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Martins v. Vermont Mutual Ins. Co., 2019 WL 3818293 (D. Mass. 2019)
A federal district court in Massachusetts has ruled that Massachusetts tort law does not provide for recovery of “inherent diminution in value” damages by a third-party claimant. The Bay State had long been one of only 15 states that do not have any court decisions regarding recovery allowed for diminution in value of a damaged vehicle in a third-party claim. The decision is being appealed but appears to clearly place Massachusetts in the column of states which do not allow for the recovery of such damages from a third-party tortfeasor.
When an automobile is damaged in an accident and then repaired, the resale value may be less than a comparable automobile that has not been damaged. In other words, the damage results in a reduction or “diminution” in the resale value of the automobile. An insured’s claim for this reduction in value may be made against a third party that negligently caused the damage to the insured’s automobile, or it may arise from a first-party claim against the insured’s own physical damage coverage. The term “diminished value” can be confusing. There are three types of diminished value:
- Immediate Diminished Value: This is the loss of value which results immediately after an accident before any repairs are made. It is the difference in market value immediately before and after an accident caused by a negligent tortfeasor.
- Inherent Diminished Value: Also known as “residual diminished value”, this refers to the loss of value of an automobile that remains after it is completely and professionally repaired. It is the loss of value that results from the simple fact that the vehicle has been in an accident. This type of diminished value is also known as “stigma damage.” Given two identical vehicles on a car lot, the one never damaged is preferable to the one that has been damaged and repaired.
- Repair-Related Diminished Value: This refers to the additional loss of value to a vehicle that results from incomplete or poorly performed repairs. It could include simple cosmetic damages which remain after repair or major mechanical or structural deficiencies.
The most common and widely used form of diminished value is Inherent Diminished Value. In addition, there are two types of diminished value claims:
- First-Party Claims: These are claims made by the vehicle owner/policyholder against his or her own insurance company to recover the difference in the value of the vehicle before the collision and value of the vehicle after the damage caused by collision had been repaired. This type of claim is usually governed by contract law and the terms of the insurance policy. When a vehicle is damaged, a policyholder expects to be “made whole” by its first-party property insurer, but an insurer is legally responsible only to pay according to the terms of the policy.
- Third-Party Claims: These are claims made by the owner of a vehicle against a third-party tortfeasor (person other than the insured and insurer) for negligently causing damage to the owner’s vehicle. This type of claim is governed by tort law.
Unlike first-party claims, a third-party diminished value claim involves a tort claim and/or lawsuit filed by a vehicle owner or subrogated carrier against a tortfeasor responsible for causing damages in an accident. Each state evolved its own law of damages over time. In Wisconsin, for example, the tort measure of damages to repairable property was the lesser of (1) repairs costs, or (2) the difference between fair market value of the property immediately before and immediately after the loss. In Wisconsin, the Supreme Court rejected the blanket “lower of the two” rule and announced that in certain cases, it is possible to have both types of damages. Hellenbrand v. Hilliard, 687 N.W.2d 37 (Wis. App. 2004). The Supreme Court noted that, despite having previously assumed that if property is repairable, then repairing the property makes the plaintiff whole, it relied on a “collapsed basement” case to extrapolate that the mandated disclosure of an adverse condition to prospective purchasers could impair market value of the property. If an owner proves that repairs did not restore the vehicle to its pre-injury value, residual diminution in value could be recovered as an element of tort property damages.
