The Business Litigation Session of the Superior Court has issued a judgment that automobile property damage insurers do not have to pay third-party claimants for any alleged “inherent diminished value” damages if the claimant’s vehicle has been repaired. The losing plaintiffs have already filed an appeal.
The Business Litigation Session’s decision involved consolidated lawsuits against Safety Insurance and Commerce Insurance by three property damage claimants. The claimants who sought class-action status for their suits had suffered property damage to their vehicles caused by insureds of Safety and Commerce. These claimants had their vehicles repaired but sought additional compensation for alleged inherent diminished value damages not compensated by the repair of their vehicles.
No Inherent diminution value damage for first-party auto collision claims in Massachusetts
Inherent diminished value claims are based on the theory that some stigma attaches to a 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.
Sixteen states, including Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, New Mexico, New York, Oregon, South Carolina, and Virginia allow recoveries for inherent diminished value. 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-accident value of the vehicle.
Until this Business Litigation Session suit and a 2019 United States District Court suit (See Agency Checklists’ article of August 20, 2019, Mass. Court Rules Inherent Diminished Value Not Recoverable Under Standard Auto Policy’s Property Damage Coverage) Massachusetts courts had not ruled on third-party property damage claims, one way or another.
In 2004, The Massachusetts Supreme Judicial Court had ruled that Part 7, Collision, of the standard Massachusetts auto policy coverage, did not include coverage for inherent diminished value claims. The Supreme Judicial Court decision, however, only addressed first-party property damage coverage claims. The decision did not decide the question of whether third-party property damage liability coverage covered inherent diminished value damages.
These lawsuits proceeded based on inherent diminished value damages being an undecided issue for third-party property damage claims in Massachusetts
In these same Business Litigation Session suits against Safety and Commerce, the Court denied a motion of Safety to dismiss the potential class action for third-party property damage claimants seeking inherent diminished value damages. See Agency Checklists’ article of November 27, 2018, “Court Allows Inherent Diminution In Value Of Auto Suit To Go Forward Against Property Damage Insurer.”
In denying Safety’s motion to dismiss, the Court stated this suit “raises the novel issue of whether an insurer must pay [property damage] claimants… not only for the cost of repairing a vehicle, but…also some additional amount [because] a fully repaired vehicle is worth less in the resale market than a comparable vehicle that has not suffered such damage.”
The Court allowed the lawsuit to proceed to discovery between the parties and completion of the record for summary judgment because there was an “…absence of any clear Massachusetts precedent answering the questions which this action raises…”
The claims Safety and Commerce litigated that alleged inherent diminished value damages owed
The consolidated lawsuits against Safety and Commerce had two claimants in the suit against Safety and one claimant in the suit against Commerce. The individual claims giving rise to the litigation were:
Jarrett McGilloway v. Safety Insurance
Safety insured Ultimate Parking, a parking site owner and manager. In August 2016, Jarrett McGilloway left his 2013 Jeep Grand Cherokee car and keys with an employee of Ultimate. In parking the vehicle, the employee negligently drove McGilloway’s Jeep into another vehicle. Mr. McGilloway’s Jeep suffered $5,700 in collision damage.
Mr. McGilloway reported the damage, and Safety assumed liability for the damage caused by Ultimate’s employee. After an appraisal of the Jeep, Safety paid the $5,700 to have it repaired and returned to its pre-accident condition.
After receiving his repaired vehicle, Mr. McGilloway sought $4,425 for his inherent diminished value damages resulting from the collision. After an initial offer of several hundred dollars from Safety, Mr. McGilloway turned down Safety’s final offer of $1,125 and filed suit against Safety.
Mr. McGilloway claimed the right to receive compensation for his Jeep’s inherent diminished value following the accident and repairs under the Garagekeeper’s Coverage Endorsement attached to Ultimate’s commercial auto policy.
Under this endorsement, the insuring agreement provided for Safety to “pay all sums” that Ultimate “must pay as damages for ‘loss’” to a customer’s automobile caused by any collision of the vehicle with another object. The endorsement defined a “loss” to mean “direct and accidental loss or damage and includes any resulting loss of use.”
Linda Estrella v. Safety Insurance
In February 2017, the Plaintiff, Linda Estrella, had her 2015 Chevrolet Impala hit by a vehicle insured with Safety. Ms. Estrella, who also had her auto insurance with Safety, made a first-party claim under her policy’s collision coverage. After appraising the loss, Safety paid $8,700 to have Ms. Estrella’s vehicle repaired.
