An overhead telephone cable belonging to the Anchorage Telephone Utility was severed when struck by the raised body of a dump truck operated by Gerald Curt on Minnesota Drive in Anchorage.
The parties stipulated that Curt's Trucking
The City introduced evidence indicating that its 20% overhead figure was derived from two separate sources: (1) general administrative overhead applicable to all reimbursable City services, comprising 13% of the 20% overhead figure, and (2) expenses incurred by the City's Risk Management Office in processing claims against third parties who damage City property. The superior court concluded that the entire 20% "overhead" charge should be allowed
A trial court's determination of damages is a finding of fact which will not be disturbed on appeal unless clearly erroneous.
Curt's Trucking argues that the 13% charge for administrative expenses applicable to all reimbursable City services was not a proper element of damages because it is too remote or too speculative. Both parties have cited opinions of this court explaining that the general principle underlying the assessment of damages in tort cases is that an injured person is entitled to be placed as nearly as possible in the position he would have occupied had it not been for the defendant's tort.
In Baltimore and Ohio Railroad Co. v. Commercial Transport, Inc., 273 F.2d 447 (7th Cir.1960), the court affirmed the inclusion of overhead in a damage award arising out of a collision between plaintiff's diesel locomotive and defendants' tractor-trailer. The railroad had applied various overhead percentages to its costs of materials and labor; the specific percentages had been taken from formulas established by 25 major railroads for use, in part, in billing each other for self-repair of their own track or equipment damaged by another railroad.
Other federal courts have also permitted recovery of properly calculated overhead expenses.
However, in Crain Brothers, Inc. v. Duquesne Slag Products Co., 273 F.2d 948, 952-53 (3d Cir.1959), the Third Circuit explained that the reason a party which performs its own repairs may recover an amount including such overhead elements is that its actual loss would be the full amount charged by the independent contractor, as if it paid that amount out-of-pocket. Thus, where plaintiff has carried out the repairs itself, the losses and expenses actually incurred as a result of the accident should be included in a damage award. Costs which would have been recoverable had plaintiff hired someone else to do the work are a useful indicator of reasonable costs of repair only if plaintiff actually expends such an amount.
Although state courts are not unanimous in awarding overhead expenses,
We are persuaded that a party which repairs property tortiously damaged by another should be permitted to recover indirect expenses incurred in making such repairs if its calculation of overhead is shown to be a fair and reasonable measure of actual costs. A plaintiff need not identify the particular dollar amount of each overhead component which was expended in connection with specific direct costs; it is sufficient if reasonably accurate formula allocations or percentages are used to calculate the overhead. Whether such estimates are sufficiently accurate must be determined from all the facts and circumstances of the particular case.
In the case at bar, the City introduced the deposition of its internal auditor, Lawrence Campbell, a certified public accountant who explained how the 13% charge for administrative costs of reimbursable City services had been calculated. Campbell stated that the City performs a variety of services for which it recovers its costs. These services are known as "reimbursable City services," and they range from thawing water pipes for private citizens to maintaining streets for the state highway department. Included in "reimbursable City services" are repairs to property damaged by third parties. In 1971 Campbell conducted a study and determined that the average overhead attributable to all City departments which perform reimbursable services was approximately 13%. He re-evaluated the 13% figure in 1974 and concluded that it fairly represented the overhead. In Campbell's opinion, the 13% figure accurately reflected the average administrative costs actually incurred by the City in performing repairs, and he stated that the percentage had been derived in accordance with sound accounting practices.
Curt's Trucking called its own expert witness, Frederick M. Strand, a certified public accountant who was present at the taking of Campbell's deposition. Strand observed that the 13% overhead figure had been computed in accordance with sound accounting principles. Curt's Trucking Company introduced no other evidence suggesting that the overhead figure was not an accurate measure of the indirect costs actually incurred in connection with repairing the damaged telephone cable.
