Opinion
C.A. No.: 99C-05-033-FSS, C.A. No.: 99C-07-325-FSS.
Submitted: September 18, 2000.
Decided: December 18, 2000.
Upon O'Briens' Motion for Partial Summary Judgment DENIED Upon Keystone's Motion to Dismiss GRANTED.
Robert Jacobs, Esquire, Vincent J.X. Hedrick, II, Esquire, 2 East 7th Street, P.O. Box 1271, Wilmington, Delaware 19899. Attorneys for Plaintiffs.
James W. Semple, Esquire, Morris James Hitchens Williams, 222 Delaware Avenue, 10th Fl., P.O. Box 2306, Wilmington, Delaware, 19899. Attorney for Defendant Progressive.
Michael L. Vild, Esquire, The Bayard Firm, 222 Delaware Avenue, Suite 900, P.O. Box 25130, Wilmington, Delaware, 19899. Attorney for Defendant Keystone.
ORDER
This is an insurance coverage case. It concerns what usually is called "diminished value" or, sometimes, "diminution value." Plaintiffs own insured vehicles that were damaged in accidents and repaired. They now contend that they are entitled not only to their repair costs, but they also are entitled to the amount that the vehicles' value has diminished by virtue of having been in accidents and despite their having been repaired. In other words, besides the repairs Plaintiffs demand the cash difference between their cars' pre-accident values and post-accident, post-repair values.
The O'Brien and Connelly cases are not quite close enough to be consolidated, see Super. Ct. Civ. R. 20, but they are similar enough to be litigated together for expedience. See ABB Flakt Inc. v. Nat. Union Fire Ins. Co., Del. Supr., 731 A.2d 811, 814 (1999).
As discussed in detail below, a claim for "diminished value" is relatively novel in Delaware. Several other state courts, however, have considered "diminished value" head on. There is a marked split of authority. As discussed below, the Court agrees with the reasoning behind the decisions which hold that, at least for vehicles damaged in accidents, "diminished value" is not covered.
I.
The facts surrounding the O'Briens' car are a tale of woe. It seems that almost from the time they took title, the car has gone from calamity to calamity. For present purposes, however, the details are unimportant. All that matters here is that the car was stolen and recovered damaged. The O'Briens filed a claim with their insurance company, Progressive. The carrier paid to repair the vehicle, but refused to cover the O'Briens' additional claim for "loss in value."
Similarly, Connelly's car was damaged in an accident and Keystone paid for repair but refused coverage for "loss in value damages." According to Connelly, the uninsured loss was "solely as a result of the fact that the car had been in an accident."
As a matter of fact, Plaintiffs present ample evidence to prove what every automobile owner probably already knows or assumes as true: No matter how good a job the body shop does, a car that has been in an accident will never be the same. Plaintiffs' factual submissions help explain why body shops, try as they might, cannot make a damaged car good as new. For example, an automotive repair expert testified that among the many ways that local repair shops do not measure up to an automobile assembly plant, a local repair shop cannot position replacement parts nearly as accurately as the factory. According to the expert, "The limited facilities of a body repair shop make it impossible to restore the vehicle's dimensional accuracy and surface appearance." Plaintiffs also present evidence tending to confirm that a knowledgeable buyer will not pay as much for a repaired vehicle, even after the repairs were done right. A telephone survey suggests that car dealerships significantly reduce the trade-in value for a sedan with "minor frame damage," regardless of whether "all repairs were professionally completed."
So, as discussed below, for present purposes the Court assumes without deciding that the concept of "diminished value" could be established if this case went to trial. Therefore, the Court accepts, as fact, that because it was damaged in an accident, the owner of a vehicle may suffer financial loss when reselling the vehicle. And that is so, even if the vehicle has been repaired to the best of human ability.
In closing on this point, the Court emphasizes its assumption that the cars were repaired properly and yet, they lost resale value. If the repairs were not first-rate, like the O'Briens actually contend, that represents a claim that is not before the Court. That claim does not involve what this case concerns, "inherent diminished value." Similarly, this case does not concern a car that was repaired, but its owner insists that it was a total loss. Nor does this case have anything to do with repairs using non-original parts.
II.
