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Damages for Construction Defects in Tennessee

What damages can a plaintiff recover under Tennessee law for construction defects? The answer is that a plaintiff can recover either the amount it will take to remedy or repair the defects or the difference in value between the structure had the work been done correctly and its value considering the defective work. The later method of damages is sometimes referred to as “diminution in value” or “diminution” damages.

Construction defect cases almost always are breach of contract cases where a project owner or homeowner has sued a contractor with which it had a written or verbal contract. Thus, although there are some unique considerations in construction defect cases, basic principles of Tennessee contract law apply to them. The purpose of breach of contract damages is, first and foremost, to attempt to put the plaintiff, as near as possible, in the same position in which he or she would have been had the defendant not breached.  The plaintiff should not receive a windfall nor should the plaintiff receive less than what it will take to be made whole.

A plaintiff in a breach of contract case with a contractor must be mindful that, under Tennessee law, the plaintiff bears the burden of proving damages. Practically speaking, lawyers representing plaintiffs in construction defect cases must be strategic and proactive from the very beginning of the case about the proof needed to ensure that their client receives a recovery.  More than a few construction defects cases have foundered at the damages stage after a plaintiff has proven liability.

Who determines, in a construction defect case, which of the above two methods of calculating damages applies? In Tennessee, the judge does. How does the judge decide which method to apply? Probably, the seminal and most informative Tennessee case addressing that question is GSB Contractors, Inc. v. Hess (Tenn. Ct. App. 2005).

The GSB Contractors case involved defects in the repairs to a residence which the plaintiffs had purchased for $285,000 about eight years before the work in question was performed. The trial court awarded the plaintiffs $76,000 based on the cost of repairing the defective work. The defendant contractor appealed.

On appeal, the contractor argued that the trial court had applied the wrong measure of damages because the proper measure of damages was the difference in value between the home as-is with the defective work and its value had the work been done correctly.

In the GSB Contractors case, the court of appeals laid down the general rule related to defective construction damages which has been consistently applied by Tennessee courts since that decision. That rule provides that a plaintiff’s damages should be the cost of correcting the work (cost of repair) unless the repairs are not feasible, or unless the cost of repair is disproportionate to the diminution in value.  In those instances, the proper measure of damages is diminution in value.

The court of appeals also recognized that, where the construction involves a residence, because of an owner’s justified expectation as to aesthetics, a stronger case can be made that the measure of damages should be the cost of repair. Notably, the court of appeals stated that the rule in Tennessee is not that, where a residence is involved, the proper of measure of damages should always be cost of repair.

There was another important ruling in the GSB Contractors case: The court held that the burden is on the defendant in construction defect cases to prove that the cost of repair is unreasonable when compared to the diminution in value of the structure.

A review of Tennessee cases, both published and unpublished, reveals that the measure of damages applied in most construction defect cases is the cost of repair. Nevertheless, the defense of any construction defect case should include an evaluation of whether proof should be obtained, and offered, as to the difference in value of the structure as-is with the allegedly defective work, versus its value if the work had been performed in a workmanlike manner.

 

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