In third-party claims for property damage to automobiles because of a collision for which a third party was at fault, the measure of damages is traditionally—but not always—the difference between the market value before and after the collision (“diminution of value”) or the reasonable repair value – whichever is greater. Such third-party diminution claims have generally been found by the courts to be covered by automobile insurance since the measure of damage in tort claims (which the insurer promises to pay) is the difference in the value of the property before the loss and the value of the property after the loss. For example, Texas court cases have found that legal liability for third-party damages includes diminution in value. Ludt v. McCollum, 762 S.W.2d 575 (Tex. 1988); Terminix Int’l, Inc. v. Lucci, 670 S.W.2d 657 (Tex. App. 1984). In New Jersey, however, the measure of damages is the difference between the market value of the vehicle before and after the damage occurred. However, if the vehicle is not substantially damaged and it can be repaired at a cost less than the difference between its market value before and after the damage occurred, the plaintiff’s damages would be limited to the cost of the repairs. Jones v. Lahn, 63 A.2d 804 (N.J. 1949). Both the cost of repair and diminution in value have traditionally been regarded as acceptable methods of proving the amount of damage to property in third-party cases. In R & Y, Inc. v. Municipality of Anchorage, 34 P.3d 289 (Alaska 2001), the Alaska Supreme Court used “diminution in value” as a method of establishing tort damages. The Restatement of Torts § 928 states as follows:
“Where a person is entitled to a judgment for harm to chattels not amounting to a total destruction in value, the damages include compensation for: (a) the difference between the value of the chattel before the harm and the value after the harm, or at the plaintiff’s election, the reasonable cost of repairs or restoration where feasible, with due allowance for any difference between the original value and the value after repairs.”
The following are examples of states which allow recovery for diminution in value of a damaged vehicle in a third-party claim. Arizona: Farmers Ins. Co. v. R.B.L. Investment, Inc., 675 P.2d 1381 (Ariz. 1983); Colorado: Trujillo v. Wilson, 189 P.2d 147 (Colo. 1948); Airborne v. Denver Air Center, 832 P.2d 1086 (Colo. App. 1992); Florida: McHale v. Farm Bureau Mut. Ins. Co., 409 So.2d 238 (Fla. 1982); Georgia: Perma Ad Ideas v. Mayville, 282 S.E.2d 128 (Ga. 1981); Illinois: Trailmobile Division v. Higgs, 297 N.E.2d 598 (Ill. 1973); Indiana: Wiese-GMC v. Wells, 626 N.E.2d 595 (Ind. 1993); Iowa: Halferty v. Hawkeye Dodge, 158 N.W.2d 750 (Iowa 1968); Kansas: Broadie v. Randall, 216 P. 1103 (Kan. 1923); Louisiana: Orillac v. Solomon, 765 So.2d 1185 (La. 2000); Maryland: Fred Frederick v. Krause, 277 A.2d 464 (Md. 1971); New Mexico: Hubbard v. Albuquerque, 958 P.2d 111 (N.M. 1998); New York: Rosenfield v. Choberka, 529 N.Y.S.2d 455 (N.Y. 1988); Oregon: EAM Advertising Agency v. Helies, 954 P.2d 812 (Or. App. 1998); South Carolina: Newman v. Brown, 90 S.E.2d 649 (S.C. 1955); and Virginia: Averett v. Shircliff, 237 S.E.2d 92 (Va. 1977). It should be remembered that diminution in value of a vehicle after repairs have been conducted can be difficult to prove and, in some states, the burden is quite high. EAM Advertising Agency v. Helies, supra. In some cases, it may be necessary to actually sell it in its damaged condition in order to establish its post-crash market value or, at a minimum, engage an expert appraiser to provide a detailed report.
In Martins v. Vermont Mutual Ins. Co., plaintiff Jonathan Martins brought a putative class action against Vermont Mutual Insurance Company, arguing that it improperly failed to pay damages for the “inherent diminution in value” of his car after it was damaged by one of Vermont’s insureds in an accident. Martins contends that an insurer is required to compensate for such a loss under Part 4 of the 2008 Standard Massachusetts Automobile Policy. Both sides filed Motions for Summary Judgment with Vermont Mutual contending that a plaintiff is entitled to recover only the cost to repair the property or the property’s diminished market value, whichever is less and that, therefore, inherent diminution in value damages are not recoverable. The court granted Vermont Mutual’s motion and denied Martins’ motion. An appeal has been filed and is currently pending with the 1st Circuit Court of Appeals.
For a comprehensive chart detailing the law regarding both first-party and third-party recovery of diminution in value damages, see HERE. For questions regarding the recovery of DIV damages, see Mark Solomon at [email protected] or Gary Wickert at [email protected].