciation of this pole, as reflected in a part of its accounting system, and the difference between commercial value of a new pole and an old one, is not to be considered in arriving at the amount of plaintiff's damage.
On the other hand, the defendant maintains that plaintiff's measure of damage should not include administrative and engineering costs, but is limited to the costs of labor, materials, transportation, and certain other expenses actually reflected in the replacement and repair to the damaged facilities. In other words, the costs of new installation, less depreciation.
One of plaintiff's witnesses, George Berry, supervisor of electric plant accounting for the Ohio Power Company, under cross-examination testified as follows
(Mr. Jolliffe) "Q. So, if I, as a customer of Ohio Power, get a bill for electric service, actually a part of my bill you can say covers a piece of the salary of the labor relations man, doesn't it? A. I am not too certain I understand this line of questioning. Even if Ohio Power Company was operating at a loss, they would be forced to pay labor and personnel. They could not continue to operate if they operate at a loss.
"Q. But, in effect, the customers have paid for the expenses of your salaries if you are operating at a profit? A. I suppose indirectly you could say that, yes.
"Q. On this particular job involving pole number 162 which was damaged by my client on November 30th, 1964, do you know of any photograph work that went into the preparation for, or completion of the repair of that installation? A. The only thing I saw, and I saw it referred to, was photographs, I don't recall personally.
"Q. And was photographs taken in preparation of this trial? A. I have heard this mentioned.
"Q. But, you don't know of your own knowledge that photographs were taken in connection with the repair of this pole? A. I can't state that.
"* * *
"Q. Was any drafting done in connection with this job for the repair of pole 162? A. In all probability not.
"Q. What does a survey party do? A. A survey party goes out and stakes the route of a new line or the route of a line to be relocated. There are different types of surveys; there are, also, typography that is under the jurisdiction of the survey engineer department.
"Q. Basically, it has to do with new installations, the surveying of property? A. That is right.
"Q. So, there was certainly no survey party work done in connection with pole 162? A. I doubt it.
"* * *
"Q. Were there any labor relations problems that you know of involved in the repair of pole 162? A. Not to my knowledge.
"* * *
"Q. Well, actually, the labor relations director has no more . . . this job of the broken pole has no more impact on the labor relations director than it does on the president of the company, does it? A. On that particular project, I don't believe the labor relations director was involved. I can't say that for a fact, but I do not know.
"* * *
"Q. I am asking in accordance to the system of accounting you use, if the salaries of the survey team are reasonably applicable to the work which you charge against the repair of pole 162? (After objection was overruled.) A. It is properly applicable and accepted.
"Q. Even if there was no survey work and the survey team never does any work on repair of pole jobs; even considering that, your answer is the same? A. I don't know about what you just said, I don't think we can. * * *
"Q. Alright, in the absence that you don't know. * * * A. That no portion of the surveys crew should be charged to this?
"Q. Do they have anything, do they ever work on the repair of poles knocked down by vehicles, the survey team? A. I don't know.
"* * *
"Q. What does the building superintendent do? A. Supervises the construction of various structures and warehouses . . . things of that nature, supervises the buildings.
"Q. Buildings as such? A. Yes.
"Q. Does he have anything to do with repair of the poles broken? A. No.
"Q. He is included in the amalgam, is he not? A. Right.
"* * *
"Q. And, would it be fair to say that with that asset having been increased, or depreciated at three point three per cent for twenty-four years, and at some figure for twenty years prior to that, that its life had been fully depreciated at the time of this accident? (Objection overruled.) A. Book-wise and dollar-wise it would appear to be logical."
However, under redirect examination, this witness again reverted to his more or less stock answers by stating that it was a part of its accounting system:
(Redirect examination by Mr. Buchman.)
"Q. Is there any practical way, to your knowledge, as an employee, of anything else, especially in the Ohio Power Company accounting department, Mr. Berry, of determining what portion of the costs that are attributable to all these different employees that did have some relation to this job, that would be charged to this particular job? A. There is none.
