For several years, the question of whether a third-party claimant can recover for “inherent diminution in value” or “inherent diminished value” following an automobile accident that causes substantial property damage to their vehicle has been a hot issue.
Inherent diminution in value refers to the undisputed fact that a vehicle involved in a serious accident, even though adequately repaired, has a market value that is less than a vehicle of the same make and model year that has never had an accident. The ready availability of vehicle histories through such companies as Carfax makes a person seeking to buy a used car easily aware of a vehicles accident history and the amounts paid to repair a vehicle.
No one seriously disputes a person seeking to buy a second-hand car that has been in an accident will, if making an offer, reduce their offer based upon the repair costs to the vehicle. However, property damage claimants and insurers do dispute whether the standard Massachusetts automobile insurance policy’s property damage coverage obligates insurers to pay inherent diminished value claims in addition to repair costs.
In 2003, the Supreme Judicial Court ruled that under Parts 7, 8, and 9, (collision, limited collision, and comprehensive) of the standard Massachusetts automobile insurance policy, there was no coverage for inherent diminished value. However, the Supreme Judicial Court’s decision on the policy’s collision, limited collision, and comprehensive coverages did not decide whether the standard auto policy’s property damage part provided coverage for third-party property damage claims involving inherent diminished value.
Presently, there are suits, seeking class-action status, pending in both the United States District Court, and the Massachusetts Superior Court, asserting that third-party claims under the property damage provisions of the standard Massachusetts automobile insurance policy provide indemnity for inherent diminution in value.
On August 14, 2019, the United States District Court entered a decision in one of these putative class actions pending, Jonathan Martins, individually, and on behalf of all others similarly situated, v. Vermont Mutual Insurance Company, deciding that the standard Massachusetts auto policy did not provide coverage for inherent diminution in value.
Jonathan Martins’ claim for inherent diminution in value against Vermont Mutual
Mr. Martins owned a 2015 Nissan Altima that he had purchased on June 18, 2016, for $20,472.00. Seven months later, on January 23, 2017, an insured of Vermont Mutual collided with Mr. Martin’s vehicle. The Vermont Mutual automobile insurance policy involved in the accident provided coverage from January 20, 2017, to January 20, 2018. The policy was the 2008 edition of the standard Massachusetts automobile insurance policy filed by the Automobile Insurance Bureau of Massachusetts with the division of insurance and approved by the commissioner of insurance for use in Massachusetts.
Under Part 4 of the policy, the “Damage to Someone Else’s Property,” Vermont Mutual agreed to:
Pay damages to someone else whose auto or other property is damaged in an accident. The damages we will pay are the amounts that person is legally entitled to collect for property damage through a court judgment or settlement.”
Damages include any applicable sales tax and the costs resulting from the loss of use of the damaged property.
Mr. Martins initially filed a first-party claim under his auto policy with the Safety Insurance Company (“Safety”). Safety had Mr. Martins’ vehicle repaired by paying $11,711.80 to the registered motor vehicle repair shop Mr. Martins selected. Safety then claimed subrogation against Vermont Mutual in February 2017 for $12,942.80. This claim included the repairs on $11,711.80, plus $331.00 for towing and storage, and $900.00 for a rental car Mr. Martins had used during the repair process.
Mr. Martins sues for his vehicle’s inherent diminished value
On June 26, 2017, an attorney representing Mr. Martins sent an email to Vermont Mutual, advising that Mr. Martins was now “making a property damage claim for the diminution in value to his vehicle. Included with attorney’s communication was June 23, 2017, report, which claimed that the inherent diminished value resulting from Mr. Martins’ vehicle being struck by Vermont Mutual’s insured, was $6,129.00.
Vermont Mutual reviewed the claim and offered $1,800.00 to resolve Mr. Martins’ diminished value claim. Mr. Martins rejected the offer and his attorney, in a 93A demand letter, alleged that Vermont Mutual had a “practice of intentionally and knowingly making unfair and unreasonably low offers to cover damages for the inherent diminution in value of third-party claimants.” Eventually, Vermont Mutual raised its offer to settle Mr. Martins inherent diminished value claim to $2300.00.
On August 23, 2017, Mr. Martins filed an action seeking class-action status against Vermont Mutual in Suffolk Superior Court, alleging breach of contract, and seeking a declaratory judgment as to Vermont Mutual’s liability to pay inherent diminution in value claims. After receiving a new demand letter under Chapter 93A Vermont Mutual, offered an increased settlement of $2300.00. After rejecting that offer, Mr. Martins filed an amended complaint alleging five unfair claim practices by Vermont Mutual and requesting a declaratory judgment.
Mr. Martins’ lawsuit was heard in federal court because Vermont Mutual, as an out-of-state insurer, exercised its right to have the suit removed from state court under the federal constitutional jurisdiction for lawsuits between citizens of different states.
After a short period of discovery, on March 1, 2019, Vermont Mutual filed a motion for summary judgment against Mr. Martins. In response, Mr. Martins filed, on the same day, his motion for partial summary judgment on liability.
The court heard the matter on May 1, 2019, hearing arguments on the cross-motions for summary judgment, and on the motion of Mr. Martins to certify a class of persons holding inherent diminution in value claims against Vermont Mutual.
On August 14, the court entered its decision in favor of Vermont Mutual, and against Mr. Martins.
