Defense Digest 12/08: The Florida Supreme Court Addresses The Telecom Industries' Claims For Loss Of Use Damages

By Marjorie S. Hensel, Esq.*

Florida - Utility Liability

It is axiomatic that the Law lags behind technology. In some cases, utility companies were relying on traditional property law to recover damages to their lines and loss of use for the "down time." However, in this age of fiber-optic technology, telecommunications companies use networks of staggering complexity to route and re-route their calls. Not all cables are under constant usage. Most carriers can reroute calls with a keystroke. Despite this sophistication, telecom companies were claiming loss of use damages, even when their own network could be used to accommodate the rerouted calls while the damaged line was repaired. The Supreme Court of Florida recently addressed such a disconnection between traditional property law and twenty-first century technology in its recent decision in MCI Worldcom Network Services Inc v. Mastec, 33 Fla Law Weekly S473 (July 10, 2008) (rehearing filed August 2008).

In 1993 the Florida Legislature enacted the Florida Underground Facility Damage Prevention Safety Act ("Act") to allocate responsibility between excavators and the owners of underground utilities. The purpose of the Act is to "aid the public by preventing injury to persons or property and the interruption of services resulting from damage to an underground facility." In creating the Act, the Florida Legislature provided excavating contractors with a free access system to give notice of their intent to conduct excavating activities and a mechanism through which utilities could be called upon to "locate" or identify their underground facilities. The desired effect was to avoid accidents. The Act details the method in which excavators are to prepare for and carry out the excavations in close proximity to the underground facility. The process begins when the excavator calls Sunshine State One Call, an agency charged with administering the Act. Based on the information received from the excavator, Sunshine State then notifies the operator of the utility in that area. Utility operators who are in close proximity to the excavation then have two days to mark or "locate" their facilities. During this time, the excavator must avoid the area until all of the operators have located, marked, or removed their underground utilities. Once the locates have been completed, the excavator must proceed with "reasonable care." The failure of either an excavator or an operator to follow the procedures set forth in the Act carries with it both penalties as well as a presumption of negligence against them.

Under the Act, an owner (utility company) whose property is damaged by another (excavator) can recover both the cost to repair the line as well as the loss of the use of the line during the time of repair.

In July 2000, Mastec severed an MCI underground fiber optic communications cable in Miami claimed to be worth more than $8 million. The accident resulted in the loss of its use for about 97 hours. MCI was able to reroute communications onto a backup cable it had built at a cost of more than $9.6 million. As a result of the "spare" cable, MCI was able to avoid any loss of profits.

MCI sued Mastec for the fair rental value of the alternate cable up to a statutory maximum. They also claimed loss of use damages in the amount of $868,000, as well as punitive damages. The loss of use damage claim was based on the amount MCI "could have paid" for a replacement cable to run its system until the repairs could be made. Mastec argued that since MCI did not actually pay for or rent an outside cable, awarding loss of use would be a "windfall." The district court agreed and ruled that MCI was not entitled to loss of use damages. On appeal, the U.S. Eleventh Circuit Court of Appeals certified questions to the Florida Supreme Court. The Supreme Court reworded the certified question as follows:

Is a telecommunications service carrier entitled to loss of use damages measured by the cost of renting a replacement for a fiber optic cable damaged by a defendant when the carrier was able to accommodate within a phone network telecommunications traffic carried by the damaged cable and the carrier presented no evidence it rented replacement cable or suffered any loss of revenue or other damages during the time the cable was unavailable?

Because MCI was able to re-route the telecommunications traffic carried on its damaged cable so that there was neither interruption of service nor any actual loss of profit suffered, Mastec argued that MCI should not be awarded loss of use damages. MCI argued that it was entitled to the costs to repair the damaged fiber optic cable and for the loss of use of that cable for the length of time it reasonably would take to repair the cable. MCI argued that the principals of the Restatement Second of Torts called for both the reward of cost of repair and the loss of use damages claimed, limited only by the reasonableness of the repair time and the terms of the Act.

The Florida Supreme Court agreed with the rationale asserted by Mastec and held that loss of use damages based on rental replacement value is not the appropriate measure of damages where no actual rental occurred. The Court explained that when the telecommunications traffic carried by the damaged cable has been accommodated within the telecommunications carrier's own network, so there has been no loss of service, the carrier is not entitled to a "windfall" for its foresight in developing a system of service that can be routed to avoid disruptions in service. As the courts grapple with technology, in future cases or in the instant case on rehearing, that is advancing at the speed of sound, established legal principals will be challenged. Understanding updated technology, and the inapplicability of traditional property damages, can serve to limit, if not extinguish, a company's exposure to claims.

*Marjorie is a shareholder in the firm's Tampa, Florida, office. She can be reached at (813) 472-7827 or mshensel@mdwcg.com.