"Q. I think Mr. Jolliffe on the question he asked you in regard to services of draftsmen, talked about including a factor in the charges that were made to Mr. Huff in this case for drafting, surveying, photography; can you tell us in what sense it is correct, or in what sense it is not correct that the charges to Mr. Huff include a factor for those items? A. In the application of the overhead rate as we apply it to all jobs, there is no way at all that we can say what factors have been applied, what percentage of what factors; I have no way whatever of determining that.
"Q. Now, also, there were a good many questions Mr. Jolliffe asked you about the matter of depreciation and the practices that were followed by the company with regard to depreciation. First of all, when you were asked about the term `depreciation' in these questions, can you tell me what that term means to you? A. It is strictly an accounting term, it is an accepted accounting practice to recover by some means through accounting procedures by writing off, to depreciate expense an amount for a capital asset.
"Q. Now, I would like to ask you then, Mr. Berry, is there any necessary or general relationship between accounting depreciation that has been taken for accounting purposes to the actual value as a part of the company's system on the property on which you have taken depreciation for accounting purposes? A. If I understand your question correctly, I would say no. (Question read on request of Mr. Buchman.) A. My answer to that would be that the depreciation charges recorded on the books of record of the company is strictly an accounting procedure; there is no relationship between the depreciation recorded on the books and the physical relationship of that pole to its primary function of supporting overhead conductors and devices."
We now come to the question of damages, valuation of property, and depreciation, as may be applicable to this case. In 16 Ohio Jurisprudence 2d, Section 8, pages 143 and 144, we find this definition of damages:
"The cardinal and fundamental rule of the law of damages is that the injured party shall have compensation for the injury sustained. Compensatory damages are intended to make whole the plaintiff for the wrong done to him by the defendant. Compensation which, in theory at least, will make the party injured whole, is the rule, whether the action is ex delicto or ex contractu. * * *"
And, on page 145, Section 9, it is provided in part as follows:
"Damages should be so awarded as to compensate the one injured without doing injustice to others. In no case should the injured party be placed in a better position than he would have been had not the wrong been done."
Further, on page 148, Section 13, it is further provided:
"The principle that damages may be recovered only for such injuries as flow directly from, and as the probable and natural result of, the wrong complained of, necessarily excludes all those consequences of the act which are remote and indirect, and all investigation of losses which are purely speculative. Damage which is not the direct consequence of an act, but is remote therefrom, is not the subject matter of an action at law, or of relief in equity."
Several courts in the United States have dealt with the amount and measure of damages to be awarded in injury to or destruction of a power or telephone pole, together with the method of arriving at said amount. In the case of New Jersey Power and Light Company v. Mabee, 41 N. J. 439; 197 A.2d 194, in a short opinion the Supreme Court of New Jersey held that plaintiff was entitled to recover the sum actually spent, rather than on a part thereof in the absence of a showing of life expectancy of destroyed poles. This amount included overhead costs.
In Hartford Electric Light Company v. Beard, 3 Conn. Cir. 323; 213 A.2d 563, the court held that plaintiff's overhead expenses in repair of pole destroyed by automobile, including payroll taxes, pension costs, vacation and holidays for employees, and engineering and supervision personnel costs, were recoverable where plaintiff proved that indirect costs were computed on sound accounting principles based on company experience over a long period of time. Depreciation of pole was not allowed because it could not be determined when or whether pole would have to be replaced.
The first paragraph of the syllabus provides, "Measure of damages to property without market value is reasonable costs of repairs necessary to restore it to former condition."
In The Philadelphia, United States, v. Delaware Bay and River Pilots Association, 10 F. Supp. 43, the third paragraph of the syllabus provides: "In computing damages for injuries to submarine in collision, measured by reasonable cost of repairs: shop `overhead' may properly be included."
In Wisconsin Telephone Company v. Reynolds, 2 Wis.2d 649; 87 N.W.2d 285, the court held that the damages allowed included labor, materials, Social Security payments, relief and pension payments, overhead and other related payments in regard to repairs. The method of computation and accounting practice used was recognized under federal and state regulations as to public utilities.
