Insurer Need Not Pay for Alleged “Diminution in Value” of Automobile After Accident and Full Repair, Where Insurance Policy Expressly Excluded Such Coverage

Kieffer v. High Point Ins. Co., 422 N.J. Super. 38 (App. Div. 2011).  This matter involves three consolidated cases.  In each, one or more insureds sued their auto insurer after their cars had been fully repaired following an accident.  Plaintiffs in each case asserted, on behalf of a putative class, that although the carrier had paid the cost to repair, the insurer had not compensated them for an alleged “diminution in value” of the vehicle that supposedly occurs whenever a car is damaged in an accident, even if the vehicle is fully repaired.  [Disclosure:  I am co-counsel for one of the defendant insurers, New Jersey Manufacturers Insurance Company (“NJM”)].

Each insurer moved to dismiss the complaint against it.  They argued that their respective policies did not require them to compensate for any alleged “diminution in value.”  Moreover, the policies contained exclusions that expressly ruled out payment for “diminution in value” (if it existed). 

The Law Division (Judge Daniel Waldman) granted defendants’ motions to dismiss.  Plaintiffs appealed, and the Appellate Division affirmed the dismissals, largely for the reasons that Judge Waldman gave.  Judge Sapp-Peterson wrote the panel’s opinion.

Judge Sapp-Peterson began her legal analysis by setting forth the standard of review of a decision to dismiss a complaint for failure to state a claim.  Though such motions are to be granted only in “the rarest of instances,” where even a “generous reading of the allegations does not reveal a legal basis for recovery,” the complaint should be dismissed.  The panel found that to be so here. 

Each of the policies clearly and unambiguously limited the insurer’s obligation to payment of the “[a]mount necessary to repair or replace the property with other property of like kind or quality,” as the NJM policy stated, or similar language.  Though plaintiffs asserted that “the varying interpretations courts have ascribed to terms such as ‘repair,’ ‘replace,’ and ‘like kind and quality,’ constitute proof that such terms create an ambiguity in the language of the insurance policies sufficient to withstand dismissal of their complaints,” Judge Sapp-Peterson found that contention unpersuasive.  She quoted at length a Texas appellate decision that discussed the meaning of those terms and concluded that “where an insurer has fully, completely, and adequately ‘repaired or replaced the property with other of like kind or quality,’ any reduction in market value of the vehicle due to factors that are not subject to repair or replacement cannot be deemed a component part of the cost of repair or replacement,” and the insurance policy does not obligate the insurer to provide compensation for such loss of market value. 

Because the policy language was clear and unambiguous, plaintiffs’ argument that their reasonable expectation that diminution in value was covered by their policies failed.  Likewise, Judge Sapp-Peterson dispatched plaintiffs’ assertion of alleged internal conflicts in the policy language.  There was no such conflict, since both the definition of the insurers’ obligation to repair or replace and the express exclusion of diminution in value led to the same result.  Besides, even if the language limiting liability were “general and therefore ambiguous” (contrary to the panel’s finding), “the exclusion provisions are more specific and therefore controlling.”

Plaintiffs asserted, however, that the exclusions were unconscionable and therefore unenforceable.  Applying the four-part test of Rudbart v. North Jersey Dist. Water Supply Comm’n, 127 N.J. 344 (1992), the panel rejected that argument.  Though “[(1) the subject matter of the contract, [(2)] the parties’ relative bargaining positions, [and [(3)] the degree of economic compulsion motivating the ‘adhering’ party,” supported plaintiffs’ view that these policies were contracts of adhesion, that was only “the beginning, not the end, of the inquiry.”  There were no “public interests affected by the contract,” the fourth Rudbart factor. 

Collision coverage is not required by statute, unlike liability coverage.  Thus, policies that exclude some types of collision coverage do not violate public policy.  Plaintiffs cited no “statutory, regulatory or judicial decision requiring inclusion of diminution in value as part of an insured’s collision coverage.”  Instead, their cited cases involved third-party claims against tortfeasors, not first-party actions against insurers.  Plaintiffs simply failed to articulate any harm to the “public” or the “public good” from a contractual provision that excluded coverage for diminution in value, especially since “plaintiffs are not left without a remedy for damages caused to their automobiles.”

Numerous other jurisdictions around the country have reached this same result in comparable cases.  The Appellate Division reached the right result in joining that overwhelming weight of authority.