Grothe v. Kushnivich, 521 P.3d 228 (Wash. App. 2022)
One by one, states have begun to recognize a vehicle owner’s third-party claim for residual diminished value damage, or “stigma damage”, which is 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. Given two identical vehicles on a car lot, the one never damaged is preferable to the one that has been damaged and repaired, and is therefore, worth less. But despite this, a surprising number of states have not yet decided on whether they will allow recovery of this residual damage from a third-party tortfeasor.[1] On December 6, 2022, the Washington Court of Appeals decided the case of Grothe v. Kushnivich, joining the growing ranks of states which allow recovery for post-repair residual diminution in value of a damaged vehicle.
In Grothe v. Kushnivich, Mark Grothe bought a new Volvo and had it shipped from California to his home in Washington by Victor Kushnivich.[2] Along the way, Kushnivich’s truck was involved in an accident, and Grothe’s car suffered extensive damage. Grothe’s insurance company, Farmers, paid to repair the Volvo, and it recovered the repair costs in a subrogation claim against Kushnivich’s insurance company. After the vehicle was repaired by Farmers, Grothe sued Kushnivich for “physical damage to the vehicle involved in the collision, the cost to repair said damage, loss of use, rental expenses, storage costs, reduced fair cash market value of the damaged property, and other out of pocket expenses.” Grothe also put everybody on notice that he was not going to honor a setoff defense to his claim based on the fact that Kushnivich’s liability carrier had already paid Farmers for the repairs to his vehicle.
Kushnivich moved for summary judgment, arguing that Grothe’s entire negligence claim was preempted by the “Carmack Amendment.”[3] This federal law was enacted in 1906 as part of the former Interstate Commerce Act and intended for it to provide the exclusive cause of action for loss or damage to goods arriving by interstate transportation by common carrier.[4] Kushnivich also moved for summary judgment based on (1) Farmers had already paid for the repairs and any recovery for damage to the vehicle would amount to a double recovery, (2) Grothe did not file a notice of claim and (2) Washington did not recognize or allow for recovery of the diminished value of a repaired vehicle.
Grothe provided Kushnivich with experts’ reports on diminished value and loss of use damages. Grothe’s expert concluded that the Volvo’s value was diminished due to “buyers’ aversion to purchasing a vehicle that has residual physical damage.” The report explained that some factory processes cannot be replicated in a body shop and that some repaired parts, such as metal that was bent and reshaped, “are never as strong at the molecular level as they were before they suffered damage.” The report stated that the Volvo’s pre-loss value was $44,994 and its post-loss value was $27,465, for a diminution in value of $17,529. The same expert provided a separate report that concluded Grothe lost $93 per day for the 105 days the Volvo was in the shop being repaired, for a total of $9,765.
The trial court had a difficult time with the idea of allowing recovery for diminished value following repairs rather than the plaintiff choosing diminished value as a measure of recovery before he had his car repaired, and she granted the defendant’s motion to dismiss the case. The plaintiff appealed and the Court of Appeals was asked to determine two issues:
- Whether recoverable damages include loss of use while the vehicle was being repaired, and
- Whether recoverable damages include diminished value of the vehicle after it was repaired?
The Court of Appeals affirmed the dismissal of the plaintiff’s negligence claim and remanded the case to allow him to amend to assert a claim under Carmack. More importantly, however, the court held that the Carmack Amendment provides the cause of action, but applicable state common law provides the measure of damages, and Washington law does allow for recovery of both loss of use and diminished value damages. This is the first time a Washington court has acknowledged third-party diminution in value damages.
The Court of Appeals said that Washington law measures property damage by a three-part analysis:
If the property is a total loss the measure of damages is the value of the property destroyed or damaged. This is its market value, if it has a market value. If the property is damaged but not destroyed, the measure of damages is the difference between the market value of the property before the injury and its market value after the injury…. If the property does not have a market value, then if a total loss, the measure of damages is the cost to replace or reproduce the article. If it cannot be reproduced or replaced, then its value for the owner may be considered in fixing damages.[5]
It went on to state that:
Grothe’s claim of damages for diminished value is not a double recovery. If the evidence shows his repaired Volvo has a lower market value than the new Volvo he purchased, recovery for the difference is proper.
Finally, the court clarified that loss of use may be measured by (1) lost profit, (2) cost of renting a substitute vehicle, (3) the rented value of the plaintiff’s own vehicle, or (4) interest.
The term “diminished value” can be confusing because 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. This is the diminished value element of damages which is now recoverable in Washington. A chart depicting the various types of diminished value and an overview of the law in all 50 states regarding the recoverability of inherent diminished value (first-party and third-party) can be found HERE.
For any questions on auto collision subrogation or the damages recoverable in any of the 50 states, please contact Nancy Case at ncase@mwl-law.com.
Nancy A. Case is an insurance litigation trial attorney and partner at Matthiesen, Wickert & Lehrer, S.C. and concentrates her practice on ERISA and non-ERISA subrogation, litigation, and employee benefits plan drafting and compliance. Nancy is licensed in Wisconsin, Illinois, and Washington State, is a member of the Illinois Trial Bar, and is admitted to numerous federal courts throughout the country.
[1] Alabama, Delaware, District of Columbia, Hawaii, Idaho, Maine, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, Rhode Island, South Dakota, Washington, and Wyoming have still not recognized these stigma tort damages, despite the fact that these damages are very real.
[2] Grothe v. Kushnivich, 521 P.3d 228 (Wash. App. 2022).
[3] 49 U.S.C. § 14706 et seq. Carmack constitutes a complete defense to common law claims of negligence alleging all manner of harm arising from property damage in interstate commerce; it completely preempts state law claims
[4] Hall v. N. Am. Van Lines, Inc., 476 F.3d 683 (9th Cir. 2007).
[5] Sherman v. Kissinger, 195 P.3d 539 (Wash. App. 2008); McCurdy v. Union Pac. R.R., 413 P.2d 617 (Wash. 1966).