In Central Illinois Light Company v. Stenzel, 44 Ill. App.2d 388; 195 N.E.2d 207, the court held that damages for breaking of an electric transmission pole and for damage to the line should have been computed on basis of a percentage of the materials used in replacement of pole and in repairs of the line equal to the remaining life expectancy of the pole, together with one hundred per cent of their labor costs including fringe benefits and truck expenses, but store expense, supervision and general overhead expense were not allowable, as too remote or not attributable to the negligence.
In New York State Electric and Gas Corporation v. Fischer, 250 N.Y.S.2d 567, and affirmed in 261 N.Y.S.2d 311, the Appellate Court held that:
"Measure of damages for negligent destruction of telephone pole and wires was emergency expenses for crews to remove wires and pole from road on day of accident, rerouting wires to restore service, etc., cost of wires based on reproduction cost less depreciation, and cost of pole based on reproduction cost less depreciation, minus refund allowance of salvage value of the property; not cost of replacement of pole and wires.
"Basic for recovery by utility for damage to its property consists of actual cost of emergency expenses together with present day cost of replacing the damaged or destroyed equipment less accrued depreciation and allowance for salvage."
A search of Ohio law and decisions on the measure of damage to personal property of a utility, and especially to a broken pole, has resulted in very little help.
In Warren Telephone Company v. Hakala, 105 Ohio App. 459, the Court of Appeals of Trumbull County, in a very short, one page opinion, and without citing any authorities, held:
"In an action by a telephone company to recover for damage to one of its poles, indirect overhead costs of repairs are a proper element of damage for which recovery may be had, where such costs can be proved with reasonable certainty and have been correctly made in accordance with sound accounting principles."
In Cincinnati Telephone Company v. Carter Construction Co. Inc., 6 Ohio App.2d 170, the Court of Appeals of Hamilton County held:
"Where, in a tort action for damages to personal property, such damages are incapable of measurement by difference in market value immediately before and after the injury, it is not error for the trial court to reject the admission in evidence of plaintiff's business records, through plaintiff's accountant, where such accountant has no personal knowledge of the facts incorporated therein and plaintiff offers no evidence that the allocation of the expenditures in such records attributed to repair of the damage is the reasonable value thereof, and where defendant objects to the admission of such evidence."
In Cincinnati Suburban Bell Telephone Company v. Cincinnati, 84 Ohio App. 521, cited by counsel for both parties in their briefs, the court finds nothing to throw any light on the question to be decided by this court. In the opinion it is stated that there was no attempt to rebut evidence showing the extent of plaintiff's damage to its property and the reasonable cost of repairing same, the court allowed the amount prayed for.
The Supreme Court of Ohio not having spoken on the measure of damages to a utility company power pole, and having found no Appellate Court decisions within our jurisdiction, this court does not feel bound by other decisions either in Ohio or elsewhere, and is free to approach the question raised in this case as though it were an untried field of the law.
As hereinabove quoted from 16 Ohio Jurisprudence 2d, damages may be recovered only for such injuries as flow directly from and as a probable and natural result of the wrong complained of.
Damages must be proximate and cannot be remote or speculative. There is no logical or legal connection between the breaking of a wooden power pole by the defendant and salaries of clerks in offices, superintendents of construction, distribution superintendents, safety co-ordinators, general office accounting personnel, supervisors of transmission and distribution, supervisors of labor relations, etc. The salaries of these persons whose salaries are fixed, did not flow from, nor were they affected by the negligence of the defendant. These salaries and expenses would have been paid if the defendant had not broken the pole and damaged the connected facilities. Such operating expenses might be proper in fixing a rate schedule, but we do not feel that they have anything to do with damages to a power pole.
If we try to compute by a percentage, as claimed by the accountant of the plaintiff, the percentage would be the same if one, fifty, or no poles were destroyed, and would not be affected by the number of items charged to the inventory. Fixed income employees and store expenses are remote matters from the accident which the defendant had.
