On May 5, 2021, the Supreme Judicial Court (sometimes, “SJC”) heard an important case that could radically increase the damages that automobile insurers must pay for third-party property damage claims.
The cases argued last Wednesday involve claims brought against Safety Insurance (“Safety”) and Commerce Insurance (“Commerce”), respectively, by three third-party property damage claimants. The claimants who sought class-action status for their suits had suffered property damage to their vehicles caused by insureds of either Safety or Commerce. These claimants had their vehicles repairs paid for by these insurers but then sought additional compensation for alleged the inherent diminished value of their vehicles not compensated by the repair of their vehicles.
Inherent diminished value previously ruled not collectible under the standard automobile policy’s first-party coverage
In a prior decision involving an insured suing to collect for inherent diminished value under the collision coverage of the standard automobile policy. The Supreme Judicial Court noted that this insured had sought the difference between the market value of her automobile immediately before the accident and its market value post-collision fully repaired, “premised on the theory that some stigma attaches to the vehicle from its involvement in a prior collision, such that its market value is diminished despite the fact that the vehicle has been restored to its pre-collision physical condition.”
In that case, Given v. Commerce Insurance Company, 440 Mass. 207 (2003), the Supreme Judicial Court denied any recovery under Part 7, collision coverage, for inherent diminished value under the first-party collision coverage in Part 7 of the standard automobile policy’s insuring agreement.
First-party property damage coverage under the standard policy, the SJC ruled, had an upper limit for the amounts payable by the insurer. This provision stated: “In any event, we will never pay more than what it would cost to repair or replace the damaged property.” To the SJC, this policy provision limited the maximum amount payable under first-party coverage to either repairing or replacing the vehicle but not repairing the vehicle and paying for any diminished value.
Supreme Judicial Court allows direct appellate review of the Superior Court’s decision
The plaintiffs suing Safety and Commerce brought a different type of diminished value claim. They sought diminished value damages for third-party property damage claims. However, they lost their cases in the Superior Court. See Agency Checklists’ article of April 7, 2020, “Massachusetts Court Rules 3rd Party Auto Property Damage Claimants Cannot Recover Inherent Diminished Value Damages.
The claimants filed timely appeals of the Superior Court’s adverse decision. By law, the claimants’ appeals were lodged with the state’s intermediate appellate court, the Appeals Court. In the ordinary case, a three-judge panel of the Appeals Court would hear the appeal. After the Appeals Court decided the appeal, an aggrieved party could then file an application for further appellate review to the Supreme Judicial Court. Such applications for further review only have about a five-percent success rate.
In this case, however, the plaintiffs filed a petition to the Supreme Judicial Court requesting that their appeal bypass the Appeals Court to have their case decided by SJC’s seven justices directly. Such petitions are allowed when a case presents a first impression or novel questions of law, which should be submitted for final determination to the Supreme Judicial Court.
The Supreme Judicial Court allowed the plaintiffs’ petition and took the case directly, indicating that at least some of the justices considered the case as one presenting a matter of first impression or a novel legal issue.
The appeal seeks inherent diminished value coverage under Part 4 of the standard policy
The appeal now under advisement by the SJC presents an entirely different legal question than did the suit the Supreme Judicial Court decided under the standard automobile policy for first-party property damage coverage claims. In this case, the critical insurance question that the Supreme Judicial Court will answer is:
- Whether inherent diminution in value damages are recoverable in tort against an at-fault tortfeasor under Massachusetts common-law; and, if so, does Part 4 of the Standard Massachusetts Automobile Policy afford property damage coverage for inherent diminution in value damages payable by an insured to a third-party tort claimant.
There is an entirely different insuring provision under Part 4 of the standard automobile policy than under Part 7. Under Part 4 of the policy, the “Damage to Someone Else’s Property,” Safety and Commerce 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.
To the plaintiffs, “the amount collectible for property damage through a court judgment” includes inherent diminished value. Their written and oral argument focus on the acceptance of such damages in third-party property damage claims in many other states. Also, a highly regarded legal treatise that sets out accepted legal principles, the Restatement (Second) of Torts, seems to support the availability of inherent diminished value damages for property damage claims.
The fundamental argument that the plaintiffs make is that the purpose of tort damages is to make the nonnegligent party whole. Since that principle is the law, according to the claimants, in Massachusetts, the denial of inherent diminished value damages allows the tortfeasor and their insurer to pay less than the law should allow.
The insurers’ argument that a vehicle’s post-accident diminished value is not payable in addition to repair costs
The insurers’ argument, which the Superior Court had adopted, is that a third-party claimant’s measure of damages to their automobile is limited to the necessary repair costs paid by the responsible party’s property damage insurance to restore the vehicle to its pre-accident condition as a result of the repairs.
To these insurers, the only time the damaged vehicle’s diminished value because of the accident would become compensable would be if the vehicle could not be restored to its prior condition through repairs. Otherwise, they argued that Massachusetts law prohibits these claimants, and similar claimants, from recovering both the costs to restore their vehicles to their pre-accident condition and, also, for the vehicles’ supposed diminished value because of the accident caused by an insured.
The insurers’ unequivocal legal position argued to the Supreme Judicial Court was that once a damaged vehicle had been fully restored to its pre-accident state, there is no residual damage upon which a court could base an award of diminished value damages. The only exception would be where the vehicle was unrepairable, and then the value of the loss would be the vehicle’s pre-accident fair market value.
Safety and Commerce’s position supported by two amici curiae
Unsurprisingly, based on the cost of an adverse decision to the Massachusetts automobile insurance industry and other industries with tort liability concerns, three organizations filed amicus briefs supporting the positions of the insurers.
The first organization was the New England Legal Foundation (“NELF”), a nonprofit, public-interest law firm incorporated in Massachusetts in 1977 and headquartered in Boston, whose members and supporters include “large and small businesses… nonprofit communities, law firms, and individuals, all of whom believe in NELF’s mission of promoting balanced economic growth in New England, protecting the free enterprise system, and defending economic and property rights.”
This organization stated this case concerned its members because the case involved “the regulation of business and the principles of tort recovery in Massachusetts.”
The second and third organizations, the American Property Casualty Insurance Association (“APCIA”) and the National Association of Mutual Insurance Companies (“NAMIC”), filed a joint amicus brief in support of Safety and Commerce.
APCIA is a national trade association for home, auto, and business insurers that promotes and protects the viability of private competition for the benefit of consumers and insurers, with a legacy dating back 150 years. APCIA’s member companies write $412 billion in premium, including 68% of all automobile insurance premiums written in Massachusetts.
NAMIC is the largest property/casualty insurance trade group with more than 1,400 local, regional, and national member companies, including seven of the top ten property/casualty insurers in the United States.
The SJC’s decision should take no more than one-hundred and twenty days
The Supreme Judicial Court’s usually render decisions on cases with one-hundred and twenty days. However, depending on the complexity of the matter under deliberation, a decision can take longer. This case presenting questions of law and contract interpretation likely will have a decision within the next four to six months.
The Supreme Judicial Court arguments on the case available here
For a number of years, the Supreme Judicial Court has allowed public access to its arguments through webcasts courtesy of the Suffolk University Law School. To watch the argument click on the image of the Court below. You can advance or speed up the playback. The questioning by the judges, in this case, may give one a good idea of which way the judges may be leaning in their decision.
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
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