NAII Urges Texas Supreme Court to Overturn Diminished Value Ruling

November 1, 2002

The National Association of Independent Insurers (NAII) is urging the Texas Supreme Court to review and overturn a lower court ruling requiring personal automobile insurers to pay diminished value under the terms of an insurance policy.

In the case of American Manufacturers Mutual Insurance Co., et al v.
Schaefer, Gary Schaefer filed a class action lawsuit against several insurance companies seeking a ruling that personal auto policies cover diminished value. The district court granted summary judgment in favor of the insurer, but the Court of Appeals for the Ninth Judicial District reversed that decision. The insurer is now seeking review of that appellate court ruling by the Texas Supreme Court. NAII has filed an amicus brief before the Texas Supreme Court, urging it to grant review of this case.

“Based on the unambiguous policy language and the 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, this case should be overturned,” Monika McGuire, NAII assistant general counsel for Legal Services, said.

The Texas Department of Insurance (TDI) adopts and mandates the use of specific policy forms for automobile insurance in the state. In 2000, the department issued a bulletin stating that an “insurer is not obligated to pay a first party claimant for diminished value when an automobile is completely repaired to its pre-damaged condition. The language of the insurance policy does not require payment for, or refer to, diminished value.”

“To ignore the TDI position on the issue is tantamount to undermining the Texas insurance policy and rate regulatory structure,” McGuire commented.

Within the last few years there have been numerous court decisions
supporting insurers on the issue of diminished value. State supreme and appellate courts in Maine, Delaware, Florida, Alabama, Louisiana, Missouri, and Wisconsin have recently addressed the issue and ruled that diminished value is not recoverable.

“These opinions apply basic principles of contract interpretation that are equally valid in Texas as in other jurisdictions. The policy should be enforced as written and we urge the court to overturn the lower court decision,” McGuire added.

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