This court is in full accord with the statement of Justice Reynolds in his opinion in the Central Illinois Light Company case, hereinabove mentioned, and we quote therefrom:
"The supervision costs, unless directly connected with the repair of the pole and line, the store expenses, and the general overhead, are such expenses that would have been incurred and paid, without regard to the breaking of the pole. They constitute part of the operating expenses of the plaintiff and this court can see no relation of these costs to the negligence of the defendant. In so holding, this court is cognizant of the complex costs of operation of a business such as that of the plaintiff, but at the same time, this court cannot see any thread of continuity, any relation, whatsoever, between the cost of operation of the plaintiff, and the damages occasioned by the defendant breaking the pole of the plaintiff. We think the rule of damages which requires that the damages must be those that flow as the natural consequence of the negligence of the defendant must not be ignored. In doing so we are not ignoring the facts of business life, but following the law of damages. To hold otherwise would be to shift some of the costs of operation of the light company from the people who use electricity to those who are guilty of some damage to the property of the company. If this is permitted, it seems logical that any debtor of the light company, upon being sued for the debt, would be liable for overhead, supervision and other items, in addition to the amount of the debt."
We further agree with the statement of the law by the court in the New York Electric Company case, hereinabove mentioned, to the effect that damages to utility property consists of actual cost of expenses together with present day costs of replacing damaged or destroyed equipment, less accrued depreciation.
The fact that the plaintiff herein is a public utility and subject to the jurisdiction of the Public Utilities Commission of Ohio and the Federal Power Commission should not affect the rule of damages. A tortfeasor should not be penalized because of the public character of the corporation which seeks to recover.
Accounting procedure cannot change established principles of tort liability. The tortfeasor is liable for the value of the asset at the time of the damage, and any change in this liability resulting from bookkeeping methods is unwarranted.
As heretofore mentioned, plaintiff attempts to justify its theory of valuation and measure of damages in a large measure to the fact that its system of accounting has been approved by the Federal Power Commission and the Ohio Public Utilities Commission. With this we have no quarrel because under Ohio law the Public Utilities Commission is granted power to regulate public utilities. Section 4909.03, Revised Code, is titled: "Effect of Rates Fixed by Commission." Section 4909.04, Revised Code, is titled: "Valuation of Property to Determine Justice of Rates."
We realize that rate making is not before this court; however, valuation of certain property of the Ohio Power Company, a wooden power pole, is before the court for consideration, and a comparison or examination of value for other purposes may help in shedding some light in the solution of the question herein involved.
The sections of the Ohio Code which regulate utilities also point up the fact that a public utility is assured of a fair and reasonable rate on its investment through the rates to be charged to its customers, and which said charges cover all expenses by way of wages, salaries, repairs, and upkeep.
It also protects a utility from any loss by way of depreciation in fixing the valuation of its property and the accompanying rate to be charged. As to depreciation, the argument that an old or used pole is good, and is as valuable as a new pole, so long as it holds up the wires, could well be used for a house, desk, filing cabinet, deep freeze, boat, or any other property: by painting, staining, aluminum siding, and various methods of renewal and preservation, its life might be prolonged indefinitely and it would answer the purpose for which it was originally designed and intended, just the same as a wooden pole treated with chemicals, creosote, etc.
After all, let us not forget that the law of damages has been firmly established and pronounced by the courts of Ohio and other jurisdictions, and not by a commission, board, or an accountant of some public utility.
The court finds that the proper measure of damages recoverable on the facts in this case is the total cost of replacement of the pole and facilities attached thereto, less accrued depreciation of the damaged or destroyed pole.
Coming now to the amount of damages suffered by the plaintiff as a result of the defendant's negligence, pole number 162 had been depreciated in plaintiff's system of accounting at the rate of 3.3 per cent per year over a period of twenty-four years. The cost of this pole was $30.41. Three point three per cent of $30.41 is one dollar per year and in twenty-four years it had been depreciated to the extent of $24.00, leaving a value as of the date of destruction of $6.41; damage to the arrester, $7.30; damage to the cross-arm, $2.46; labor costs, $131.33; transportation, $20.73; making a total of $168.23, for which said amount judgment is rendered in favor of the plaintiff and against the defendant, together with costs.
