A new approach to the new-for-old deduction
Author: Emma Krikke, attorney-at-law and partner in VanNiekerkCieremans Advocaten. Date of publication: 2022. This article is a translation of the Dutch article published in SCHADE magazine. See: E.E. Krikke, "Een nieuwe benadering van de 'aftrek-nieuw-voor-oud'?", SCHADE magazine 2022, 2, p. 34-35.
Compensating for damage: that means restoring the injured party as much as possible to the position in which he would have been if the event causing the damage had not occurred. When this happens, all circumstances of the case are taken into account as much as possible. In specific cases, however, a more abstract method of estimating damage can be chosen, for example in the case of property damage. Where property damage occurs, the damage for which compensation is claimed consists of the decline in value, which is generally estimated to be the objective costs of repair.
However, where property is repaired, any pre-existing defects it may have are also repaired. Consequently, the injured party may be better off after the repairs have been carried out than before the occurrence of the event that caused the damage.
In an article on this subject, S.D. Lindenbergh gives as an example the case of earth tremors causing subsidence of a house’s foundations, which were already defective due to wear and tear. If new foundations have to be built at the expense of the party responsible (and liable) for the tremors, the building will be in a better condition after the repairs than before.[1] This can also be illustrated by a recent example of a decided case involving broken windows. The liable party objected to having to pay full compensation for the windows as their lifespan had been extended by the early repair.[2] Such arguments are sometimes used to apply a so-called new-for-old deduction. Generally, the claimant then puts forward arguments for not applying the new-for-old deduction. For example, it was argued (ultimately successfully and, in my opinion, rightly) that the replacement of the windows did not increase the value of the building and that a deduction was therefore not justified.
In a recent ruling, Noord-Holland District Court used a special (and, in my view, new) line of reasoning to justify omitting the new-for-old deduction.[3] The District Court reasoned that the liable party’s possession of liability insurance is decisive. In this article, I will discuss whether (new) approach to the application of the new-for-old deduction is correct. Before discussing this judgment, I think it is only right to outline the legal framework in more detail.
Legal framework of new-for-old deduction
The basic rule for estimating property damage is that the owner of the damaged property suffers financial loss, regardless of whether the injured party actually spends money, for example on repairs. This is because the right of ownership represents a certain economic value, and that value is reduced by the event causing the damage, for example fire. The estimate of damage is then based on the (objective) repair costs, regardless of whether the repairs are actually carried out.
Repairs may be practically feasible but economically unjustifiable. That is the case if the costs involved in repairing the property exceed the amount of the decline in value. If that is the case, the damage is equal to the loss of the property. However, even in that situation repairs may still be justified. Whether this is so depends on the circumstances of the case.[4] If proceeding with the repairs is justifiable and the property becomes more valuable as a result than it would have been without the fault, the increase in value can be deducted from the compensation. And that brings us to the new-for-old deduction.
In this way, the new-for-old deduction is placed in the context of the benefit offset provided for in Article 6:100 of the Dutch Civil Code. Incidentally, there is room for discussion about the place of the deduction in the legal system and it is also conceivable that the deduction is applied when the damage is assessed pursuant to Article 6:97 of the Dutch Civil Code.
However, in order to arrive at a new-for-old deduction, the criteria for benefit offset must be met. First, it is a sine qua non that a connection exists between the violation of the standard and the alleged benefits. Moreover, it must be reasonable, applying the standard implicit in Article 6:98 of the Dutch Civil Code, for a charge to be made for those benefits. In this respect, benefit offset can occur only if a benefit has actually been enjoyed or there is a reasonable expectation that a benefit will actually be enjoyed.
Whether it is reasonable to offset a benefit in a given situation often depends on the nature of the benefit and the manner in which it was generated. Assuming that the chosen method of repair was reasonable and justified, offsetting the (full) appreciation in value of the item will often not be reasonable because the appreciation is not actually realised and hence there is no actual benefit (as Arnhem-Leeuwarden Court of Appeal also held in the judgment concerning the broken windows).
It follows that differing circumstances generally play a role in the question of whether an offset is appropriate. However, in its judgment, Noord-Holland District Court attached decisive importance to a specific circumstance in assessing the question of whether the application of a new-for-old deduction is appropriate. So what exactly did that case involve?
Judgment of Noord-Holland District Court, 8 December 2021[5]
The facts of this case were that the claimant’s thatched farmhouse had burned down after its roof caught alight when the defendant in the proceedings had cleared weeds in the vicinity by using a gas burner. The defendant had acknowledged liability, but then argued that the full rebuild value was not eligible for compensation. According to the defendant, his compensation obligation should be corrected by 33 percent for various reasons, including the fact that as a result of the repairs the thatched roof of the farmhouse had been improved, the insulation level of the farmhouse had been greatly upgraded and a new kitchen and new central heating system had been installed.
The District Court held that such a deduction was not appropriate because, in its view, it was apparent from the explanatory notes to Article 6:100 of the Dutch Civil Code that it was assumed from the legislative history that this offset would almost never be reasonable if the event giving rise to the liability is covered by the liability insurance of the liable party. This was the case and, according to the District Court, there was therefore no scope for a new-for-old deduction. The judgment makes no specific reference to the legislative history, from which such an intention of the legislature would be apparent. Nor can I find any other support for this ‘notion’ in the legislative history of Article 6:100 of the Dutch Civil Code.
A new approach to the new-for-old deduction
The District Court's judgment seems very relevant fort practitioners since a person who has caused damage will often have insured himself against liability. If this circumstance is to be given as much weight as the District Court indicates, the deduction could be applied only in exceptional cases. This undermines the doctrine intended by the legislature; after all, there can no longer be any (real) assessment of the circumstances. In my opinion, this application by the District Court should not be followed and there should continue to be room for making a reasonable assessment when applying the new-for-old deduction. To answer the question central to this article, I would say that this is not a new (decisive) ruling and that the District Court’s judgment is based on a misunderstanding.
Incidentally, a consideration of the (other) circumstances of the case could also have resulted in the deduction not being made. For example, the District Court held, for the record, that in the case of liability without fault, the offsetting of benefits will be more reasonable than when the liable party is at fault. As the fire that destroyed the thatched farmhouse was caused by the defendant’s work with a gas burner, the District Court viewed this as an extra reason for not applying the new-for-old deduction. In my view, that is a more appropriate approach to adopt when determining that the damage should be borne entirely by the liable party.
[1] S.D. Lindenbergh, ‘The tortfeasor takes the object as he finds it – Over gepredisponeerde zaken en nieuw voor oud’, NTBR 2019-26.
[2] See Arnhem-Leeuwarden Court of Appeal, 25 February 2020, ECLI:NL:GHARL:2020:1559.
[3] See Noord-Holland District Court, 15 December 2021, ECLI:NL:RBNHO:2021:11280.
[4] Consider, for example, (i) the function of the property for the owner: is it for personal use (i.e. for habitation or for the conduct of a business or occupation) or for investment, (ii) the possibility of acquiring an equivalent property elsewhere and (iii) the extent to which the costs of restoring the property to its original condition exceed the amount of the depreciation, Supreme Court, 1 July 1993, ECLI:NL:HR:1993:ZC1034, NJ 1995, 43, with note by C.J.H. Brunner (Municipality of The Hague v Schravendijk).
[5] Noord-Holland District Court, 15 December 2021, ECLI:NL:RBNHO:2021:11280.