1. Whether, in evaluating recoverable damages for negligent destruction of real property, cost of restoration and diminution in market value represent two distinct categories of recoverable damages.

2. Whether insurance proceeds representing the replacement cost of a home that was negligently destroyed sufficiently correspond to the homeowner's real property loss, such that, pursuant to C.P.L.R. § 4545 (c), the proceeds are collateral-source payments and should offset damages awarded in a negligence action.

1. No. The replacement cost and diminution in market value are two different ways of measuring damages for the same loss in property value. An award for the lesser of these two figures sufficiently compensates owners for a loss, as a contrary rule would allow property owners to recover twice for the same loss.

2. Yes. Insurance proceeds for the replacement cost of a negligently destroyed home directly correspond with the property loss, hence under C.P.L.R. § 4545(c), any negligence damages must be offset by the collateral-source insurance proceeds in order to prevent overcompensating the homeowner for the loss.

Plaintiffs hired Defendant, a general contractor, to renovate their home. Defendant subcontracted part of the work to co-defendant, who negligently started a fire that destroyed the house. Plaintiffs filed an insurance claim for the property's replacement cost and then brought a negligence suit against Defendants. The Supreme Court instructed the jury to calculate damages as the lesser of the property's diminution in market value or the reasonable cost of restoration. The jury awarded Plaintiff the diminution in market value and consequential damages. Plaintiff then sought to recover the restoration cost less their insurance proceeds, arguing that pursuant C.P.L.R. § 4545(c), the insurance payment should only offset damages for restoration costs and not the decline in market value. The Supreme Court denied Plaintiff's request and held that the insurance recovery constituted a collateral source and that C.P.L.R. § 4545(c) entitled Defendants to a setoff for whichever measure of damages is less, thereby reducing the diminution of market value damages to zero. The Appellate Division affirmed. The Court of Appeals granted leave of appeal to determine whether collateral source payments corresponding to real property loss require setoff in damages.

The Court affirmed, holding that C.P.L.R. § 4545(c) entitled Defendants to a setoff because the insurance payments constituted a collateral source covering Plaintiff's real property loss. The Court explained that under C.P.L.R. § 4545(c), there must be setoff of collateral source payments, such as insurance payments, against damages awards when there is a "direct correspondence between the item loss and the type of collateral reimbursement." Oden v. Chemung County Indus. Dev. Agency, 87 N.Y.2d 81, 87 (1995). The Court concluded that a setoff was required as the replacement cost insurance proceeds here corresponded with Plaintiff's real property loss. The Court rejected Plaintiff's claims that the cost of restoration and diminution in market value represent two different categories of recoverable losses, and that the insurance proceeds would only offset the cost of restoration, finding that restoration cost and diminution in market value are merely different ways of measuring a loss of property value. The Court concluded that Plaintiffs should be fully compensated with the lesser of restoration cost or decline in market value, as they should not receive "more than is reasonably necessary to remedy fully the injury". Jenkins v. Etlinger, 55 N.Y.2d 35, 39 (1982). A setoff of insurance proceeds against either measure of negligence damages properly prevents Plaintiff from enjoying a double recovery for the same property loss. Therefore, the Court affirmed the measurement of damages.