When an auto insurer elects to repair an insured vehicle to its pre-accident condition, the insurer is not also required to pay for any resulting “diminution in value” to the fully repaired vehicle. ( Baldwin v. AAA Northern California, Nevada & Utah Insurance Exchange(2016) — Cal.App.4th —-, 2016 WL 3854444)
Facts
William Baldwin’s almost new Toyota Tundra Pickup sustained structural damage due to a collision caused by other motorists. Baldwin had an insurance policy through AAA Northern California, Nevada & Utah Insurance Exchange (AAA) covering collision-related damages to his pickup. Baldwin thus submitted a first-party claim to AAA.
AAA concluded that Baldwin’s pickup was not a “total loss” and thus had the pickup repaired at a cost of $8,196. Baldwin contended that due to the collision and following the repairs, the pickup’s future resale value was decreased by more than $17,000. However, AAA declined to pay Baldwin for any alleged diminution in value.
Baldwin subsequently filed a lawsuit against AAA asserting claims for breach of contract and bad faith. Baldwin alleged that the insurance policy required AAA to either (1) pay him the full pre-accident value of the pickup or (2) repair the pickup to its original pre-accident condition. Baldwin generally alleged that the repaired pickup did not match its pre-accident condition “with respect to safety, reliability, mechanics, cosmetics and performance,” and further alleged that its future resale value had decreased by more than $17,000.
The trial court ruled that Baldwin essentially was seeking reimbursement for the diminution in value of his pickup following the repairs, and that such loss was not covered under the AAA policy. The trial court thus dismissed Baldwin’s claims against AAA. Baldwin appealed.
Holding
The Court of Appeal affirmed. With respect to the policy’s coverage for physical damage to Baldwin’s car, the policy provided that AAA ” may pay the loss in money or repair … damaged … property.” Italics added. Further, the policy’s “Limits of Liability” provision stated that AAA’s responsibility for physical damage would not exceed “the lesser of” paying “the actual cash value of the … damaged property” or “the amount necessary to repair … the property with similar kind and quality.” Italics added. Thus, pursuant to the terms of the policy, AAA could elect to repair Baldwin’s vehicle to a similar condition if repair costs would be less than the actual cash value of the vehicle at the time of the loss. The court concluded that repairing a vehicle to its pre-accident condition does not mean restoring it to its original condition when it left the factory, because “no repair can ever restore a vehicle to its pristine factory condition,” and applying such a standard would mean “no vehicle could be adequately repaired.” Further, if the insurer could elect to make repairs but still had to pay for diminution in value following repairs, it would basically render meaningless the insurer’s right to elect to repair rather than to pay the actual cash value of the vehicle at the time of loss.
The appellate court also noted that the AAA policy contained a specific exclusion for loss ” caused by diminution in value of your insured car … by reason of a loss otherwise covered by this policy .” Italics added. According to the appellate court, this exclusion was conspicuous, plain and clear and did not violate any public policy. The exclusion thus barred coverage for the diminution in value claim asserted by Baldwin. According to the court, “an insurer may cover the cost of repairing a car damaged in an accident, but exclude coverage for the accompanying decrease in the car’s future resale value.”
Based on the above, Baldwin did not have a viable claim against AAA for either breach of contract or bad faith.
Comment
The Baldwin case is consistent with several earlier California appellate cases, including Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409. Pursuant to these cases, when a first-party auto insurer elects to repair a vehicle to the vehicle’s pre-accident condition, the insurer is not also required to pay for any diminution in value to the vehicle which might remain after the vehicle is fully repaired.