These cases turn on specific policy provisions. The insurance contract between the O'Briens and Progressive begins with the declaration:
If you pay a premium for collision coverage we will pay for loss to a covered vehicle or non-owned vehicle, when it collides with another object or overturns, subject to the Limit of Liability.
The Progressive policy also provides:
6. "Loss" means sudden, direct, and accidental loss or damage.
Furthermore:
Limits of Liability
1. The Limit of Liability for loss to a covered vehicle or non-owned vehicle will be the lowest of:
a. the actual cash value of the stolen or damaged property at the time of loss, reduced by the applicable deductible shown on the Declarations Page, and by its salvage value if you or the owner retain the salvage;
b. the amount necessary to repair or replace the stolen or damaged property with other property of like kind and quality, reduced by the applicable deductible as shown on the Declarations Page; or. . . .
c. any applicable Limit of Liability or Stated Amount Vehicle Coverage shown on the Declarations Page, reduced by its salvage value if you or the owner retain the salvage.
The insurance contract between Connelly and Keystone is similar to the Progressive policy. The relevant language from the Keystone policy is:
Agreement
We will pay for direct and accidental loss to "your covered auto" or any "non-owned auto," including their equipment, minus any applicable deductible shown in the Declarations . . .
Limit of Liability
A. Our limit of liability for loss will be the lesser of:
1. Actual cash value of the stolen or damaged property; or
2. Amount necessary to repair or replace the property.
B. An adjustment for depreciation and physical condition will be made in determining the actual cash value at the time of loss.
The noteworthy differences between the policies are that the Progressive policy contains the "like kind and quality" language. And the Progressive policy specifically defines "Loss," while the Keystone policy does not. As discussed below, those differences are non-dispositive.
III. A. Plaintiffs
All Plaintiffs claim that the policy's coverage for "loss" includes diminution of value. They argue, "[a]lthough repairs may reduce loss, they will not eliminate it." And the insurance company is "obligated to restore the car to its pre-loss condition, including value." Furthermore, the O'Briens contend that the policy is ambiguous because "there are two portions of the contract which are in dispute." Thus, the O'Briens argue, that the policy is susceptible to different, but reasonable interpretations. Since Progressive wrote the policy, the O'Briens claim that contra preferentum applies. That means the policy should be construed against the drafter and in their favor.
As mentioned, Connelly also claims that coverage for "loss" under the Keystone policy includes "diminished value." He states that his auto sustained damage and he has suffered "direct and accidental loss," which is covered. He contends that "indemnity" requires Keystone to make him whole by paying for "diminished value" since it is an "integral part of, the physical damage to the vehicle." He argues that "diminished value" is covered under "cost of repair," obligating Keystone to pay.
Connelly also maintains that the policy is ambiguous because the parties have different interpretations. Just as the O'Briens argue contra preferentum, Connelly also argues that because Keystone "chose not to define the relevant terms," the Court is obliged to apply contra preferentum. Further, Connelly claims that different courts are interpreting these policies differently. Therefore, he argues that the "split of authority is evidence of ambiguity." He contends that his interpretation, reasonably expecting that "loss" includes "diminished value," is consistent with the policy's Declarations Page. Also like the O'Briens, Connelly claims that the Court must decide if the policy, "in its entirety," is ambiguous. In addition to asking for declaratory relief, Connelly also claims breach of contract, or alternatively, unjust enrichment and he seeks punitive damages. And Plaintiffs argue that the decision here is controlled by Delldonne. In that case, this Court recognized diminished value to a flood-damaged vehicle.
Delledonne v. State Farm Mut. Auto. Ins. Co., Del. Super., 621 A.2d 350 (1992).
B. Defendants
On several grounds, the insurance companies justify refusing coverage. Progressive states that its contract is unambiguous and "[i]t limits liability for damages to the insured's vehicle to the `[a]mount necessary to repair or replace' the damage to the vehicle, and clearly does not include an amount to compensate the insured for diminished value." Moreover, it argues that the jurisdictional split does not, itself, create an ambiguity. Based on the "express" policy provision limiting liability to the "`[a]mount necessary to repair or replace' the damage to the vehicle[,]" Progressive contends that the contract does not cover "diminished value." Because the contract is unambiguous, defendants insist that contra proferentum does not apply. Finally, Progressive claims that the O'Briens fail to allege or prove actual " suffered or incurred diminished value."
