Diminished Value in North Carolina
In addition to “bad faith,” insurance companies dislike to hear the words “Diminished Value.” What is Diminished Value, and how is it really determined? In reality, it is immediate—NOT the residual or inherent—Diminished Value. Immediate Diminished Value is the difference in resale value of a vehicle immediately before damage has occurred and immediately after damage has occurred (prior to repair). Most jurisdictions (courts) will use this standard as the primary measure of damage when vehicle owners seek reimbursement for damage from a negligent party. Because courts are rarely the chosen venue for recovery of property damage, the standard of “Immediate Diminished Value” is rarely employed in resolving Diminished Value claims.
According to N.C.P.I. – Civil 106.61 Property Damages – Diminution in Market Value (Replacement May 2000):
The TRUE MEASUREMENT of Diminished Value in North Carolina is:
(1) “The actual property damages are equal to the difference between the fair market value of the property immediately before it was damaged and its fair market value after it was damaged.”
(2) The “fair market value of any property is the amount that would be agreed upon as a fair price by an owner who wishes to sell, but is not compelled to do so, and a buyer who wishes to buy, but is not compelled to do so.”
(3) “Evidence of [estimates of the cost to repair] (and) [the actual cost of repairing] the damage to the plaintiff’s property may be considered by you in determining the difference in fair market value immediately before and immediately after the damaged occurred.”
Who is the potential buyer of the damaged vehicle?
The potential buyer of a damaged vehicle is:
(1) A vehicle salvage yard that will resell the non-damaged parts of the vehicle,
(2) A used-car dealer who is in the business of buying damaged vehicles and having them repaired for resale,
(3) Salvage vehicle re-builders, and/or
(4) Experienced auto-body repair technicians.
When assigning a value to the damaged vehicle, the buyers will consider the year, model, type of vehicle and the type of damages the vehicle sustained.
New Diminished Value Law in North Carolina
G.S. 20 279.21 on Diminished Value in North Carolina (http://www.ncleg.net/Sessions/2009/Bills/Senate/PDF/S660v7.pdf) is “An Act to Provide an Alternative Method of Determining Property Damages as a Part of Motor Vehicle Liability Insurance.”
First, I would like to say the way the new law is written, it will cause more work on the appraiser’s part and in turn, it will drive up the cost of Diminished Value appraisals. In addition, the auto insurer can still reject the amount of Diminished Value determined, which can force the matter to be settled in court. The nice thing about this new law is that it reinforces the “N.C.P.I.─Civil 106.62 Property Damages─Diminution in Market Value,” as I have shown above, and I’ll repeat here:
(1) “The actual property damages are equal to “the difference between the fair market value of the property immediately before it was damaged and its fair market value after it was damaged.”
G.S. 20 279.21 (1) “The claimant and the insurer fail to agree as to the difference in fair market value of the vehicle immediately before the accident and immediately after the accident;” and… [continued in (2) below].
The second thing I like about this new law is that it forces auto insurers to recognize the National Automobile Dealers Association Pricing Guide Book on vehicle values. Many auto insurers refuse to recognize the NADA guide when there is a payment for a total loss. Auto insurers will use other vehicle valuations that are not available to the public and are generally $1,500 or more under the NADA value of the vehicle.
[G.S. 20-279.21, continued:]
“The difference in the claimant's and the insurer's estimate of the diminution in fair market value is greater than two thousand dollars ($2,000) or twenty-five percent (25%) of the fair market retail value of the vehicle prior to the accident as determined by the latest edition of the National Automobile Dealers Association Pricing Guide Book or other publications approved by the Commissioner of Insurance, whichever is less, then on the written demand of either the claimant or the insurer, each shall select a competent and disinterested appraiser….”
NO MORE Inherent Diminished Value is the result of this law, as I see it. I have to wonder how auto insurers are going to handle this situation in determining a vehicle’s Diminished Value. I expect they will keep doing business as usual, refusing to recognize the new law. So when the auto insurer claims your vehicle’s diminished value is X amount, just ask them to show you how they came up with their numbers. If they say, “It’s a percentage of the repair cost,” or “It’s a percentage of the vehicle’s value” or they use the “Georgia 17C formula,” then tell them no thank you and just follow the new law.
