From the desk of Kyle Riley: Many automobile insurance policies include collision coverage to compensate the insured owner for property damage to the insured vehicles. When a policy provides that it will restore the vehicle to pre-loss condition, is the insurance carrier required to pay for additional damages after the vehicle has been repaired? The Court in this case decided that the insurance carrier was required to pay for post-repair diminished value to the vehicle—read on to find out why.
Claims Pointer: When an auto policy provides coverage for direct damage to a vehicle caused by an accident and states such coverage is limited to the extent it “exceeds the amount which it would cost to repair or replace damaged…property with other of like kind and quality,” the policy does not clearly exclude coverage for post-repair diminished value of the vehicle. Because ambiguous policy provisions are to be construed against the insurer, the insurance carrier is obligated to provide coverage for the diminished value of the vehicle following repairs under the above policy language. This decision was based on the language in the Farmers policy—if your policy has different language the results may be different.
Moeller v. Famers Ins. Co. of Washington, in the Supreme Court of the State of Washington (Case No: 84500-0, December 22, 2011).
Plaintiff’s 1996 Honda Civic was damaged in a motor vehicle accident. His insurance carrier, Farmers, arranged for the vehicle to be repaired at an auto shop. Plaintiff did not have any complaints regarding the quality of the repair work. However, Plaintiff filed a class action lawsuit against Farmers for breaching the policy contract by failing to restore his vehicle to a pre-loss condition through payment of the difference between the pre-loss value of the vehicle and post-repair value of the vehicle. The policy provided that Farmers would pay for direct damage caused by an accident. The policy further stated that the amount of coverage was not to “exceed the amount which it would cost to repair or replace damaged…property with other of like kind and quality.”
Farmers filed a Motion for Summary Judgment arguing that the policy language did not provide coverage for diminished vehicle value. The trial court granted Farmers’ Motion. After the Court of Appeals reversed, Farmers sought review from the Supreme Court.
At the outset, the Supreme Court noted that whether the policy provides coverage for diminished vehicle value is to be determined by the language of the policy. The Court then concluded that the policy’s initial grant of coverage would include payment for diminished vehicle value. However, Farmers argued that the coverage limits provision effectively excluded diminished vehicle value by limiting the amount of available coverage to the cost of repairs. Plaintiff responded by arguing that the coverage limits provision merely placed a cap on Farmers’ potential liability at the pre-loss value of the vehicle.
After examining opinions from several other states, the Supreme Court ultimately rejected Farmers’ arguments and held that the policy does provide diminished vehicle value coverage. The Court reasoned that the average insurance consumer would reasonably expect such coverage based on the language of the policy which essentially promises to restore the vehicle to a vehicle “of like kind and quality.” Given the divergent meanings which can be applied to the language in the policy, the Court found that the coverage limits provision was ambiguous as to whether it excluded diminished vehicle value. Accordingly, the Court construed the policy against Farmers and held that diminished value of the vehicle is covered under the policy.
NOTE: This opinion has not been published. It is provided to demonstrate how the court approaches the issues involved in the case. It cannot be cited as authority to a court of law.
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.