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UIM PROPERTY DAMAGE COVERAGE DOES NOT COVER STIGMA DAMAGES AS A MATTER OF LAW!

Division I Differentiates Stigma Damages from Diminished Value damages

Ibrahim v. AIU Insurance Co., ___ Wn. App. ___, ___ P.3d ___ (2013) (Div. I)

by Pamela A. Okano, Reed McClure
Novmber 2013

Facts:

The insured was in an automobile collision while driving his 2007 Lexus. He made a UIM property damage claim. The policy provided that it would pay for property damage caused by an auto accident which an insured was legally entitled to recover from the owner or operator of an underinsured motor vehicle. This insuring agreement was subject to the following limit of liability section:

Our Limit of Liability under this Part C for Property Damage to a covered auto from any one accident is the lowest of:

  1. The actual cash value of the covered auto at the time of the accident, reduced by the applicable deductible and by its salvage value if you or the owner retain the salvage;
  2. The amount necessary to replace the covered auto, reduced by the applicable deductible, and by the salvage value, if you or the owner retain the salvage;
  3. The amount needed to restore the covered auto to its pre-loss condition, reduced by the applicable deductible; or
  4. Any Limit of Liability shown on the Declarations Page for property damage under Part C, reduced by the applicable deductible, and by its salvage value if you or the owner retain the salvage.

The policy had $25,000 per accident UIM property damage limits.

The insured’s Lexus was repaired and restored to a physical condition identical to what it was before the accident. The cost of repair was $18,908. The insurer reimbursed the insured for the cost of repair minus his $500 deductible.

Several months later, the insured made a claim for the vehicle’s diminished value. The insurer acknowledged that diminished value was covered, but cautioned that such damages were only available if they could be proved. The insurer’s letter also stated that diminished value damages could be determined only when the vehicle was sold and that as the vehicle aged, the amount of diminished value decreased.

The insured sued for wrongful denial of his diminished value claim and violations of WAC 284-30-330(1), (6), and (7), and the Consumer Protection Act.

The insurer moved for summary judgment. The insured submitted an expert’s appraisal, which showed a difference in pre-loss and post-repair value of $16,961. The expert explained that the Lexus had never before been in a body shop for any damage repair and that the diminished value was the inherent diminished value of the stigma of a high value car having been in a wreck with substantial structural damage. The expert conceded the vehicle had been restored to its preloss condition and that there was no remaining physical damage after the repair.

The trial court granted the insurer summary judgment, concluding that the policy required only restoration to preloss condition, not to preloss value. The trial court also ruled that the insurer had not violated any WAC or the CPA. The insured’s motion for reconsideration was denied.

Holding:

Division I affirmed. The insured was claiming stigma damages, which were not covered. Diminished value damages are available where a vehicle sustains physical damage in an accident, but cannot be fully restored to its pre-loss condition due to the nature of the damage. In contrast, stigma damages occur when a vehicle is fully restored to its preloss condition, but carries an intangible taint because it was in an accident.

The insured here claimed stigma damages, although he erroneously denominated them as diminished value damages. The two are not synonymous.

To recover UIM benefits, the insured must have a viable claim against the underinsured motorist, which stands in the shoes of the underinsured motorist. The insured here had a viable claim for stigma damages against the underinsured tortfeasor, since the measure of damages for personal property harmed, but not destroyed, may be calculated as the loss in market value of the property following the harm. Thus, the insured is “legally entitled to recover” stigma damages from the underinsured tortfeasor.

However, the insurer had validly limited its contractual liability in its limits of liability provision. Nothing in the UIM statute, RCW 48.22.030, explicitly or implicitly prohibits a limitation on liability to the amount needed to restore the covered auto to its pre-loss condition, reduced by the applicable deductible, as the UIM policy provides. This limitation is no more wrong than the $25,000 limit of liability. Moreover, there is no violation of public policy.

“Preloss condition” must be interpreted in light of the rest of the policy. Even if “condition” were synonymous with “value”—a dubious proposition, the policy makes actual cash value of the covered vehicle at the time of the accident potentially recoverable. If “condition” included “value”, two of the four limits on liability would be identical, as both would allow the insured to recover the cash value of the vehicle at the time of the accident.

An insurer that has a reasonable justification for denying coverage, even if the denial was incorrect, does not commit an unfair or deceptive act or practice under the CPA. Even if the insurer’s actions would other violate the CPA, the policy here limited the insurer’s liability to pay for repairs that would restore the vehicle to its preloss condition, not to its preloss value. The insurer thus had a reasonable justification for denying the claim and did not commit a CPA violation as a matter of law.