Select a Competent and Disinterested Appraiser
When seeking out a Diminished Value company/appraiser, be careful of that appraisal company and their appraiser. Online appraisal companies cannot see the repairs made to your damage-repaired vehicle; they can only assume the repairs were made properly.
Other appraisal companies and their appraisers work mostly for insurance companies and follow those particular insurance companies’ guidelines in determining the diminished value to your vehicle.
The appraiser will be there generally no more than fifteen minutes—if that long—inspecting the repairs made to your vehicle. The appraiser may take some pictures of your vehicle and then leave. The appraiser may also make some comments about some minor flaws in the repairs, but never anything critical—they never do and never will.
Many vehicles inspected by CSI-NC for Diminished Value, after other so-called DV Appraisers inspected them, were actually found unsafe to drive and/or were actually vehicles that were total-loss repaired vehicles. So be careful in selecting a DV appraiser when you file your claim.
Two Other Forms of Diminished Value
Insurance-Related Diminished Value results when insurance company claims adjusters or their independent adjusters, either intentionally or unintentionally, omit needed repairs from an accident victim’s settlement. It may also occur when sufficient payment isn’t made to allow shops to perform repairs as a carmaker intended.
Repair-Related Diminished Value includes any additional amounts by which the resale value of a subject vehicle may be further reduced because of poor or shoddy repairs. This could include anything from minor cosmetic imperfections to major structural defects.
First-Party Diminished Value in North Carolina
The NCDOI Quoting the N.C. Attorney General’s Office:
"Various proponents of first party recovery of diminished value in North Carolina have cited the case of Pierce v. American Fidelity Fire Insurance Company, Inc., 240 N.C. 567, 83 S.E. 2d 493 (1954) as support for the proposition that diminished value is recoverable after repairs are made in a first party situation. In that case, however, the repairs made to the vehicle were severely inadequate to restore the vehicle's pre-accident condition. Because the repairs made did not restore the pre-accident condition of the vehicle, Pierce v. American Fidelity Fire Insurance Company, Inc. should not support the recovery of diminished value when the repairs are adequate to restore the vehicle to its pre-accident condition."
Emails to the NCDOI About First-Party DV
I received a forwarded email from my good friend Dennis Howard, executive director of the I-CAN Network, that came from the North Carolina Department of Insurance. I have been trying since 2005 to get a statement from both the NCDOI and the NC AG’S office. I am so glad that Dennis was able to get this response when I could not.
From: Icanfamily@aol.com [mailto:Icanfamily@aol.com]
Sent: Thursday, May 10, 2007 3:21 PM
To: John Tally
Subject: Diminished Value
Dear John Tally:
This is in reply to your email inquiry, of this date, wherein you inquired as to why our web site expresses the opinion that Diminished Value should be covered by insurers, in favor of their own policyholders, there in North Carolina.
On 09/22/1954 the North Carolina Supreme Court defined an insurer's duty to pay Diminished Value to their own policyholders in the matter of Pierce v American Fidelity Insurance... [240 NC 567] and [83 SE 2d. 493].
According to our researchers, there in North Carolina, that case law precedent still stands─unmodified─though now conflicted by the actions of your North Carolina Department of Insurance.
In 2004, your department "Approved" the ISO Diminished Value Exclusionary Endorsement, in effect, overriding the law set by your North Carolina Supreme Court.
Can you explain why your NC/DOI felt they had the authority to nullify existing state law?
This has the potential of becoming a major issue.... Would like your side of the story.... Would be happy to include your response as an addendum to the text we already have published to our web site.... Said addendum would include a copy of your email inquiry, this reply and any response we receive hereto.
Respectfully submitted,
J. D. Howard
iCan / Executive Director
This text reprinted with permission of the Insurance Consumer Advocate Network.
N.C. D.O.I Email Statement
Dear Mr. Howard:
Thank you for your May 10, 2007, email response to John Tally (copy below).
