Mass. High Court Rules Auto Insurers Must Pay For Inherent Diminished Value


Anybody who’s seen a Carfax commercial may suspect that a vehicle that’s been involved in a crash is worth less even after it is repaired.

Massachusetts auto insurers are now required to compensate third-party claimants for those losses. The state’s highest court ruled Tuesday that standard auto policies issued in Massachusetts require compensation for “inherent diminished value.”

“Because the plain language of part 4 of the standard policy does not limit recovery to merely repair or replacement costs, such recovery must compensate a claimant for any loss of value the claimant incurred as a result of a collision, offset by the increase in value that may occur from repairs to the vehicle,” the Massachusetts Supreme Judicial Court said in a unanimous decision written by Justice Serge Georges Jr.

The supreme court considered two consolidated lawsuits filed in 2017 against Commerce and Safety Insurance Co. on behalf of three policyholders and all others “similarly situated.” The trial court rejected the class action and granted summary judgment in favor of the insurers.

The high court reversed those rulings and remanded the case to the trial court determine the amount of lost value, if any.

Commerce Insurance Co. warned during oral arguments that such a decision would “cause a seismic shift” and “economically destabilize” the insurance marketplace. The American Property and Casualty Insurance Association and the New England Legal Foundation, which advocates for free market principles, had filed amicus briefs supporting the defense.

Kevin Powers

But Mansfield attorney Kevin J. Powers, who wrote an amicus brief in favor of the plaintiff for the Massachusetts Academy of Trial Attorneys, said the decision simply keeps up with the times. He said his brief specifically mentioned Carfax and the ability of consumers nowadays to quickly look up a vehicle’s history. Access has been growing over time. Powers’ brief cites a New York Times article that reported as late as 2003 Carfax had vehicle accident data in only half of the states.

“This is a serious change in the technology of the marketplace,” Powers said in a telephone interview. “As a practical matter, this is the law catching up to technology.”

Powers said the Restatement of Torts, a treatise published by the American Law Institute that documents trends in common law, has recognized the right for claimants to be compensated for inherent diminished value since the 1930s.

Insurers had reason to believe they would win the battle. In 2003, the supreme court ruled in Given v. Commerce that a first-party claimant was not entitled to compensation for inherent diminished value.

The supreme court’s opinion, however, says the Given decision concerned a first-party claimant who sought coverage under the sixth edition of Part 7 of the standard Massachusetts Insurance policy. The standard policy has been changed since then, and anyway the claimants in the consolidated cases against Commerce and Safety sought compensation under Part 4 of the 2008 standard policy.

Part 7 of the sixth edition required a claimant to choose either to repair the damage or to receive compensation for the difference between the value of the vehicle before the crash and the value after. Part 4 of the 2008 edition permits a third-party claimant to recover “the amounts [the claimant] is legally entitled to collect for property damage through a court judgment or settlement,” according to the opinion.

The opinion says that Safety admitted that inherent diminished value may be suffered in some cases and that the amount of damage may be quantifiable.

“Moreover…numerous other states recognize and permit recovery of IDV damages,” the court said.

The opinion does not state whether it applies to first-party claims and Powers said he was not ready to offer an opinion on whether it should.

The ruling wasn’t a total loss for the insurer. The court found that Commerce’s denial of diminished value claims did not violate consumer protection laws because its reasoning was based on its understanding of the meaning of the policy.

The New England Legal Foundation focused on that part of the court’s opinion when asked to comment Tuesday.

“The court ruled correctly in denying the plaintiffs’ consumer protection claims because it found that the insurers acted in reasonable good faith when denying the claims for inherent diminished value,” staff attorney John Pagliaro said in an email. “We are pleased if we helped to persuade the court that the insurers had credible, good faith arguments for taking that position.”

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