News Archive

Email A Friend

More News

April 25, 2024
California Department of Industrial Relations and Cal/OSHA Will Honor Workers’ Memorial Day at Four Events in California on April 28th-29th 2024. Cal/OSHA Joining Partners in Arcadia, Richmond, San Diego and San Francisco.

April 23, 2024
California Division of Workers' Compensation Launches Online Portal for Submission of QME Medical-Legal Reports

April 22, 2024
California Division of Workers’ Compensation Posts Updated Time of Hire Notice

April 22, 2024
Sullivan on Comp Launches ChatSOC. It's an Innovative Chatbot for California Workers' Compensation Professionals Integrated with an Authoritative Legal Treatise

Zalma on Insurance at www.zalma.com has just published an update on Zalma’s detailed work on Diminution in Value Cases.  At www.zalma.com under Zalma on Insurance, you will find the full 25 page article.

A Review of Diminution in Value Cases in the United States – III, How to Achieve the Proper Measure of Damages for Damage to Property, is an update of Zalma’s earlier article on the issue of Diminution of Value cases.

The third installment is his review of how the United States deals with questions of diminution of value when determining how much an insurer must pay for claims to property and how much tortfeasors must pay to those whose property is damaged by their actions. It covers all 50 states, the US and Guam.

The introduction only to that article is published here, below:

Culver City
October 7, 2009
by Barry Zalma
 
The measure of damages should be that amount necessary to compensate the injured party for the damages proximately caused by the conduct of the person causing injury. That measure is often difficult to determine and is seldom able to fit into a hard rule of thumb. Rather, every possible means of providing complete indemnity is required when dealing with tort damages, contract damages, and the proper amount of payment required by a contract of insurance. The courts of the various states and federal jurisdictions do not apply the same rule. To properly understand the issue and to apply the proper remedy requires an understanding of how each state applies, what it believes to be, the proper measure of damages for tort, for contract breaches and for insurance claims situations.

For example, automobile insurance policies usually promise to pay the insured, when an automobile is damaged by collision or some other insured cause, the costs to repair the vehicle or if unrepairable, the actual cash value of the vehicle. Most policies say nothing about the difference in value of a vehicle that is repaired after an accident. Because the policies were silent and only promised repair or actual cash value, it seemed unnecessary to even mention the difference in value before the accident and the value after repairs. Since no promise was made to pay for more than actual cash value or the cost of repair the issue was ignored until the 2001 decision of the Georgia Supreme Court in State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498, 556 S.E.2d 114 (Ga. 11/28/2001).

Mabry caused serious concern among insurers since it awarded the insured both the cost to repair and the diminution in value of the car after it was repaired. Insurers believed this decision was a judicial rewriting of the wording of the policy and generated suits across the country seeking recovery for diminution of value payments in suits against insurers and third-party-defendants. Since Mabry, virtually all of the courts finding no coverage for diminution of value have done so because the word "repair" has a plain meaning that does not encompass repair of diminished market value after the repair is completed. Rather, the plain meaning of repair contemplates physical restoration. Many insurers, to avoid argument, now add to their policies wording that establishes that the insurer does not intend to, nor will it, pay for diminution of value.

When property of any kind is damaged and repaired the resale value of the property can easily be diminished because of the stigma carried by the repair. An automobile is likely to suffer this type of diminution in value after it is damaged in an accident and repaired. The resale value most likely will be less than that for 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.

When the property is insured, the 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 key to recovery of the diminution in value depends on the particular state where the damage occurs, the wording of the insurance policy involved, mandates by state insurance departments, and the holding of the various courts.

With regard to first-party claims by a person insured against an insurer, while it is perhaps arguable, the ISO contract language — specifically the Limit of Liability condition — appears to cover only the actual cash value of the damage or the actual cost to repair the damage. There is nothing in the policy wording that even appears to contractually cover any reduction in market value. Even if the insured could prove the amount of reduction in value collecting from an insurer requires a change in the policy wording.

The policy usually allows the insurer to deduct for "betterment" or depreciation, although the burden of proof is on the insurer to demonstrate such depreciation or betterment. In physical damage claims, the policy would allow the carrier to deduct for an "improvement" in value (i.e., betterment) due to repairs with newer parts, but will not compensate the insured for a reduction in value due to the same accident.

Third-party claims (claims against an insured person for damages done to the property of some third person) for "diminution of value," on the other hand, have generally been found by the courts to be covered by auto insurance since the measure of damage in tort claims (which the insurer promises to pay) is the difference in 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 of value. However, no single measure of damages can serve in every case to adequately compensate an injured party.  For the award of damages to be fair, recognizing that diminution of value is not always accurate, an award of restoration damages must be available to compensate a plaintiff fully for damages to real property when diminution in value fails to provide an adequate remedy.

The general rule in tort cases where one party damages the property of another, the measure of damages is not the cost of repair of the property but, rather, the standard measure is the difference between the value of the property before and after the injury, or the diminution in value--unless the cost of repairing the injury and restoring the premises to their original condition amounts to less than the diminution in value of the property, and then the cost of repair is the proper measure of damages. If the cost of restoration will exceed such diminution in value, then the diminution in value of the property is the proper measure. That rule seems to be in flux and most courts seem to be moving toward a more flexible rule where the measure of damages is considered the amount necessary to compensate the injured party for the damages proximately caused by the conduct of the person causing injury regardless of the method used to calculate those damages.

There is a disparity between the various states on the subject. Some apply the rules strictly, some apply the general rule of fairness while others apply the rule in one way when dealing with tort damages, another when dealing with contract damages, and a third when dealing with insurance claims.

***

The rest of the article explains how the various states deal with the issue of the proper measure of damages to achieve complete indemnity.  Editor

Readers can read this article in its entirety at www.zalma.com under Zalma On Insurance.  Readers can write to Barry Zalma, Attorney At Law, at zalma@zalma.com. 

Readers can write to Editor Lonce LaMon at lonce@adjustercom.com