The Pierce v. American Fidelity Fire Insurance Company, Inc. is a 1954 case which involved a plaintiff/claimant whose automobile was never properly repaired. The precedential effect of the Pierce case to cases involving different facts and different policy language is unclear. Because of questions concerning the precedential value of this case, it should be noted that NCDOI requested an opinion from North Carolina's Attorney General's Office in 2005 regarding whether diminished value was recoverable in a collision where the covered car had been adequately repaired but suffered a loss of value as a result of the accident. The advisory letter received from the Attorney General's Office stated, in part, as follows:
"Various proponents of first party recovery of diminished value in North Carolina have cited the case of Pierce v. American Fidelity Fire Insurance Company, Inc., 240 N.C. 567, 83 S.E. 2d 493 (1954) as support for the proposition that diminished value is recoverable after repairs are made in a first party situation. In that case, however, the repairs made to the vehicle were severely inadequate to restore the vehicle's pre-accident condition. Because the repairs made did not restore the pre-accident condition of the vehicle, Pierce v. American Fidelity Fire Insurance Company, Inc. should not support the recovery of diminished value when the repairs are adequate to restore the vehicle to its pre-accident condition."
This was an advisory letter to NCDOI and should not be construed as legal advice to any third parties. Private litigants or claimants should obtain their own independent legal advice from their personal attorneys in determining whether the Pierce case can be applied to the individual facts of their cases and insurance policies to argue for diminished value.
With respect to your questions concerning current policy language, it should be noted that it is the North Carolina General Assembly that decides whether or not to mandate coverage for diminished value in insurance automobile policies. To date, the General Assembly has not mandated coverage for diminished value in North Carolina and has not required North Carolina automobile insurance policies to include language covering diminished value.
In North Carolina, Part D (Coverage for Damage to Your Auto) of the N.C. Rate Bureau’s current Personal Automobile Policy Form reads, in part, as follows:
"LIMIT OF LIABILITY
Our limit of liability will be the lesser of the:
1. Actual cash value of the stolen or damaged property;
2. Amount necessary to repair or replace the property with other property of like kind and quality.
This amount does not include any reduction in the value of the property after it has been repaired, as compared to its value before it was damaged."
With respect to the ISO endorsement you mentioned that was purportedly approved by NCDOI in 2004, we could find no record thereof. However, you may have been referring to an exclusion in the physical damage coverage for a covered automobile in ISO’s commercial coverage form, rather than the Rate Bureau’s personal automobile policy form. Subsection B.5. of ISO’s exclusions to physical damage coverage for a covered automobile under its commercial coverage form currently reads as follows: "We will not pay for 'loss' to a covered 'auto' due to 'diminution in value.'"
Even though the North Carolina General Statutes do not mandate coverage for diminished value in North Carolina, NCDOI has worked within the current statutory framework and promulgated North Carolina Administrative Code Title 11, Chapter 4, Section .0421(5). This provision reads, in pertinent part, as follows:
"The commissioner shall consider as prima facie violative of G.S. 58-3-100 and 58-63-15(11) failure by an insurer to adhere to the following procedures concerning loss and claim payments when such failure is so frequent as to indicate a general business practice:
(5) If a release or full payment of claim is executed by a third party claimant, involving a repair to a motor vehicle, it shall not bar the right of the third party claimant to promptly assert a claim for diminished value, which diminished value was directly caused by the accident and which diminished value could not be determined or known until after the repair or attempted repair of the motor vehicle. Claims asserted within 30 days after repair for diminished value shall be considered promptly asserted."
I hope that this answers your questions. We are not requesting that this be posted on your website, but do provide you this information to respond to your individual inquiry. Thank you.
Bob Lisson, Ph.D.
