State Farm Mut. Auto. Ins. v. BerthelotState Farm Mut. Auto. Ins. v. Berthelot
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This case presents the issue of whether a tort victim can recover sales tax from a tortfeasor who causes the total loss of the tort victim‘s vehicle. William E. Franklin, an insured of State Farm Mutual Automobile Insurance Co. (State Farm), and George Berthelot, an insured of Southern United Fire Insurance Co. (SUFIC), were involved in a vehicular aсcident on April 13, 1995. On that date, it is undisputed that Berthelot‘s automobile crossed the centerline and struck Franklin‘s vehicle, a 1986 Toyota Corolla. As a result of the accident, Franklin‘s auto was declared a total loss.
State Farm‘s policy with Franklin, its insured, limits liability for comprehensive and collision coverages as follows:
The limit of our liability for loss to property or any part of it is the lower of:
1. the actual cash value; or
2. the cost of repair or replacement.
Actual cash value is determined by the market value, age and condition at the time the loss occurred. Any deductible amount that applies is then subtracted.
State Farm‘s policy further provides that “the right of recovery of any party we pay passes to us.” Pursuant to its policy, State Farm paid $3,388 to Franklin as compensation for the total loss of the car. State Farm calculated its payment to its insured as follows:
Base price of vehicle $3,200.00
Sales Tax $ 288.00
__________
Actual cash value $3,488.00
Less deductible ($ 100.00)
__________
Amount paid insured/owner $3,388.00
The $288 State Farm added to its calculation represented a reimbursement for sales tax. SUFIC then paid State Farm for the cash value of Franklin‘s vehicle, but refused to pay the sales tax. Thereafter, State Farm, as insurer and subrogee of Franklin, brought suit against SUFIC and Berthelot, seeking repayment of the sales tax assessed on Franklin‘s automobile.1
After issue was joined, State Farm, relying on
The Court of Appeal, Fourth Circuit, affirmed, with one judge dissenting. State Farm Mut. Auto. Ins. Co. v. Berthelot, 97-1945 (La.App. 4 Cir. 3/25/98), 709 So.2d 1053. The appellate court rested its decision to uphold the award of sales tax on two broad principles. First, the court invoked the general principles of tort law which have evolved from
We granted the writ application of Berthelot and SUFIC to consider the correctness of the appellate court‘s decision, and to resolve the conflict between the circuits on this issue. State Farm Mut. Auto. Ins. Co. v. Berthelot, 98-1101 (La.6/19/98), 720 So.2d 1207, 1998 WL 485393. For the following reasons, we reverse, finding that sales tax is not a recoverable item of damages in this setting.
ANALYSIS
From the outset, we recall that State Farm‘s claim against Berthelot and SUFIC is a subrogation action against the tortfeasor and his liability insurer. Although we recognize that the relationship between State Farm and Franklin, its insured, had its origin in their contract of insurance, this conventional subrogation does not govern State Farm‘s subrogation rights, but rather the codal provisions relevant to subrogation govern the relationship between State Farm and Berthelot, the tortfeasor, and SUFIC, the insurеr of the tortfeasor. In other words, notwithstanding the contractual relationship between Franklin and State Farm, the subrogation action State Farm has against the tortfeasor Berthelot, is not a conventional subrogation, but a legal subrogation, i.e., subrogation by operation of law.
Subrogation
State Farm‘s contention throughout this litigation has been that it is the legal and conventional subrogee of Franklin, its insured. As such, it argues that it stepped into its insured‘s shoes when it paid his property damage claim. Accordingly, State Farm contends that it assumed whatever rights Franklin had against
Subrogation is a legal fiction whereby payment by a third person, or from the original debtor with funds provided by a third person, extinguishes an obligation of the original creditor. The third person then steps into the shoes of the original creditor, acquiring the right to assert the actions and rights of the original creditor. Barreca v. Cobb, 95-1651 (La.2/28/96), 668 So.2d 1129; see SAÚL LITVINOFF, THE LAW OF OBLIGATIONS 268 (1992) (referencing 7 PLAINIOL ET RIPERT, TRAITÉ PRATIQUE DE DROIT CIVIL FRANCAIS 625 (2d ed.1954)).