Subsequently, Safety received a demand letter from Ms. Estrella’s attorney. The attorney demanded that Safety pay an additional $3,100 for the inherent diminished value to Ms. Estrella’s vehicle caused by the negligence of Safety’s insured. The attorney claimed that Safety had liability for this consequential damage under Safety’s insured’s property damage liability coverage. Safety offered $1,200 to resolve the matter and avoid a suit. However, Ms. Estrella’s counsel rejected the offer and filed suit.
Adam Ercolini v. Commerce Insurance
In November 2018, a vehicle insured by Commerce collided with Mr. Adam Ercolini, who was driving his 2010 Honda Accord. Commerce assumed liability for the damage to Mr. Ercolini’s vehicle and paid in full for all necessary repairs. The repairs restored Mr. Ercolini’s Honda to its pre-accident condition.
After the return of his repaired vehicle to Mr. Ercolini, Mr. Ercolini had made a demand on Commerce for the payment of additional inherent diminished value damages of between $3,624 and $4,450. This demand alleged that Commerce had coverage for Mr. Ercolini’s inherent diminished value loss under the property damage liability section of its policy. Commerce did not make any offer, and Mr. Ercolini filed suit.
The property damage provisions under which Ms. Estrella and Mr. Ercolini claimed compensation for inherent diminished value damages had the language approved by the Commissioner of Insurance. This insuring agreement found in Part 4., of the standard policy provided:
Part 4. Damage to Someone Else’s Property: Under this Part, we will pay damages to someone else whose auto or other property is damaged in an accident. The damages we will pay are the amounts that that person is legally entitled to collect for property damage through a court judgment or settlement…
Completion of discovery leads to summary judgment motions
The plaintiffs asserted the same claims in the consolidated cases. The plaintiffs alleged seven counts:
- Count I alleged a breach-of-contract claim arising from the terms of the respective policies in the insurers not paying for inherent diminished value.
- Count II alleged unfair and deceptive business practices violating G.L. c. 93A by refusing to pay as consequential damages the inherent diminished value of the repaired vehicles.
- Counts III to VI alleged violations of the unfair claim practice act, G.L. c. 176D, § 3(9), relating to the insurers handling of inherent diminished value claims; and,
- Count VII sought a declaratory judgment under the declaratory judgment act, G.L. c. 231A, concerning the respective insurance policies paying inherent diminished value claims.
Following discovery, Safety and Commerce both filed for summary judgment asserting that, as a matter of law, their contracts, when interpreted correctly under Massachusetts law, did not provide any obligation for the payment of inherent diminished value claims. The plaintiffs moved for partial summary judgment claiming that under Massachusetts law and the terms of the insurance coverages, in question, the insurer had the legal obligation to pay third-party inherent diminished value property damage claims.
The Court in deciding the case noted that the insurers and the Plaintiffs agreed on the concept of inherent diminished value that a vehicle’s fair market value may be less following a collision and repairs. The Court also noted that the parties had no dispute that this inherent diminished value equaled the difference between the resale market value of a motor vehicle immediately before a collision and the vehicle’s market value after a collision and subsequent repairs.
According to the Court, what the insurers and the plaintiffs disputed was whether and when a motor vehicle that had been damaged in a collision and then is fully repaired may be worth less than it was before the collision and thus have an inherent diminished value.
The Court’s rulings on the motions find no liability for inherent diminished value
In making its decision, the Court found that the dispute between the parties over when and where inherent diminished value might apply was not material. The Court instead found that:
Assuming that the vehicles owned by the three named plaintiffs suffered [inherent diminished value] that their insurers refused to cover, Safety and Commerce are still entitled to judgment in their favor as a matter of law.
The legal rationale for the Court finding that inherent diminished value claims had no legal standing under the standard Massachusetts auto policy came from several sources.
First, the Court recited the rationale the Supreme Judicial Court had used in finding that collision coverage under Part 7 of the standard auto policy did not include payment for inherent diminished value losses. The judge noted that the policy insuring provisions differed materially between the property damage and the collision coverages. However, in the Supreme Judicial Court’s decision, the Court had emphasized that the standard auto insurance policy must be construed “in a manner consistent with the statutory and regulatory scheme that governs such policies.”
