Oregon Supreme Court Requires Auto Insurer to Reimburse Insured for Residual Diminution in Value
In Gonzales v. Farmers Insurance Company, 2008 Ore. LEXIS 965, 1 (2008), the Supreme Court of Oregon considered the extent of an insurer’s indemnity obligation where repairs failed to restore an insured vehicle to its “pre-accident condition.” Following an accident which damaged the insured’s 1993 Ford pickup, the insured paid $6,993.40, minus the deductible, in repair costs. 2008 Ore. LEXIS at 3. The repairs were sufficient to get the truck back on the road, but the insured contended that, despite the repairs, “[t]he vehicle had a number of problems that did not exist before” the accident. Id. at 21. The insurer did not commence any further repairs and refused to make any payment for residual diminution in value. Litigation followed.
At the trial court level, the insurer successfully moved for summary judgment, contending that “the plain and ordinary meaning of the word ‘repair’ in the policy did not incorporate a duty to pay diminished value.” Id. at 5. At issue was the policy provision limiting the insurer’s liability to “[t]he amount which it would cost to repair or replace damaged or stolen property with other of like kind and quality…” Id. at 6. Naturally, the parties offered competing definitions for the term ‘repair.’ The insured argued that the term “includes restoration of the preloss condition and value of the insured property,” but the insurer argued that the term “refers only to the restoration of the function and appearance of the insured property.” Id. at 8. The Supreme Court found that the sixty-seven year old case of Dunmire Co. v. Ore. Mut. Fire Ins. Co., 166 Or 690 (1941) controlled – and dictated a decision in favor of the insured – because Dunmire interpreted the word “repair” in a “virtually identical” policy provision. Gonzales, 2008 Ore. LEXIS at 17.
The Gonzales Court held: “[U]nder the policy at issue, if an attempted ‘repair’ does not or cannot result in a complete restoration of the vehicle’s preloss condition, the vehicles is not ‘repair[ed],’ and the resulting diminution of value of the vehicle remains a ‘loss to [the] insured car caused by collision’ for which defendants are liable under their policy.” Id. at 18. However, the Supreme Court limited its holding by noting that the decision was based on the subject policy’s terms rather than upon “principles applicable generally to diminished value claims in property damage disputes of all kinds.” Id. at 6. In fact, the Court explicitly stated that nothing in the current decision or in Dunmire “prevents insurers from including a definition of repair in automobile policies that excludes diminished value from coverage.” Id. at 18-19.
The Gonzales decision sets the stage for further litigation over what qualifies as a compensable diminution in value. In Gonzales, the insurer asserted that the insured’s argument “reduced to its essence” would require an insurer “to pay for diminished value that results only from stigma attached to that vehicle because the vehicle has been involved in a collision.” Id. at 20-21. The Court declined to address that argument because the insured had asserted more than just stigma but actual physical problems that did not exist prior to the collision. The Court wrote: “[W]e need not decide whether the policy requires payment for a claim based solely on ‘stigma.’” Id. at 21. Accordingly, a decision on that issue will have to await another day.
