On November 19, 2018, the Superior Court Business Litigation Session denied a motion of the Safety Insurance Company (“Safety”) to dismiss a putative class action on behalf of third-party property damage claimants paid for damage to their vehicles but not for any inherent diminished value of their vehicles resulting from the accident. In denying Safety’s motion to dismiss without prejudice, the Court advised that the issues raised by Safety in opposing the suit would be decided after further discovery and the completion of the record.
In the lawsuit, Jarrett McGilloway and Linda Estrella, on behalf of themselves and all others similarly situated v. Safety Insurance Company, Mr. McGilloway and Ms. Estrella claimed that the standard Massachusetts auto insurance policy’s property damage coverage required the payment of both the costs to repair a damaged vehicle and the inherent diminished value of the vehicle resulting from the vehicle having been in an accident.
Inherent diminished value, per the Massachusetts Supreme Judicial Court, is the claim that there is a difference between the market value of an automobile immediately before an accident and its market value post-collision fully repaired. The claim for inherent diminished value is based on the theory that some stigma attaches to the vehicle from its involvement in a prior collision, such that its market value is diminished even though the vehicle has been restored to its pre-collision physical condition.
Mr. McGilloway and Ms. Estrella’s property damage claims against Safety’s insureds
On August 20, 2016, Mr. McGilloway’s 2013 Jeep Grand Cherokee Laredo was involved in a motor vehicle accident with a Safety insured, Ultimate Parking, LLC. Mr. McGilloway submitted a claim to Safety under Ultimate’s third-party property damage coverage. Mr. McGilloway provided all necessary information for Safety to fully adjust his vehicle’s property damage claim. Safety did not dispute Ultimate’s liability, and after appraising the damage, paid $5,717.78 to Mr. McGilloway. However, Safety did not pay Mr. McGilloway anything for his claim for the inherent diminution in value of his vehicle.
On February 15, 2017, Ms. Estrella’s 2015 Chevrolet Impala Limited was in a motor vehicle accident involving a Safety insured, Nicholas Farmer. Ms. Estrella, like McGilloway, submitted a claim to Safety under Mr. Farmer’s third-party property damage coverage. After determining that Mr. Farmer was liable for the damage to Ms. Estrella’s vehicle, Safety paid her for repairs to her vehicle. Like Mr. McGilloway, Safety did not pay Ms. Estrella anything on her claim for the inherent diminution in value of her vehicle.
On June 30, 2017, Mr. McGilloway and Ms. Estrella filed their lawsuit against Safety claiming that by failing to pay them and those similarly situated for that loss, Safety had breached its obligations under the property damage provisions of the applicable insurance policies and violated G.L. c. 93A by committing unfair claim practices prohibited by G.L. c. 176D.
Safety moves to dismiss diminished value suit arguing it had no liability to pay such damages
After some discovery and amendments to Mr. McGilloway and Ms. Estrella’s class action complaint, Safety moved to dismiss.
Safety principally argued that the property damage coverage in its policies required it to pay third-party claimants only those amount that such claimants are “legally entitled” to collect through a court judgment or settlement and that, in the absence of such a judgment or settlement, it had no legal obligation to pay any inherent diminution in value damages.
Safety also argued that Mr. McGilloway and Ms. Estrella had not sustained a loss that is capable of calculation until and unless they sold their repaired vehicles.
Finally, Safety argued that Massachusetts law did not permit a third-party property damage claimant to recover both the cost of repair and the diminished value of the property and that in this particular case, Mr. McGilloway and Ms. Estrella having acknowledged they received payment for the repair costs, had no further claim for damages.
Insurer’s property damage liability for inherent diminished value poses a “novel question”
In denying Safety’s motion to dismiss, the Court stated:
This case raises the novel issue of whether an insurer must pay claimants under its auto insurance policy not only for the cost of repairing a vehicle involved in an accident but also some additional amount to compensate a claimant for the fact (as alleged by plaintiffs) that a fully repaired vehicle is worth less in the resale market than a comparable vehicle that has not suffered such damage.
The Court also noted that the denial was without prejudice to Safety raising the same issues after the parties have developed a complete factual record. The Court stated that “…given the absence of any clear Massachusetts precedent answering the questions which this action raises, it is all the more important that this Court not rule on these issues prematurely.”
Inherent diminished value not allowed for first-party losses under the standard auto policy
In 2003, the Supreme Judicial Court addressed a claim under the collision provision of the standard Massachusetts auto policy. In that case, Given v. Commerce Insurance Company, Ms. Given claimed that the language in Part 7, Collision, of the Massachusetts auto policy included the concept of inherent diminished value within the policy term “repair or replace the damaged property,” in the sense that the vehicle has not been fully “repair[ed]” or “replace[d].”
The Supreme Judicial Court rejected this argument stating, “No ‘objectively reasonable insured, reading the relevant policy language’ would conclude that these terms include compensation for diminution in market value or for anything else beyond restoration of the vehicle’s pre-collision physical condition.”
However, as the judge stated in denying Safety’s motion to dismiss, there are no clear precedents in Massachusetts either way on whether the concept of “inherent diminution in value” applies to the third-party property damage coverage contained in the standard Massachusetts auto policy. In some other states, inherent diminution of value has been allowed for third-party property damage claims. Generally, the rule in those states is that the value of the damaged auto after repair must be less than the pre-injury value of the auto. Then the claimant can recover the difference up to the pre-injury value of the vehicle.
Agency Checklists will monitor the proceedings in this case
The judge in the Business Litigation Session has consolidated for summary judgment purpose with another inherent diminished value case against the Commerce Insurance Company by the same law firm representing Mr. McGilloway and Ms. Estrella.
Agency Checklists intends to monitor the progress of these cases since a decision in the Superior Court allowing such damages (although appealed) would mark an important change, unless reversed on appeal, for agents and insurers in the handling of auto property damage claims.
