Indiana High Court Rules Against Dimunition of Value

The Indiana Supreme Court last month ruled that insurance policies are not obligated to compensate damaged property for decline in value of the property after adequate repairs have been made. The insurance industry views the ruling as a major clarification of the ambiguity and confusion that has surrounded the diminished value issue for years.

The Insurance Institute of Indiana, the American Insurers Association and other industry groups participated in the case by submitting an amicus brief, arguing that policy language clearly states that diminished value is not included as a “loss.”

The class-action suit, Allgood v. Meridian Security Insurance Company, was brought by a policyholder claiming Meridian Insurance should have reimbursed her for the decline of value of her repaired car after its damage. The trial court ruled in favor of the insurer, but the Indiana Court of Appeals reversed the decision.

The Indiana Supreme Court denied transfer on Oct. 27, finding “that an insurance policy that provides coverage for loss limited to the lesser of the actual cash value or the amount necessary to repair or replace the property with other property of like kind and quality does not obligate the insurer to compensate for diminution in value of the property after adequate repairs have been made.” All five justices voted to deny transfer of the case.

The ruling is a clear victory for contractual language and another stake in the heart of the diminished value concept, said David Snyder, vice president and assistant general counsel for the AIA. Since 1999, 23 appellate and Supreme Court decisions have rejected the diminished value concept, with only three upholding the concept, including the lower appellate court in Allgood, Snyder said.

Because on average, 50 percent of an auto premium involves collision, a trend of recognizing the diminished value concept would have a detrimental effect on rates, he noted. “We understand why there’s pressure to find diminished value as covered, but we are appreciative of courts pretty universally rejecting the concept. It’s a trend that will ultimately benefit consumers in terms of auto insurance cost, consistent with what people realistically expect that their car will be repaired and function well, but the value may be different.”