Recovering Overheads as a Separate Element of Damages, in a Utility Damage Claim Suit
Overhead damages include the expense of the labor force and materials that repaired damage to utility facilities. This indirect cost should be included as an element of a utility provider’s damages, when calculating the cost to repair damage by a third party to utility equipment. This holds true whether the damages sustained are due to a motor vehicle, underground excavation or other damage. These “overheads” are routinely disputed by the one who caused the damage, or more specifically, by the insurance carrier, as allegedly not directly related to the incident. However, if properly calculated and supported, these overhead expenses should be recoverable.
The overhead damages include engineering and supervision expenses, stores expenses, and fringe benefits. For example, while a utility provider may pay a member of the repair crew a certain hourly wage, the cost of that person’s benefits should qualify as overhead. Likewise, the cost necessary to store the materials used to repair the damage, and the cost required to run the trucks needed at the repair site should qualify as overhead expenses. Further, overheads include supervisory and engineering costs.
In general, where utility equipment has no independent resale value, and no indicators for the value have been established, the cost of the repair to the equipment will provide sufficient evidence of the amount of the utilities damages on a specific incident.1 In addition to the hourly wage of the employees for the length of time they were on site, and the costs of the materials used in the repair, the utility provider should include the indirect costs of the repair.2 To recover these as damages in a lawsuit, theymust be reasonably demonstrated.
The U.S. District Court for the Middle District of Florida recently reviewed the inclusion of overheads in the recovery of utility costs in a damage claim, and the basic arguments considered by courts for and against overhead charges.3 That Court found that to not allow overheads would create a disincentive for utility providers to repair their own damages, as they would instead pay a contractor for the same work, at a higher rate including that contractors overheads, as opposed to loosing money by performing the work themselves.4
Courts that have not allowed overheads as part of a damage calculation have done so on the premise that the overhead expenses would not have been incurred but for the defendant’s conduct. The supervisor’s salary, the fringe benefits and the costs of the store room would have been incurred whether or not the damage had been incurred.5 In Ohio, courts have required the utility provider demonstrate that overheads are "directly and proximately caused by [the] defendant's negligence," and if proven, have allowed the recovery of overhead expenses that are directly related to the plaintiff's repairs.6 Under this reasoning, courts have allowed utility providers to recover overhead expenses such as the salary of employees who conducted repairs7, the cost of operating trucks used in repairs8, and expenses related to employee supervision.9 In Cincinnati Gas, however, the court allowed the utility provider to recover overhead for the cost of operating vehicles and distributing materials used in repairs but limited labor overhead expenses to fees associated with individuals who directly worked on the repairs.10 Without a coherent guidepost to limiting the recovery of overhead damages to that directly related to a utility provider’s repairs, it becomes impossible to determine which categories of overhead should be recoverable.
The most widely accepted approach, taken by the U.S. District Court for the Middle District of Florida holds that a plaintiff "need not establish a direct connection between overhead charges and a particular repair project, but may recover overhead charges that are justified by a reasonable relationship to the repair work."11 Some courts have found that overhead expenses have a reasonable relationship to repair work when overhead is allocated "in accordance with the accounting principles mandated by [law]."12 Most Ohio courts have also taken the same view, finding that where the overheads are supported by sound accounting principles mandated by the Federal Energy Regulatory Commission and the Public Utilities Commission of Ohio, the overheads are recoverable.13
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1 Ohio Power Co. v.. Johnston (1968), 18 Ohio Misc. 55, 47 O.O. 2d 93, 247 N.E. 2d 3382 Cincinnati Bell, Inc. v. Hinterlong (1981), 70 Ohio Misc. 38
3 James D. Hinson Elec. Contr. Co. v. BellSouth Telecomms., Inc., 2011 U.S. Dist. LEXIS 68466, 15-16 (M.D. Fla. Mar. 28, 2011)
4 Id. citing Duquesne Light Co. v. Rippel, 329 Pa. Super. 289, 478 A.2d 472, 473 (Sup. Ct. Pa. 1984).
5 United States v. Denver and Rio Grande W. R.R. Co., 547 F.2d 1101, 1105-06 (10th Cir. 1977); Dayton Power and Light Co. v. Puterbaugh, No. 79-CA-13, 1980 Ohio App. Lexis 13648;
6 See, e.g., Cincinnati Gas & Electric Co. v. Brock, No. C-830137, 1983 Ohio App. LEXIS 11225, 1983 Ohio App. LEXIS 11225, 1983 WL 2375, at *4-5; Ohio Bell Telephone Co. v. William Carter Trucking Co., No. 17137, 1998 Ohio App. LEXIS 6393. , 1998 Ohio App. LEXIS 6393, 1998 WL 906568, at *3
7 Houston Oil & Minerals Corp. v. Am. Int’l Tool Co, 827 F.2d 1049, 1056-57 (5th Cir.1987)
8 La. Power & Light Co. v. Smith, , 343 So.2d 367,369-71 (La. Ct. App. 4th Cir. 1977)
9 Southern New England Tel. Co.v. Henkels & McCoy, Inc. 1996 Conn. Super. LEXIS 1872, 1996 WL 456977, at *4-5
10 1983 Ohio App. LEXIS 11225, 1983 WL 2375 at *2.
11 United States v. Capital Sand Co., 466 F.3d 655, 659-60 (8th Cir. 2006).
12 Ohio Edison Co. v. Roman, No. 97-CA-006735, 1998 Ohio App. LEXIS 4320, 1998 WL 646754, at *2 (Ohio Ct. App. 9th Dist. Sept. 16, 1998); see also Hartford Elec. Light Co. v. Beard, 3 Conn. Cir. Ct. 323, 213 A.2d 536, 537 (Conn. Cir. Ct. 1965); Miss. Power & Light Co. v. Tillman, 291 So.2d 736, 739 (Miss. 1974); Cincinnati Bell, Inc. v. Cooper, 23 Ohio B. 118, 491 N.E.2d 411, 412 (Ohio Mun. Ct. 1985); Duquesne Light Co. v. Rippel, 329 Pa. Super. 289, 478 A.2d 472, 474 (Pa. Super. Ct. 1984); Wash. Water Power Co. v. Miller, 52 Wn. App. 565, 762 P.2d 16, 18 (Wash. Ct. App. 1988).
13 See Columbus & Southern Ohio Electric Company v. J.P. Sand & Gravel Co. (1985) 22 Ohio App3d. 98.