Publications
Diminution in Value Update
By: Marc Johnston, December 2008
The Oregon Supreme Court took further steps to define the parameters of first-party diminution in value claims in Gonzales v. Farmers Ins. Co. of Oregon et. al., 2008 WL 4661612. In Gonzales, the plaintiff incurred $6,993.40 in repair costs following an automobile accident. Although Farmers paid the repair costs, the vehicle could not be completely restored to pre-accident condition. The plaintiff brought a class action lawsuit, alleging that his automobile policy required Farmers to pay diminished value if the vehicle could not be restored to its pre-loss condition.
The central dispute in Gonzales was over the meaning of the policy term “repair,” as listed in Farmers policy. Farmers argued that the policy did not cover diminished value because the term “repair” did not incorporate the duty to pay diminished value; only to repair the vehicle. Plaintiff argued that the plain meaning of “repair” encompassed restoration of the vehicle to pre-loss physical condition. If the vehicle could not be restored to pre-loss condition, plaintiff argued, the term “repair” included payment for diminished value.
The court began by pointing out that the interpretation of a first party diminution in value claim would follow the Hoffman analysis, which seeks to determine the parties intent when interpreting insurance policies by examining the ordinary meaning of the disputed term. To determine the ordinary meaning of “repair,” the court sought guidance from its previous decisions in Dunmire Motor Co. v. Oregon Mut. Fire Ins. Co, 166 Or. 690 (1941), and Rossier v. Union Auto Ins. Co., 134 Or. 211 (1930). The Court noted that Dunmire stood for the proposition that “repair” encompassed the restoration of the vehicle to its condition prior to the collision. The court also cited Rossier, which held that if repairs to a vehicle do not restore the vehicle to its pre-accident condition, then the correct measure of damages is “the difference between the fair cash value of the automobile before and after the collision.”
Applying Dunmire and Rossier, and considering dictionary definitions of the term “repair,” the court found that if a “repair” does not or cannot result in complete restoration of the vehicle’s pre-loss condition, the vehicle is not “repair[ed].” In such cases, the court held, diminution in value to a vehicle remains a covered loss under the policy as a result of the collision. In practice, therefore, “repair” requires an insurer to restore an insured’s vehicle or, if the vehicle cannot be restored, to compensate plaintiff for the decrease in market value.
The Court’s holding is helpful to insureds seeking payment for diminution in value. Insurance companies doing business in Oregon should be careful when dealing with these claims. The Gonzales class-action will now proceed against Farmers Insurance Company in Oregon. Plaintiff’s attorneys working on the Gonzales case have been quoted as saying that the suit against Farmers is just the beginning, and they intend to bring similar claims against State Farm and Allstate.
Gonzales appears to be limited to first-party cases. The Gonzales Court noted that it was not called upon to decide the principles applicable to diminished value claims in property disputes of all kinds. Instead, the court noted, its holding in Gonzales was based upon its analysis of terms in an automobile insurance policy, in a situation where the term “repair” was undefined.
For years, plaintiffs in Oregon have been alleging third-party diminution in value claims. These diminution in value claims are brought against an alleged insured tortfeasor, and are often times included with a complaint for personal injuries. These third-party suits are not based on the terms of an insurance policy, as was the case in Gonzales, because there is no contractual relationship between the plaintiff and either the insured or the insurer. As a result, Gonzales has little application to a third-party case.
The Gonzales court also noted that its holding expressed no opinion as to the validity of “stigma claims.” A stigma claim occurs when a plaintiff alleges that the even though the vehicle was repaired to its pre-loss condition, the vehicle has a “supposed negative perception by prospective buyers” regarding the cars worth following a collision. Plaintiffs argue that because there is a stigma, the plaintiff vehicle owner is owed money for a diminution in value. The Gonzales court never reached the issue of stigma because the plaintiff in Gonzales was alleging failure to repair the vehicle to pre-loss condition, which according to the court, amounted to more than a stigma.
Plaintiffs routinely bring diminution of value claims in Oregon, based solely on claims for stigma. There are several arguments against these types of claims, including the fact that stigma damages are speculative and impossible to prove. The Oregon Supreme Court would likely be willing to interpret the validity of a stigma claim, given its recent holding and commentary on stigma claims in Gonzales.