From the desk of Kyle Riley: Recently, the issue of whether a stigma damage exclusion in an under insured motorist property damage (UIM-PD) policy violated the state’s UIM statute and public policy was addressed by the Washington Court of Appeals.
Claims Pointer: “Stigma damages” and “diminished value” damages are not synonymous concepts. “Diminished value” damages generally are available where a vehicle sustains physical damage in an accident, but due to the nature of the damage, the vehicle could not be fully restored to its pre-loss condition. Stigma damages, unlike diminished value damages, occur when the vehicle has been fully restored to its pre-loss condition but it carries an intangible taint due to its having been involved in an accident.
Ibrahim v. AIU Ins. Co., 177 Wash. App. 504, 312 P.3d 998 (2013)
The insured, Firoz Ibrahim, was involved in an automobile accident. Ibrahim’s vehicle, a luxury sedan, suffered significant damage but was repaired and restored to a physical condition identical to its pre-loss condition, amounting to almost $19,000 in repairs. After the repair was completed Ibrahim submitted a claim to his insurer for the diminished value of the vehicle under his UIM policy. The insurer took the position that, while diminished value was covered under the policy, such damage was only available to the extent it could be proved and that proof of “diminished value” could only be determined at the time the vehicle was sold. Ibrahim filed a lawsuit alleging breach of contract and Consumer Protection Act violations for the wrongful denial of his claim for diminished value.
Ibrahim’s position was that some amount of money would need to be taken off the retail market selling price of the vehicle because it had been involved in a “severe wreck” with substantial structural damage. He argued that potential buyers would turn away from purchasing the vehicle when presented with an opportunity to purchase a similarly priced certified vehicle from a dealer or private party that had not been involved in an accident. The insurer moved for summary judgment. In reviewing the policy terms the trial court rejected Ibrahim’s argument that he was entitled to loss of value of the vehicle concluding that the insurance company was only required to restore the vehicle to its pre-loss condition, not its pre-loss value. Ibrahim then appealed.
The Washington Court of Appeals found that Ibrahim’s claimed damages should be characterized as stigma damages not diminished value. The Court noted that Ibrahim had conflated “loss of value” and “diminished value.” The Court found that the two were not synonymous. Diminished value is a term of art applying to situations when the accident vehicle could not be restored to its pre-loss condition. An example of diminished value is where weakened metal cannot be repaired. Stigma damages are sometimes referred to as inherent diminished value, and contemplate reduced value due to the perception that the vehicle is worth less due to it being in an accident. The evidence was undisputed that the vehicle had been restored to its pre-loss physical condition. Therefore, the damages sought by Ibrahim were “stigma damages.”
The Court then looked to see whether Ibrahim’s stigma damages were recoverable. Although the Court found that these damages could be recovered against the underinsured motorist, the Court found that Ibrahim did not have a viable claim for stigma damages against the insurance company. The Court found that the policy structure and content demonstrated that the insurance company validly limited its liability to restoring the vehicle to its pre-loss condition and further that the insurer did not intend for pre-loss condition to be synonymous with pre-loss value. Viewing the policy as a whole, the Court interpreted the phrase “pre-loss condition” with the rest of the insurance policy. Therefore, in order to avoid redundancy in the policy interpretation, the Court concluded that the insurer intentionally used the word “value” to mean what the car was worth on the market before the accident, and that the insurer intentionally used the word “condition” to mean the physical state the car was in before the accident.
Next, the Court addressed Ibrahim’s argument that the insurer’s limit of liability clause violated Washington’s UIM statute and public policy. The Court rejected both of these assertions. First, Washington’s UIM statute contained no express or implicit prohibition on limiting liability to “[t]he amount needed to restore the covered auto to its pre-loss condition, reduced by applicable deductible,” as the policy in question provided. The insurer had established a limit on damages that Ibrahim would otherwise be legally entitled to receive and that limit did not contravene the letter or spirit of Washington’s UIM statute. The insurer and Ibrahim agreed to the terms of the contract and where the UIM statute was silent, the Court declined to speak on the issue. Addressing public policy, the Court noted that no Washington decision had ever condemned a UIM insurer for limiting its liability to restoring a vehicle to its pre-loss condition as opposed to its pre-loss value.
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.