Emphasis in original.
Keystone also argues that its policy is unambiguous and clear, and Connelly is not entitled to recover "diminished value." Keystone maintains that the policy contains no express coverage for inherent "diminished value." Thus, Connelly's claim to both repair as well as the cash difference between the car's pre-accident and post-repair market values is not supported by the policy's language. Alternatively, Keystone argues that Connelly "has suffered no legally cognizable damage" since he has not "actually sustained any manifested loss." It contends that such speculative damage is not recoverable on the insurance contract. Lastly, Keystone claims that because Connelly is suing on the contract, "he cannot assert a claim for unjust enrichment," nor seek punitive damages. Progressive and Keystone distinguish Delledonne and reject its reasoning.
IV.
The ordinary standards for dispositive motions are not important now. For the moment, the case presents an almost pure question of law. As discussed above, the Court is assuming that the notion of "diminished value" is real and if Plaintiffs had the chance, they would prove it. Moreover, the Court is ignoring the speculative nature of a"diminished value" claim. In that regard, even in Delledonne, Plaintiffs' strongest case, the Court held that the issue of the amount of the "loss in value" was "one for trial."
Delledonne, 621 A.2d at 354.
Instead, the Court is reading the insurance policies to determine, as a matter of law, whether they provide coverage for "diminished value" in this context. Toward that end, the Court first will decide whether the policies are clear and unequivocal. of course, as discussed below, if they are, the Court must give effect to their plain meaning.
V.
The Supreme Court of Delaware has settled firmly the method for interpreting contracts in general, and insurance contracts in particular: The language of the insurance policy determines the scope of the coverage obligation. . . . When the language is "clear and unequivocal, a party will be bound by its clear meaning." Furthermore:
Rhone-Polenc Basic Chems. Co. v. American Motorists Ins. Co., Del. Supr., 616 A.2d 1192, 1195 (1992) (citing Hallowell v. State Farm Mut. Auto. Ins. Co., Del. Supr., 443 A.2d 925, 926 (1982)).
The proper construction of any contract, including an insurance contract, is purely a question of law. . . . Clear and unambiguous language in an insurance policy should be given its ordinary and usual meaning. . . . Absent some ambiguity, Delaware courts will not destroy or twist policy language under the guise of construing it. . . .
A contract is not rendered ambiguous simply because the parties do not agree upon its proper construction. Rather, a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two different meanings. . . . Courts will not torture contractual terms to impart ambiguity where ordinary meaning leaves no room for uncertainty. . . .
Id. at 1195-1196 (citations omitted). See also ABB Flakt, 731 A.2d at 816.
There is no dispute that the insurance companies promised to pay for "loss," which according to Progressive's policy "means sudden, direct, and accidental loss or damage." If that were all that the Progressive policy said, it would not be clear that it unequivocally covers "diminished value." In that regard, it is arguable that the loss of value after an accident and repair is neither "sudden," nor "direct." As for the Keystone policy, it simply does not define "loss." Just as it is giving Plaintiffs all the favorable factual inferences, the Court will assume that inherent diminution in value due to a collision is a "loss."
The insurance companies' promises to pay for "loss," however, are not open-ended. Both policies clearly provide a limit to the carriers' liability for "loss." For present purposes, the policies' promises to pay for "loss" are limited to "the amount necessary to repair or replace. . . ." The policies do not promise to pay for "diminished value," much less to make the insureds whole.
In light of the express limit of liability language, the only way that the insurance companies can be held liable for "diminished value" is if the Court finds that the word "repair," as it appears in both policies' limits of liability clauses, embraces more than the repair shop's bill. Usually, the idea of a car repair is straightforward. It does not include the actual work plus a supplemental payment to the car's owner. Viewing the policies in their entirety does not inject ambiguity into the policies, either. Fundamentally, the insurance companies have made it clear that they only will cover the repair work.
* * * * *
Plaintiffs rely on cases from around the country. As discussed below, for the most part those cases are distinguishable or unpersuasive. By far, Plaintiffs' strongest authority is a Delaware decision, Delldonne. That case involved a claim for a flood-damaged car's diminished value. In that context, Delldonne held that a policy, similar to the ones here, was ambiguous. Accordingly, Delldonne found:
Delledonne, 621 A.2d at 351.