The Superior Court judge focused on the fact the Supreme Judicial Court’s decision had highlighted that “the absence of any reference to inherent diminished value in this extensive regulatory scheme” [made it] “apparent that the Commissioner of Insurance… does not interpret the standard policy’s collision coverage to encompass compensation for inherent diminished value in addition to compensation for the cost of repairs.”
Second, the Court addressed the insuring agreements for the property damage coverage in both the standard auto policy and the garagekeeper’s endorsement. The personal auto policy provided indemnity for the amount that a third-party “is legally entitled to collect for property damage through a court judgment.” The garagekeeper’s property damage coverage provided for an indemnity equal to the amount that the insured “must pay as damages” for a collision with a customer’s vehicle. In either case, the Court found that these insuring agreements stated indemnity based on tort liability for property damage.
The Court applied Massachusetts tort law’s recovery rule for personal property, including motor vehicles, that applies when a damaged property is repaired to its pre-accident state and held:
…where damaged property has been fully repaired, and the responsible party has paid the full repair costs, under Massachusetts law, the property owner is not entitled to collect, and the responsible party is not obligated to pay any additional amount for residual diminution of value. Therefore, unless and until the appellate courts change this rule, the policy language at issue here does not give the named Plaintiffs any right to recover for alleged [inherent diminished value] damages in addition to recovering the full cost to repair their vehicles.
Third, the Court buttressed its opinion with references to the regulatory scheme for automobile insurance that the Supreme Judicial Court had pointed out had no mention of inherent diminished value as an insured loss.
The Court noted that the Massachusetts regulations on automobile damage appraisals only requires a licensed appraiser to document all physical damage for insurance repairs and total loss estimation. The regulation does not, however, address inherent diminished value as an element of either repairable damage claims or total loss claims.
The Court took this lack of any mention of inherent diminished value claims in this regulatory scheme as evidence the Commissioner of Insurance did not consider this type of damage as covered by the standard policy. Under G.L. c. 90, § 34O, it is the commissioner, who may determine the provisions of property damage coverage for auto liability policies.
Denial of remaining claims and final judgment
Based on the Court’s analysis that the plaintiffs could not recover for their inherent diminished value claims as a matter of law. The Court found that neither Safety nor Commerce had violated G.L. c. 93A by not paying the plaintiffs for their claimed inherent diminished value losses. Likewise, the Court found that whether the insurers had committed technical violations of the unfair claim practice act, G.L. c. 176D was irrelevant. The Plaintiffs, in the Court’s opinion, had suffered no harm, even if there were such violations, and, thus, had no rights of recovery.
The final order of the Court was:
Final judgment shall enter in each case ordering that Plaintiff shall take nothing on their contract and G.L. c. 93A claims in counts I through VI and declaring that:
(1) where a motor vehicle has been damaged in a collision and an insurer pays the cost to fully repair the vehicle, neither Part 4 of the standard Massachusetts automobile insurance policy nor the Garagekeeper’s Coverage Endorsement used by Safety Insurance Company requires that the insurer pay for any inherent diminished value of the repaired vehicle; and
(2) as a result, neither Safety Insurance Company nor The Commerce Insurance Company has any contractual obligation to pay the Plaintiffs any amount for their alleged inherent diminished value damages. (Emphasis in original but spacing added).
Appeals now pending in both the state and federal courts
The insurance law in Massachusetts is settled that first-party claimants cannot recover for inherent diminished value under their collision coverage. However, no Massachusetts appellate court has ruled on whether third-party property damage claimants can recover for inherent diminished value. The decisions mentioned in this article are trial court decisions that do not establish binding legal precedent.
The plaintiffs in the lawsuits against Safety Insurance and Commerce Insurance have filed notices of appeal to the Massachusetts Appeals Court. Once their appeals reach the Appeals Court, they or the defendant insurance companies will likely seek direct appellate review with the Supreme Judicial Court.
Also, the Plaintiff in the United States District Court case, cited in Agency Checklists’ August 20, 2019 article mentioned above, filed an appeal to the First Circuit Court of Appeals. The parties filed their final briefing in that appeal on March 18, 2020. The Court in that appeal has set no date for argument yet. Once the Court hears arguments, a final decision usually follows within ninety to one-hundred-and-eighty days.
Agency Checklists will keep you posted
Agency Checklists will monitor these two appeals and keeps its readers posted as to any further developments.