diminution of value coverage implications presented by bill wilson, cpcu, arm, aim, aam director,...

Diminution of ValueDiminution of ValueCoverage ImplicationsCoverage ImplicationsDiminution of ValueDiminution of ValueCoverage ImplicationsCoverage Implications

Presented by

Bill Wilson, CPCU, ARM, AIM, AAMDirector, IIABA’s Virtual University

Presented by

Bill Wilson, CPCU, ARM, AIM, AAMDirector, IIABA’s Virtual University

Coverage IssuesCoverage Issues

Diminution vs. Betterment

What is Diminished Value?

Sources of Diminished Value

Policy Coverages

Rental Cars

Diminution vs. BettermentDiminution vs. Betterment

1989 Personal Auto PolicyA. Our limit of liability for loss 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.

B. An adjustment for depreciation and physical condition will be made in determining actual cash value at the time of loss.

Diminution vs. Betterment (cont’d)Diminution vs. Betterment (cont’d)

1994-2005 Personal Auto PolicyA. Our limit of liability for loss 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.

B. An adjustment for depreciation and physical condition will be made in determining actual cash value in the event of a total loss.

C. If a repair or replacement results in better than like kind or quality, we will not pay for the amount of the betterment.

Diminution vs. Betterment (cont’d)Diminution vs. Betterment (cont’d)

Example

√ 1992 Mazda 626 sedan

√ Excellent condition

√ $500 collision deductible

√ Repair estimate: $1,800 ($1,000 parts + $800 labor)

√ Vehicle ACV = $4,800

“Betterment Chart” indicatesa 10% annual (80% max.)betterment deduction.

Claim Settlement

Cost to repair $1,800

Less 80% - 1,440

Subtotal 360

Less deductible - 500

Payable $ 0

What is Diminished Value?What is Diminished Value?

Policy Definition

Dictionary Definition

Case Law Definition

What is Diminished Value? (cont’d)What is Diminished Value? (cont’d)

Policy Definition

ISO PP 13 01 12 99Coverage for Damage to Your Auto Exclusion Endorsement

“’Diminution in value’ means the actual or perceived loss in market or resale value which results from a direct and accidental loss.”


Dictionary Definition

“A theory of property damages in which the measure of damages for the breach of a contract or lease is equal to the difference between the value of the property in the condition promised and the value as it exists.” — Merriam-Webster


Case Law Definition

“Rule of damages which provides for difference between ‘before’ and ‘after’ value of property which has been damaged...[if] loss in value to injured party is not proved with sufficient certainty, the affected party may recover damages based on diminution in market price of property caused by breach.”

— Black’s Law Dictionary

Sources of Diminished ValueSources of Diminished Value

Substandard repairs

Non-OEM parts

Psychological or perceived reduction in value

Policy CoveragesPolicy Coverages

First- Party Physical Damage Claims

Third-Party Liability Claims

UM/UIM Claims

Case Law

Policy Coverages (cont’d)Policy Coverages (cont’d)

First- Party Physical Damage Claims

ISO PP 00 01 01 05Personal Auto Policy

INSURING AGREEMENT“We will pay for direct and accidental loss to ‘your covered auto’ or any ‘non-owned auto’….”


First-Party Claims (cont’d)

A. Our limit of liability for loss 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.

B. An adjustment for depreciation and physical condition will be made in determining actual cash value in the event of a total loss.

C. If a repair or replacement results in better than like kind or quality, we will not pay for the amount of the betterment.


First-Party Claims (cont’d)

Non-ISO Personal Auto Policy:

Limit of Liability“If we repair the property, we shall not be responsible for any diminution in value of the property caused by the Loss.…”


Third-Party Liability Claims

“Generally, insurance companies are free to limit coverage in any manner they so desire. However, an insurer is not at liberty to limit its liability and impose conditions upon its obligations that conflict with statutory law or public policy.”

— numerous court cases (e.g., Farmers Seafood v. Progressive (LA 2001)


Third-Party Liability Claims (cont’d)

INSURING AGREEMENT“We will pay damages for 'bodily injury' or 'property damage' for which any 'insured' becomes legally responsible because of an auto accident.”

“'Property damage' means physical injury to, destruction of or loss of use of tangible property.”


UM/UIM Claims

– Real-life example

– UM/UIM statute Does it cover PD? How is “PD” defined?

– Case law: Dunn v. Meridian (IN 2005)


Case Law– State Farm v. Mabry (GA 2001)– Camden v. State Farm (MO 2001)– Carlton v. Trinity Universal (TX 2000)– Siegle v. Progressive (FL 2001)– Rich v. Liberty Mutual (LA 2001)– Given v. Commerce Ins. Co. (MA 2003)

Rental Car IssuesRental Car Issues

Rental Agreements

Personal Auto Policy

Business Auto Policy

The New York “Solution”

Top 10 Reasons to Purchase the Rental Car CDW/LDW

Rental Car Issues (cont’d)Rental Car Issues (cont’d)

Rental AgreementsLoss or Damage to the DOLLAR Vehicle: The renter and any additional drivers are absolutely liable for any loss or damage to the rental vehicle, even if someone else caused it or the cause is unknown, whether due to theft, fire, hail, flood, collision, vandalism, or any other cause, subject to limitations imposed by the law where the vehicle is rented. This liability will not exceed the full value of the vehicle, plus:

– Actual towing and storage charges; – Loss of use; – Diminution in value, regardless of whether the vehicle is repaired or

not; – All rental charges through the date you report the incident if not returnable

or the return date, whichever is later; – Any out-of-pocket expenses incurred by us as a result of the loss or

damage to the vehicle; – A reasonable administrative fee; and – Pro-rata license plate fees, all as allowed by law.


Personal Auto Policy

– Physical damage coverageTransportation Expenses…“Expenses for which you become legally responsible….”

vs.

– Liability coverage


Business Auto Policy

– Physical damage coverageLoss of Use Expenses…“[E]xpenses for which an ‘insured’ becomes legally responsible to pay for loss of use….”

vs.

– Liability coverage


The New York “Solution”

– Establishes statutory limits on the types of losses and expenses and the amounts that the rental company can charge

– Uses a standalone endorsement PP 03 46 to provide coverage for damage to rental cars throughout the U.S., territories and possessions, and Canada


– Loss valuation– Loss settlement– Loss payment– Loss damage waiver– Indirect losses

– Administrative expenses– Other insurance– Excluded autos/areas– Excluded uses/drivers– Others

Top 10 Reasons to Purchase the Rental Car CDW/LDW

Additional ResourcesAdditional Resources

IIABA’s Virtual Universityhttp://www.iiaba.net/VU/Nonmember/CPCU2006.htm

[email protected]

CPCU Journalhttps://webster.cpcusociety.org/source/pubs/index.cfm

http://www.iiaba.net/VU/Nonmember/CPCU2006.htm

mailto:[email protected]

https://webster.cpcusociety.org/source/pubs/index.cfm

diminution of value coverage implications presented by bill wilson, cpcu, arm, aim, aam director,...

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