Exceptions to both parties.
Judgment for plaintiff.
SEPARATE FINDING OF FACT AND CONCLUSIONS OF LAW (No. WF 3559 — Decided July 25, 1967.)
HUNTER, J. The court finds the facts in this case to be as follows:
That the plaintiff, Ohio Power Company, is a corporation organized and existing under and by virtue of the laws of the state of Ohio, and is engaged in the business of generating, transmitting and distributing electric current and energy to its customers.
That on November 30, 1964, an automobile operated by the defendant Benjamin Huff ran into and broke one of plaintiff's wooden power poles, same being broken off two to two and a half feet above the ground.
That the breaking of this pole caused damage to it and to other facilities attached thereto.
That this pole was along Harrisburg Road. Northeast, in Canton, Ohio, and was one of a line of wooden poles with wires and other equipment and facilities attached thereto for the distribution of electric current, and was carried in the inventory of plaintiff company as pole No. 162.
That this pole was forty feet long and was originally installed in 1914. It was replaced with a pole forty-five feet long, although the defendant was charged with only a forty-foot pole.
That the removal and replacement of this pole, and all necessary repairs and replacement of equipment and facilities attached to said pole were done by plaintiff's employees. Transportation of materials and employees were provided and done by and with plaintiff's facilities.
That the life of a wooden pole may depend on the kind of wood, climate, soil condition, drainage, insects, birds, storms, type of usage, physical violence, etc.
That the life of a wooden pole may also be affected by certain preservative treatment applied either before or after, or before and after installation. The useful life of a particular pole cannot be predetermined.
That pole No. 162 had been depreciated in plaintiff's system of accounting at the rate of 3.3 per cent per year over a period of twenty-four years (definitely, and probably for a much longer period during its fifty years of service).
That the direct, out-of-pocket costs of labor, materials, and transportation incurred by plaintiff in making necessary repairs of damages done by defendant to pole No. 162 and the facilities connected thereto were:
Pole . . . . . . . . . . . . . . $30.41 Arrester . . . . . . . . . . . . . 7.30 CrossArm . . . . . . . . . . . . . 2.46 Labor . . . . . . . . . . . . . . 131.33 Transportation . . . . . . . . . 20.73 Total . . . . . . . $192.23
That, in addition to the direct costs of labor, materials, and transportation, the plaintiff made an additional charge to the defendant of store expenses of:
10% of costs of materials (stores expense). . . . . . . . . . . $ 4.02 28.7% of labor costs (labor fringe benefits). . . . . . . . . . 37.69 15% of all costs (administrative engineering) . . . . . . . . 35.09 Total . . . . . . . . . . . $76.80
That the defendant made no denial of liability for whatever amount of damages which was caused to pole No. 162 of plaintiff.
CONCLUSIONS OF LAW
The law to be applied to the facts in this case is: "What is the measure of damages which shall be applied to determine plaintiff's loss?"
As stated in 16 Ohio Jurisprudence 2d, Section 8, pages 143 and 144:
"The cardinal and fundamental rule of the law of damages is that the injured party shall have compensation for the injury sustained. Compensatory damages are intended to make whole the plaintiff for the wrong done to him by the defendant. Compensation which, in theory at least, will make the party injured whole, is the rule, whether the action is ex delicto or ex contractu. * * *"
Section 9, page 145:
"Damages should be so awarded as to compensate the one injured without doing injustice to others. In no case should the injured party be placed in a better position than he would have been had not the wrong been done."
The court finds that the proper measure of damages recoverable on the facts in this case is the total cost of replacement of the pole and facilities attached thereto, less accrued depreciation of the damaged or destroyed pole. Stores costs, labor fringe benefits and administrative and engineering costs are not to be considered and included in arriving at the amount which plaintiff is entitled to recover from the defendant for damages to its pole No. 162.