Id. at 354.
It cannot reasonably be believed that the "repair" of a vehicle which has been flood-damaged with "like kind and quality" is complete upon making basic physical repairs. It is well-known in the insurance industry that automobiles suffer great loss in value as a direct result of their status as flood-damaged vehicles.
Id.
And so, Delldonne concluded that "the loss in value to the plaintiff's vehicle must be added to the cost of repairs. . . ."
Id.
Here, the Court sees a fine but meaningful distinction between automobiles with "status as flood-damaged vehicles" and cars that have been repaired after collisions. Moreover, the Court sees a difference between the postflood, "basic physical repairs," in Delldonne and the repairs provided in this case. The Court understands Delldonne's disappointment with the way her flood-damaged car was repaired. She received: "new carpeting, new door-mounted speakers and new engine computer."
As discussed above, in the context of a collision or other typical damage, what constitutes repair is clear. It is the best a repair shop can do. If the vehicle cannot be repaired, then it must be replaced or the carrier must pay cash under the policy's terms. But the carrier is not contractually bound to repair a collision-damaged vehicle as best as possible and then pay money to cover what cannot be repaired.
As stated above, Plaintiffs rely on other cases from throughout the country. Again, those cases are distinguishable or unpersuasive. For example, Plaintiffs argue Avery v. State Farm Mutual Automobile Ins. Co., which mentions "like kind and quality," but that is in connection with non-Original Equipment Manufacturer "crash parts." It does not address the issue presented here. Similarly Plaintiffs' reliance on Hyden v. Farmers Ins. Exch., is misplaced. Hyden involved bad faith breach of an insurance contract. The dispute between Hyden and his insurer concerned his claim that his car was "totaled" and not repairable. Again, that issue is not before this Court. The O'Briens also provide recent, summary orders that seemingly reach the result that Plaintiffs seek. Those conclusory orders have no precedential value, nor are they helpful.
1999 WL 1022134 (Ill. Cir. 1999).
Id. at *2-3.
2000 WL 1289711 (Colo.App. 2000).
Id. at *1.
Id.
Ward v. Texas Farmers Ins. Co. and Mid-Century Ins. Co. of Texas, Dist. Ct. of Travis County, Texas, 261st Judicial Dist., No. 99-12508, Meurer, J. (Oct. 25, 2000); Mendias v. State Farm Mut. Auto. Ins. Co., Dist. Ct. of Johnson County, Texas, 18th Judicial Dist., No. C199900408, Neill, J. (July 3, 2000); Hassler v. United Servs. Auto. Assoc., Dist. Ct. of Harris County, Texas, 151st Judicial Dist., No. 99-46273, Baker, J. (June 8, 2000); Hall v. Horace Mann Ins. Co., Dist. Ct. of Harris County, Texas, 270th Judicial Dist., No. 99-49972, Gamble, J. (Apr. 10, 2000); Oliver v. Safeco Ins. Co. of Illinois and Safeco Lloyds Ins. Co., Dist. Ct. of Harris County, Texas, 189th Judicial Dist., No. 98-49128, Work, J. (Aug. 24, 1999); Steinberg v. Fireman's Fund Ins. Co., Dist. Ct. of Harris County, Texas, 164th Judicial Dist., No. 97-57919, Kennedy, J. (June 25, 1999).
* * * * *
Defendants, however, also cite national authority. Defendants' authorities are persuasive. The most helpful cases cited by defendants are Johnson v. State Farm Mut. Auto Ins. Co., Townsend v. State Farm Mut. Auto. Ins. Co., Munoz v. Allstate Ins. Co., Ray v. Farmers Ins. Exch., and Canton v. Trinity Universal Ins. Co., While there are differences between those cases and this one, the differences are inconsequential. In Johnson, plaintiff sought recovery for her car s alleged post-accident loss in value. The policy included a liability limitation provision. Johnson claimed that the policy language covered "loss in value." Johnson affirmed the lower court, stating that the policy language was unambiguous and did not require the defendant to "restore the vehicle to its pre-accident condition or to pay the insured the difference in value after the accident as opposed to before." Townsend also found the "words of the policy . . . clear" and the insurer "clearly intended to limit its liability for repairing an automobile damaged in an accident." Granting defendant's motion for summary judgment, Townsend stated, "[a]pplying the generally prevailing meaning of the word `repair' to this policy leads to the conclusion that [insurer] intended to restore the automobile to its former physical condition not its former value." Townsend further held that, "[u]nder these terms the automobile is restored to a useful condition, as near to its former physical condition as possible. These terms do not contemplate restoration of former value."