Deputy Commissioner, Consumer Services Division
North Carolina Department of Insurance
Email: blisson@ncdoi.net
Phone: (919) 807-6751
Fax: (919) 733-0085
Limits of Liability
All personal auto-insurance policies contain a provision for collision coverage, and within the provision is a very important section called the Limits of Liability. Many people whom I have spoke to have no idea what is even in their personal auto policy because they never took the time to read it. Even if they do read it, most vehicle owners have no idea what the policy language means—they simply trust that their policy covers any eventuality. After all, that is why they pay exorbitant premiums. But every consumer and legal professional needs to understand that AUTO INSURERS NEVER HONOR THIS LEGAL CONTRACT. Specifically, under the Limits of Liability, the insurer promises to pay the following. The language below is from the North Carolina Rate Bureau:
Our limit of liability will be the lesser of the:
1. Actual cash value of the stolen or damaged property; or
2. Amount necessary to repair or replace the property with other property of like kind and quality.”
This amount does not include any reduction in the value of the property after it has been repaired, as compared to its value before it was damaged."
What are the definitions of “amount necessary,” “repair or to replace” and “like kind and quality”? In 2007, I began to research these important words. What I came up with was court case cites from “Diminished Value” lawsuits. In these lawsuits, the plaintiffs never complained of “inadequate repairs, omitted necessary repairs and repair procedures.” The courts gave different opinions on “whether or not” diminished value was due. Following are different court definitions from an Illinois Appellate Court case “Mills v Allstate,” where the court defines “repair or replace” along with “like kind and quality,” yet hardly anything on the “amount necessary.” The complete text will be found in the case citations reference section. I have been unable to find any North Carolina cases or law with any definitions.
Amount Necessary
“The phrase ‘repair or replace the property with other of the like kind and quality’ clearly limited the insurer’s liability to a monetary amount necessary to repair the car’s function and appearance, not value); O’Brien, 785 A.2d 281.”
Hmmm, let me see here, the insurer’s liability is clearly limited to a monetary amount necessary to repair the car’s function and appearance. Well, there is no doubt in my mind that the “insurer limits the amount of money” they pay toward any repairs to damaged vehicles. I will be showing you just how the insurer “limits the money” for the repairing of their insurers and third-party claimants. I can assure you the insurer and/or Direct Repair shop never “discriminates against either party” in shorting the actual cost of repairs.
Repair
("Repair" means "to restore by replacing a part or putting together what is torn or broken"); Black's Law Dictionary 1298 (6th ed. 1990) ("Repair" means "[t]o mend, remedy, restore, renovate" or "[t]o restore to a sound or good state after decay, injury, dilapidation, or partial destruction"); Webster's Third New International Dictionary 1925 (1993).”
Replace
("Replace" means to "restore to a former place, position, or condition"); Black's Law Dictionary 1299 (6th ed. 1990) ("Replace" means "to restore to a former condition.") By their definitions and the common understanding of the terms, "repair" and "replace" mean to restore something to its former condition, not to its former value. See Allgood, 836 N.E.2d at 247-48.”
Like Kind and Quality
"’[L]ike kind and quality’ refers to ‘replace,’ not ‘repair[,]’ which encompasses the notion of restoring property to its former condition. Only to the extent parts are replaced does a ‘repair’ entail ‘property of like kind or quality.’ To say one would repair an item with goods of like kind or quality is simply not correct English. An item of property (or a part of that item) is 'replaced' with other property, but it is 'repaired' with tools and labor.
“’[L]ike kind and quality' unambiguously refers only to replacement, not to repairs, and the verb 'restore' appears nowhere in the policy." Allgood , 836 N.E.2d at 247-48.”
Based on the above-stated court-case definitions, I would have to say that every vehicle repaired today IS NOT restored to its pre-accident condition. Auto insurers NEVER PAY and NEVER WILL PAY to have their insured’s damaged vehicle repaired even remotely close to its pre-accident condition. Auto insurers and DRP shops OMIT so many necessary repairs, repair procedures and materials that the vehicle’s value will ALWAYS BE DIMINISHED! Who knows, your own insurer may have to buy your damaged-repaired vehicle back if you can show proof that they did not honor the Limits of Liability by having INADQUATE REPAIRS. The choice is yours—you pay for insurance coverage and to have the repairs made correctly, so get your money’s worth. Pursue your rights to the fullest extent of the law.