The usual measure of damages for breach of a construction contract is the cost to repair the defects or finish the incomplete work. But what if the cost to repair or compete is grossly disproportionate to the value that the additional work would create? In that case, some courts will instead measure damages based on diminution in value of the defective or incomplete structure. The West Virginia Supreme Court examined the so-called “gross disproportionality rule” last week in Corotoman v. Central West Virginia Regional Airport Authority.
In that case, the defendant had agreed to remove a knoll from the plaintiff’s property and to decrease the elevation by another 35 feet through over-blasting to make the property flatter and more marketable. The defendant removed the knoll but did not perform the over-blasting, which the parties agreed would cost over $4.3 million. The federal trial court found insufficient evidence as to the value of the plaintiff’s property — which had previously appraised for $180,000 — and therefore awarded nominal damages to the plaintiff. On appeal, the Fourth Circuit asked the West Virginia Supreme Court to clarify whether gross-disproportionality is the law in West Virginia and, if so, how it works.
First, the court confirmed that West Virginia does indeed follow the gross-disproportionality rule. Second, it confirmed that gross-disproportionality is determined by comparing cost to repair or complete with diminution in value. Where the cost to complete is clearly or grossly disproportionate to the diminution in value, the measure of damages is the latter, not the former. Third, the breaching party has the burden of invoking and proving gross disproportionality. Finally, if the breaching party does not prove gross disproportionality, then the non-breaching party’s proven measure of damages applies.
How this impacts the trial court’s award of nominal damages remains to be decided by the Fourth Circuit Court of Appeals, so stayed tuned. A full copy of the court’s opinion is available here.