Ind. 'Diminished Value' Class-Action Case Could Set Dangerous Precedent, Insurers Argue

September 14, 2004

Indiana Supreme Court justices should carefully consider the impact that a class-action case regarding compensation for the diminished value of a vehicle could have on numerous insurance policies and premiums—and ultimately reject the lawsuit, according to an amicus brief filed this month by a coalition of insurance industry lobbyists.

In Christina Allgood v. Meridian Security Insurance Co., the Court of Appeals held that Meridian's auto insurance policy requires Meridian to pay not only the cost of repairs, but also an additional amount for the "diminished value" that damaged vehicles allegedly may suffer even after being completely and properly repaired.

However, insurers argue that Meridian's policy language explicitly limits its liability to either the vehicle's actual cash value or the amount necessary to repair or replace the vehicle's damaged parts with repair parts of like kind and quality, whichever is less.

The Des Plaines, Ill.-based Property Casualty Insurers Association of America, in conjunction with the Insurance Institute of Indiana and other industry trade groups, filed an amicus brief in support of Meridian because the Court of Appeals' decision "not only creates unnecessary, cumbersome new law in Indiana, but also contradicts the strong national trend rejecting 'diminished value' claims," according to the brief.

Diminished value is the difference between the market value of a car before it has been in a collision and its value after it has been repaired.

"Only 10 states recognize the concept of diminished value, and Indiana shouldn't take that route," said Robert Hurns, PCI counsel and legislative database manager, in a statement. "There is an overwhelming trend reflected in recent court decisions around the nation that diminished value is not recoverable under policies limiting insurer liability to the cost of repairs. In the past three years, six state supreme courts have rejected coverage for 'diminished value,' and the Indiana Supreme Court should do the same."

Meridian's clear policy language regarding insurer's liability in repairing damaged vehicles is also very similar to many other carriers' auto policies. Therefore, the court's decision is likely to have a far-reaching impact on insurers who offer auto coverage in Indiana and on the premiums they charge to policyholders, Hurns said.

"This case could set dangerous precedent by conceivably forcing insurers to pay diminished value damages for past claims even though they have not received premiums to account for such payments," Hurns said.