As noted previously, we have determined that overhead expenses incurred by a party in repairing its damaged property are
Curt's Trucking Company next asserts that the additional 7% charge representing expenses of the City's Risk Management Office are not proper items of damage because they are in the nature of costs incurred in preparing for litigation. The record shows that the 7% figure was derived in a different manner than the 13% charge associated with the cost of making repairs. The City's internal auditor, Lawrence Campbell, testified that his administrative cost study which established the 13% figure did not consider the Risk Management Department's expenses because the office had not yet been created. Both Campbell and Frederick Strand, the expert called by Curt's Trucking, stated that the functions presently performed by the Risk Management Office were formerly spread among the City's various departments. Thus, to the extent these activities were carried on by departments which performed reimbursable City services, the costs associated with claims preparation may have been reflected in the 13% overhead calculation.
Hite also described the tasks of the Risk Management Office in some detail. According to Hite, his office collects information about the incident, takes statements of employees involved, coordinates with any police investigation, determines whether the other party was negligent, evaluates the validity of potential claims, consolidates possible claims of different departments arising out of the same incident, estimates damages or costs of repair, and sends the claim to an adjuster for collection or to the City's insurance company. Hite explained that the Risk Management Office does not send out investigators and rarely corresponds with the people who have damaged City property or with their insurors. On cross-examination, counsel for Curt's Trucking asked Hite what his office actually does with respect to a claim; Hite stated, in part:
Hite further testified that the 7% charge was chosen after Hite had consulted with an insurance adjusting firm to determine an appropriate estimate. In 1975, Hite checked this estimate by comparing a portion of the risk management costs to the total claims against others for damage to city property. He derived the percentage by calculating the office expenses associated with processing claims against parties that have damaged city property and then dividing that figure into the total dollar amount of such claims.
Assuming for purposes of discussion that the 7% figure accurately represents the City's cost of processing the claim against Curt's Trucking Company, we believe the item was not recoverable as overhead because it does not represent the indirect costs of repairing the City's property. In our view, claims processing expenses are more properly characterized as costs incurred in safeguarding the City's claims prior to litigation than as overhead incurred in repairing city property. Hite's testimony indicates that his office takes no direct role in facilitating the City's repair work. The Risk Management Office performs functions which are undoubtedly important to the City's fiscal accountability and to its efficient use of financial resources. However, testimony of the City's internal auditor indicates that risk management costs were excluded from the calculation of overhead associated with reimbursable City services, i.e., from the figure reflecting indirect costs incurred in repairing the cable.
Indeed, to characterize the expenses of the Risk Management Office as overhead associated with repair of City property would permit recovery of expenditures which would have been made on the claim without regard to whether the City undertook its own repairs. Award of the 7% charge, in effect, would permit the City to recover the cost of protecting its legal claim in the guise of indirect costs associated with reimbursable City services.
Even if the 7% charge is not properly includable as overhead, the question remains whether it was recoverable on some other basis. We are persuaded that the costs of the Risk Management Office — as they pertain to the damage caused by Curt's Trucking — are analogous to expenses incurred in protecting a claim or preparing for litigation.
Whenever tortious injury is inflicted, the party suffering harm faces, at a minimum, disruption and inconvenience. In the process of protecting a claim and acting upon it, an injured party usually expends time, effort and money. Some of these items are readily quantifiable, while others either defy valuation entirely or are measurable only when the party suffering damage is a large organization with a specialized division to conduct the necessary claims activities. Such costs normally should be regarded as unrecoverable expenses which arise due to the inherent friction within our system of damage recovery through civil litigation.
Affirmed in part and reversed in part.
Even if the testimony could be understood as suggesting that some costs of preparing claims possibly were included in the 13% overhead figure as computed in 1971, we are not persuaded that the superior court's allowance of the full 13% was clearly erroneous. Both parties' accounting witnesses agreed that a 13% charge accurately reflected the indirect costs to the City of making repairs; no evidence was introduced to indicate that unrelated costs had been included. In addition, Campbell testified that his 1974 reevaluation of the 13% figure showed it was still accurate; in March, 1973 the City's risk manager had taken over claims processing functions which previously had been performed by the individual utilities.