North Carolina Diminished Value Experts / Collision Services Investigators of North Carolina, LLC

First Party Diminished Value

I received a forward 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 where I could not.

Quote 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 thevehicle'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."

Let’s think on all this for a moment. An adequately repaired vehicle has no diminished value under the limits of liability, yet an inadequate repaired vehicle does. When the repairs fail to restore the vehicle's pre-accident condition, then there is DIMINISHED VALUE! INADQUATE ESTIMATES OF REPAIRS, EQUALS INADQUATE REPAIRS!

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’s 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’s 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

blisson@ncdoi.net

From: Icanfamily@aol.com [mailto:Icanfamily@aol.com]
Sent: Thursday, May 10, 2007 3:21 PM
To: John Tally
Subject: Re: 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.

“Limits of Liability”

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.

What is the definition 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 of “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 cites 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 liability is clearlylimited to a monetary amount necessary to repair the car’s function and appearance. Well there is no doubt in my mine that the “insurer limits the amount of money” they pay towards 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 DRP shop never “discriminates either party,” in shorting the actual cost of repairs.

Repair

("repair" means "to restore byreplacing 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 afterdecay, injury, dilapidation, or partial destruction"); Webster's Third New International Dictionary 1925 (1993) .”

Now let us look at the definition on “repair.” According to Black’s Law "repair" means "to restore byreplacing a part or putting together what is torn or broken". As a former auto body technician and collision repair shop owner, does this mean that all damaged parts need replacing? If that is so, it is not being fully adhered to by any auto insurers.

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.”

Looking at the definition of “replace” replace means to, "restore to a former place, position, or condition" according to Black’s Law. Add the definition of “repair or replace” together "repair" and "replace" mean to “restore something to its former condition.”

If all the body shop operators followed the definitions on all first party repairs, they would have a field day and a nightmare tied into one. I can really see insurance companies living up to the definitions of repair or replace. I have no doubt that any insurer and any auto body shop, especially the DRP shops, NEVER honors the “Limits of Liability”.

Like Kind and Quality

"[L]ike kind and quality' refers to 'replace,' not 'repair[,]' which encompasses the notion of restoringproperty 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 orquality 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.”

By the above stated court case sites definitions I would have to say that every vehicle repaired today IS NOT restored to its pre-accident condition. Auto insures, NEVER PAY and NEVER WILL PAY to have their insurer’s damaged vehicle repaired even remotely close to its pre-accident condition. Auto insures 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 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 moneys worth.


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