754 P.2d 330 (Arz. App. 1998).
La. First Judicial Dist. Ct., No. 442, 107-B, Crichton, J. (Aug. 30, 2000).
Munoz v. Allstate Ins. Co., Pa. Super, No. 3475 EDA 1999, (July 3, 2000) (Mem. Op.) (per curiam).
246 Cal.Rptr. 593 (1988).
Texas Appt. Ct.-Houston [14th Dist.], No. 14-99-00825-CV, Frost, J. (Nov. 16, 2000).
Johnson, 754 P.2d at 330.
Id.
Id. at 331.
Id. See also Ray, supra.
Townsend, at 3.
Id.
Id. at 3-4.
In Munoz, plaintiff alleged that her insurer "failed to cover her entire loss because she was not compensated for diminished value." The policy contained "limit of liability" provisions, similar to those here. Munoz held that plaintiff "failed to establish a duty" by merely asserting "that the duty exists based on the absence of express definitions for certain words used in coverage. . . ." The trial court stated payments for diminished value "would not be the norm and cannot be the basis for a reasonable expectation among the public. Munoz does have the right to expect that she receive something of comparable value in return for her premium payment . . . she received [this] when her car was repaired following her accident. Her premium was not calculated with the expectation of anything exceeding that repair."
Munoz, at 2.
Id. at 6.
Pa. CCP, First Judicial Dist., No. 9906-2855, Levin, J. (Nov. 15, 1999).
The main issue in Ray was "whether Ray's collision insurance policy . . .provided coverage for diminution in the market value of his repaired car because of its status as a wrecked car." The policy in Ray, like those here, included "limit of liability" and "like kind and quality" language. The appellate court specifically held that, "[t]o the extent Ray's automobile was repaired to its preaccident safe, mechanical, and cosmetic condition, [defendant's] obligation under the policy to repair `like kind and quality' was discharged."
Ray, 246 Cal.Rptr. at 594.
Id. at 595-596.
Id. at 596.
In Carlton plaintiff claimed that the insurer was "obliged to pay for the inherent diminished value." After Carlton's car was stolen and damaged, he initially claimed that it was a total loss. But, he authorized repair. Despite proper repair, Carlton then claimed that the car's value was directly diminished. Carlton found the policy language unambiguous and affirmed the lower court's grant of summary judgment for insurer. Carlton holds that where an insurer "fully, completely, and adequately `repaired or replaced the property with other of like kind and quality,'" a car's market value diminution due to non-reparable or nonreplaceable factors, such as mileage, "cannot be deemed a component part of the cost of repair or replacement." Canton concludes:
Canton, at 1.
Id. at 2.
Id.
Id.
Id. at 3.
Id. at 15.
Under the "repair or replace" provision of the policy's limit of liability, the insurer's liability is capped at the cost of returning the damaged vehicle to substantially the same physical, operating, and mechanical condition as existed immediately before the loss. This obligation does not include liability for any inherent diminished value caused by conditions or defects that are not subject to repair or replacement, such as a stigma on resale resulting from "market psychology" that a vehicle has been damaged and repaired is worth less than a similar one that has never been damaged. While the insured may well suffer this type of damage as a result of a direct or accidental loss, the plain language of the policy clearly and unambiguously limits the insurer's liability to "the amount necessary to repair or replace with like kind and quality."
Id. at 15-16.
As discussed above, the Court concludes, consistent with the courts in Arizona, Massachusetts, Louisiana, Pennsylvania and the Texas appellate court in the Fourteenth District, that the obligation to repair a damaged vehicle does not include paying the insured for the repaired vehicle's diminished value. Moreover in that regard, the Court does not conclude that the mere split of authority creates or is evidence of ambiguity in the policies. That reasoning is circular and begs the question.
VI.
For the foregoing reasons, O'Brien Plaintiff's Motion for Partial Summary Judgment is DENIED and Defendant Keystone's Motion to Dismiss is GRANTED.