Legal subrogation is provided in pertinent part in
Subrogation takes place by operation of law:
* * *
(3) In favor of an obligor who pays a debt he owes with others or for others and who has recourse against those others as a result of the payment.
In Aetna Ins. Co. v. Naquin, 488 So.2d 950, 954 (La.1986), we held that legal subrogation as provided in
In the case sub judice, we find that legal subrogation is the nexus between State Farm and Berthelot and SUFIC. State Farm‘s right to recover from Berthelot and SUFIC for the debt it paid its insured would arise frоm
Having found that legal subrogation is the framework to properly examine the issue presented, we next point out that the effects of legal subrogation are circumscribed and carefully spelled out in the Civil Code. In particular,
When subrogation takes place by operation of law, the new obligee may recover from the obligor only to the extent of the performance rendered to the original obligee. The obligee may not recover more by invoking conventional subrogation. (emphasis added).
It is because of this codal provision that we need not examine the language of State Farm‘s contract which defines its payment obligations to its insured. It cannot be gainsaid that the extent of Franklin‘s right to recover from State Farm is contractually set out in his policy of insurance, and as borne out in its actions, State Farm paid sales tax on its insured‘s totaled vehicle
Damages
Every act of man that causes damage to another obliges him by whose fault it happened to repair it.
As a general rule, the recovery of damages to a vehicle is limited to the cost of repair. Giles Lafayette v. State Farm Mut. Auto. Ins. Co., 467 So.2d 1309 (La. App. 3 Cir.), writ not considered, 472 So.2d 911 (La.1985). However, where a vehicle has been totally destroyed or so badly damaged that the cost of repair exceeds its value, the measure of damages is the value of the vehicle just before the accident, less its salvage value, if any. Holt v. Rapides Parish Police Jury, 574 So.2d 525 (La. App. 3 Cir.1991); Calk v. Grain Dealers Mut. Ins. Co., 508 So.2d 624 (La.App. 2 Cir.1987); Brown v. Morgan, 449 So.2d 606 (La.App. 1 Cir.1984); Sibley v. Insured Lloyds, 442 So.2d 627 (La.App. 1 Cir.1983); Bernard v. Fidelity & Cas. Co. of N.Y., 186 So.2d 904 (La.App. 1 Cir. 1966).
It is undisputed in the case sub judice that Franklin‘s vehicle was a total loss. Since repair was not an option, whether State Farm can recover the sales tax payment against Berthelot and SUFIC hinges on our determination of whether sales tax constitutеs an element of the value of Franklin‘s vehicle just prior to the accident which Franklin could have recovered from Berthelot and SUFIC.
Initially, State Farm makes much ado over the fact that it would have been liable for sales tax if it would have repaired or replaced its insured‘s vehicle. Thus, it argues that such treatment is equally applicable to the present instanсe. This argument, though correct with regard to repair and replacement, has no relevance to the scenario presented. To better understand why this argument is misplaced, it is necessary to briefly examine the nature of a sales tax.
Sales Tax
BLACK‘S LAW DICTIONARY 1458 (6th ed.1990) describes a tax as:
A ratable portion of the produce of the property and labor of the individual citizens, taken by thе nation, in the exercise of its sovereign rights, for the support of government, for the administration of the laws, and as the means for continuing in operation the various legitimate functions of the state.
In particular, a sales tax is a distinct and separate charge which the retail seller is required to collect as a pass through entity for the benefit of the state
A review of this thumbnail sketch of Louisiana‘s sales and use tax shows the fallacy of State Farm‘s position. Clearly, had State Farm undertaken the repair or replacement of its insured‘s vehicle, there would have arisen an event or transaction for which a tax could have been imposed. In such instances tax liability arises by operation оf law. However, since no sale, repair, or replacement has occurred in the present case, no taxable event has taken place. Thus, although any of these transactions can give rise to the imposition of a tax, none has occurred in the case at hand.