The 2003 decision on collision, limited collision, and comprehensive offers no legal guidance
The district court judge analyzed the 2003 Supreme Judicial Court decision in Given v. Commerce Ins. Co. In that case, the plaintiffs had brought an appeal to the Massachusetts Supreme Judicial Court over whether the Massachusetts automobile insurers had to pay claims of their insureds for inherent diminished value under Part 7 (Collision) under the standard automobile insurance policy mandated by the commissioner of insurance.
In deciding that question against coverage, the Supreme Judicial Court noted that the language of the policy, under Part 7 barred coverage because it provided that the insureds could be paid for the cost to repair, or the diminution in value of their vehicle, but not for both.
Additional policy language reinforced this limitation. Paragraph 11 of the standard policy’s “General Provisions and Exclusions” applicable to policy Parts 7, 8, and 9, provided that “[I]n any event, [the insurer] will never pay more than what it would cost to repair or replace the damaged property.”
Based on these definitive statements, the Supreme Judicial Court denied inherent diminution of value to insureds under Parts 7, 8, and 9, of the standard policy. However, Paragraph 11’s definitive statement did not apply to Part 4, property damage.
In analyzing the Given’s case, the federal judge noted that no Massachusetts case has, so far, addressed the question whether damages for inherent diminution of value are recoverable under Part 4, property damage, of the standard policy.
The federal judge looks to other Massachusetts caselaw of property damage insurance
Since there were no cases the federal court judge could find on inherent diminished value for property damage, he looked to other Massachusetts appellate decisions. In one of these decisions, the federal judge noted that the Supreme Judicial Court had ruled, in a general sense, on another insurance policy for environmental damage, that “the general rule for measuring property damage is diminution in market value.” The Massachusetts court had also stated
that “if the injury is reasonably curable by repairs, the expense of repairs, if less than the diminished market value, is the measure of recovery.” The federal court pointed out that the Massachusetts Appeals Court had stated the same legal principle that property damage recoveries were the lesser of repair costs or fair market value.
As a result, the federal court found that:
There is no reason to conclude that the law of Massachusetts permits the recovery of damages, in a tort action, for the inherent diminished value of personal property. No Massachusetts case has so held, in the case law as it exists, suggests the contrary.”
The commissioner of insurance has never held inherent diminished value recoverable under the standard policy
The court’s decision also noted that under Massachusetts law, insurers use standard policies approved by the commissioner of insurance. Under M.G.L. c. 90 § 34O, “[e]very insurer issuing or executing a motor vehicle liability policy…shall also provide property damage liability coverage for the policyholder.
Under § 34O, however, the statute further provides that the commissioner of insurance has an important part in determining the scope of property damage coverage. The statute provides that “Property damage liability insurance is insurance containing provisions as described in this section, among such other provisions, including conditions, exclusions, and limitations, as the commissioner of insurance may approve.” (Emphasis added).
In further support the decision, the judge noted that the Massachusetts commissioner of insurance, who has the statutory authority the set the “conditions, exclusions and limitations” for the mandatory property damage coverage under the standard policy has never taken a position that such damages are recoverable under a standard policy. The court mentioned various letters written by insurance department personnel, including one stating, “the Massachusetts Automobile Insurance Policy does not provide, and never has provided, coverage for inherent diminished value.”
Massachusetts Superior Court case on inherent diminished value still pending
The Supreme Judicial Court will likely have to decide whether property damage coverage pays for “inherent diminished value” on third-party losses.
As Agency Checklist reported in its November 27, 2018, article, “Court Allows Inherent Diminution in Value of Auto Suit To Go Forward Against Property Damage Insurer,” there another potential class action involving third-party inherent diminished value claims pending in the Business Litigation Session of the state Superior Court in Boston.
In that case, Safety Insurance had moved to dismiss. However, as reported in the above article, the state court judge denied the motion without prejudice, and the case went forward to discovery. Safety’s case is still pending, and the Superior Court has scheduled summary judgment hearings on December 9, 2019.
Mr. Martin has thirty days to appeal to the First Circuit Court of Appeals
Mr. Martins has thirty days to appeal to the First Circuit Court of Appeals. Based on legal issues involved and the pendency of a parallel action in the Superior Court Business Litigation Session, an appeal is a foregone conclusion.
On appeal, if the First Circuit decided there is no clear Massachusetts legal precedent that would decide whether the standard Massachusetts auto policy’s property damage insurance provided inherent diminished value coverage, the First Circuit might certify the decision on inherent diminished value to the Supreme Judicial Court. Federal courts do not try to break new ground in deciding cases based on state law but only seek to apply established state law.
The Massachusetts certification rule allows federal courts to certify questions of Massachusetts state law that are “determinative of the cause then pending in the certifying [federal] court” but for which there is no existing controlling prior decision of the Supreme Judicial Court
Once the plaintiff files an appeal to the First Circuit Court of Appeals, that court will likely certify the question of inherent diminished value in third-party claims to the Supreme Judicial Court.
Obtain a copy of the federal court decision
Since this decision is of interest to licensed auto damage appraisers, claim professionals, and attorneys, you can download a copy of this federal court decision by clicking “HERE.”
Agency Checklist will keep you advised of further developments. Also, if you know of any additional actions involving inherent diminished value, please let us know by an email. See the first page for an email link. Thank you.