BNUMBER:  B-266114
DATE:  April 12, 1996
TITLE:  Resource Protection

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Matter of:Resource Protection

File:     B-266114

Date:  April 12, 1996

DIGEST

In settling a claim against a household goods carrier for loss in 
transit of a service member's compact discs (CDs), the service applied 
a flat 10 percent depreciation rate to determine the amount of the 
carrier's liability.  Carrier argues that the 50 percent rate 
applicable to phonograph records under the Joint Military Industry 
Depreciation Guide should be used, and that the 10 percent rate the 
service used, applicable in the service's settlement of claims with 
members, may not be applied against the carrier.  In the absence of an 
agreed rate under the Depreciation Guide, the service applied the 10 
percent rate which it states was established based on evaluation of  
the unique characteristics of CDs, which significantly differ from 
phonograph records.  The carrier has not shown that the service's use 
of the 10 percent rate is unreasonable.  Therefore, the service's 
action is sustained.  Fogarty Van Lines, B-248982, Aug. 16, 1993, 
distinguished.

DECISION

Resource Protection, on behalf of Carlyle Van Lines, requests refund 
of $120 setoff by the Air Force for loss to the household goods of 
David W. Decembly, an Air Force member, whose goods were moved by 
Carlyle in October 1992 under GBL TP-522,787.

BACKGROUND

The missing items in question are 19 compact discs (CDs) which the 
member indicates he purchased new at various times during 1992, the 
year in which the shipment took place.  The CDs were valued at $300, 
to which the Air Force applied a flat 10 percent depreciation rate and 
paid the member the resulting $270 in settlement of his claim.  The 
Air Force applied the same 10 percent rate in asserting its claim 
against Carlyle, and collected $270 from Carlyle.  Resource Protection 
does not dispute Carlyle's liability for the CDs but argues that the 
depreciation rate used in the claim against Carlyle should have been 
50 percent rather than 10 percent, which would result in a collection 
from Carlyle of $150, not $270.

In support of its position, Resource Protection, citing Fogarty Van 
Lines, B-248982, Aug. 16, 1993, argues that a depreciation rate set in 
the service's Allowance List-Depreciation Guide governing the 
service's settlement of claims with its members[1] is not appropriate 
to apply in asserting claims against the carrier since the latter are 
to be evaluated under common law principles, not based on a rate set 
by service regulations.  Resource Protection notes that no 
depreciation rate for CDs has been agreed upon jointly by the carriers 
and the services and published in the Joint Military Industry 
Depreciation Guide, which is used for evaluating loss and damage 
claims, but the Guide does provide a 50 percent depreciation rate for 
phonograph records, which Resource Protection states are similar to 
CDs, and thus the 50 percent rate should apply to CDs also. 

The service states that when the Joint Military Industry Depreciation 
Guide was last revised in 1976, CDs were not in use and thus were not 
included, and as Resource Protection stated, no agreement has been 
reached with the carriers on a depreciation rate so as to include CDs 
in the Guide.  The service indicates, however, that when the military 
services revised their Allowance List-Depreciation Guide which they 
use for settling members' claims, CDs were added for the first time 
and a depreciation rate of 10 percent was established for them.  This 
rate, the service reports, was established in recognition of CDs' 
unique characteristics which make them far less subject to 
deterioration and give them a far longer life span than phonograph 
records or cassette tapes.  The service states that because of the 
technology employed in their manufacture and use, they do not wear out 
and are less subject to abuse than records or cassettes.[2]  

Concerning Resource Protection's argument that the service is 
arbitrarily imposing a depreciation rate taken from a service 
regulation, the service states that it does not do so.  Rather, the 
service states, it developed the 10 percent rate based on the 
characteristics of CDs as discussed above.  The service notes that in 
the absence of an agreed rate under the Joint Military Industry 
Depreciation Guide, it was necessary that the services develop a rate 
to apply in settling claims for CDs, and the service states that the 
10 percent rate is a common-sense, reality-based rate of depreciation 
which fairly captures the depreciation of CDs, contrary to the 
carrier's assertion that the 50 percent rate applicable to the 
dissimilar item, phonograph records, should be used.

ANALYSIS

In Fogarty Van Lines, supra, as Resource Protection indicates, we 
stated that carrier liability for loss or damage to household goods is 
governed by common law principles under which numerous factors must be 
taken into account, supplemented by the Joint Military Industry 
Depreciation Guide, in determining the value of an item.  Some of the 
factors to be considered are the nature of the item, original and 
replacement costs, age, the extent of wear and tear, and 
deterioration.  In view thereof, we held in that case that it was 
improper for the Air Force in asserting a claim against a carrier, not 
to have taken into consideration that the damaged items may have 
depreciated while in a 4-year period of nontemporary storage, where 
the reason for not doing so was that the Air Force, in settling the 
member's claim against the service, did not apply depreciation for 
that period.  Apparently, the Air Force did not do so because its 
regulation governing the settlement with the member did not provide 
for applying depreciation for periods of nontemporary storage.  We 
stated that, whatever the reason for not considering the possibility 
of depreciation for that period in settling with the member, the 
common law principles applicable in settling the claim against the 
carrier required that the possibility of depreciation during this 
period be considered.  Therefore, we returned the case to the Air 
Force to give due consideration to whether the items in question 
depreciated in value during the period of storage. 

Apparently, Resource Management interprets Fogarty Van Lines to mean 
that in the present case the service acted improperly in applying the 
10 percent rate in setting off against the carrier because it is the 
same rate prescribed in service regulations governing its settlement 
with the member.  We can not agree.  Where the service shows that the 
rate it applied was arrived at upon consideration of the types of 
factors discussed in Fogarty, we see no reason why that rate may not 
be applied in asserting the claim against the carrier.  In the present 
case, the factors the service states it considered in setting the 10 
percent rate are appropriate factors to be considered in arriving at 
the value of an item under the common law principles discussed above.  
While it also may be appropriate to consider valuations of similar 
items, such as Resource Protection seeks to do in relating CDs to 
phonograph records, significant differences affecting the values of 
the items clearly are appropriate considerations, as the service has 
noted.

In summary, the services state that they developed the 10 percent rate 
based on factors which we agree fall within those discussed in 
Fogarty, while the carrier simply wishes to apply a 50 percent rate 
applicable to phonograph records without giving any weight to the 
distinguishing differences affecting the values of the two items.  In 
such circumstances, the carrier has not shown that the service has 
acted unreasonably in applying the 10 percent depreciation rate to 
calculate the value of the lost tapes.[3]  In the absence of clear and 
convincing evidence that an agency has acted unreasonably, we will not 
question the agency's valuation of loss or damage to household goods.  
Ambassador Van Lines, B-249072, Oct. 30, 1992; and Emerald City 
International Corp., B-256604, July 28, 1994.  Accordingly, the Air 
Force's action in this case is sustained.

/s/Seymour Efros
for Robert P. Murphy
General Counsel

1. Pursuant to 31 U.S.C.  sec.  3721.

2. The service states that CDs are read by a laser beam with no 
friction points, unlike records, which are read by a needle resting on 
them, or tapes, which are read by the tape passing over a head.  Thus 
CDs are not prone to the scratching and steady deterioration through 
use which affects the quality and value of records and tapes.

3. We also received comments from the Household Goods Forwarders 
Association indicating that they recommend applying the 50 percent 
rate applicable to phonograph records to CDs.  They indicate, without 
giving specifics, that used record and CD stores are common where a 
used CD can be purchased for half price.  We do not consider this 
sufficient to overturn the Air Force's determination in this case, 
particularly where the CDs in question were less than a year old.