Moreover, while it may be said that sales tax may increase the cost to the buyеr in the retail market, it is equally clear that it does not increase the value of the property purchased. Simply stated, with specific regard to vehicle sales, a sales tax is a mandatory cost which state and local governments have added to the sale transaction, over and above the value of the purchased property. Cf. People v. Medjdoubi, 173 Misc.2d 259, 661 N.Y.S.2d 502 (1997); People v. Barbuto, 106 Misc.2d 542, 434 N.Y.S.2d 120 (Sup.Ct. 1980); People v. Irrizari, 5 N.Y.2d 142, 182 N.Y.S.2d 361, 156 N.E.2d 69 (1959); State v. Alexander, 12 Kan.App.2d 1, 732 P.2d 814 (1987); Tunnell v. State, 99 N.M. 446, 659 P.2d 898 (1983); State v. Adams, 39 Ohio St.3d 186, 529 N.E.2d 1264 (1988). Accordingly, the inescapable conclusion is that Franklin‘s vehicle did not have a higher value when it was totaled simply because a sales tax was paid when it was originally purchased nine years earlier. This conclusion is further buttressed by the industry-wide use of the N.A.D.A. OFFICIAL USED CAR GUIDE which values a vehicle without reference to sales tax. Much like State Farm‘s policy, N.A.D.A. references the vehicle‘s market valuе, taking into consideration its age and condition at the time of the loss.
We further observe that in addressing the award of damages for totaled vehicles, this state‘s jurisprudence has not required the negligent tortfeasor to replace the damaged vehicle.6 Falgout v. Wilson, 531 So.2d 492 (La.App. 1 Cir.), writ denied, 532 So.2d 154 (La.1988). To the contrary, the jurisprudence has firmly recognized that the measure of damages is the value of the vehicle just bеfore the accident, less its salvage value, if any. Holt, 574 So.2d at 525; Calk, 508 So.2d at 624; Brown, 449 So.2d at 606; Sibley, 442 So.2d at 627; Bernard, 186 So.2d at 904. As such, it is a characteristic of market valued damage awards that transactional costs are ignored. DAN B. DOBBS, THE LAW OF REMEDIES § 3.3(3) (2d ed.1993). Accordingly, it is clear that the payment of market value of the vehicle, without the payment of sales tax, restores Franklin “to the position
Therefore, we find no merit to State Farm‘s contention that its subrogation rights entitle it to reimbursement from Berthelot and SUFIC for the sales tax it paid its insured.
Public Policy
We likewise find no merit to the appellate court‘s reliance on public policy to support its holding. Although
DECREE
For the foregoing reasons, the judgments of the lower courts are reversed and set aside. There being no genuine issues of material fact, we herеby grant the motion of George Berthelot and Southern United Fire Insurance Co. for summary judgment, and the action of State Farm Mutual Automobile Insurance Co. against them is hereby dismissed with prejudice.
REVERSED AND RENDERED.
VICTORY, J., concurs.
LEMMON, J., Dissenting.
The majority‘s statement that no taxable event has occurred in the present case, while accurate, begs the question of whether the tortfeasor should be held responsible for causing the tort victim to incur the taxable event of buying a vehicle substantially identical to the vehicle the tortfeasor destroyed. The only way the tort victim can be restored to the position he occupied just prior to the tort is to purchase a comparable vehicle, and no one can do this without paying sales tax.
The recovery of sales taxes nеcessary to purchase a comparable vehicle clearly falls within the literal wording of the obligation imposed upon the tortfeasor by
Notes
In my view, the “value” of the destroyed vehicle, at the time just prior to the accident when the tort victim had no intention of selling it, has little relevance in determining reparation for tort-caused damages.
It is also the intent of this Section that all liability pоlicies within their terms and limits are executed for the benefit of all injured persons and their survivors or heirs to whom the insured is liable; and, that it is the purpose of all liability policies to give protection and coverage to all insureds, whether they are named insured or additional insureds under the omnibus clause, for any legal liability said insured may have as or for a tort-feasor within the terms and limits of said policy.