DOES REPAIR MEAN RESTORATION?

Personal Automobile

Diminished Value

José Gonzales brought a class action lawsuit against Farmers Insurance Company of Oregon and related companies alleging that, when he elected to repair an insured vehicle that had suffered damage and the vehicle could not be completely restored to its pre-loss condition, the insurer was obligated to pay for the amount of the loss of value to the vehicle. The relevant wording of the policy in question provided that the defendants would "pay for loss to [the] insured car caused by collision less any applicable deductibles." "Loss" was defined as "direct and accidental loss of or damage to [the] insured car, including its equipment." The following provision limited liability for the loss:

"Limits of Liability. Our limits of liability for loss shall not exceed: 1. The amount which it would cost to repair or replace damaged or stolen property with other of like kind and quality; or with new property less an adjustment for physical deterioration and/or depreciation."

The following provision described how the loss would be paid by the defendants: "We will pay the loss in money or repair or replace the damaged or stolen property."

The rights and responsibilities of the insurer and the insured were described as follows: "RIGHTS AND RESPONSIBILITIES…The insured has the right to payment for the loss in money or repair or replacement of the damaged or stolen property, at the option of the [insurer]."

"Repair" was not defined.

The defendant insurance companies argued that the policy did not cover the diminished value of the vehicle, and that it obligated the insurer only to repair the damaged vehicle. They argued that the plain and ordinary meaning of the word "repair" applied. Gonzales, on the other hand, argued that the plain meaning of the word "repair" included restoration of the vehicle's pre-loss physical condition and, if that was not possible, payment for diminished value.

The trial court found in favor of the insurers. When Gonzales appealed, the Court of Appeals reversed the trial court's decision. The case was thereafter appealed to the Supreme Court of Oregon.

On appeal, the Supreme Court of Oregon held that the word "repair" as used in the policy required the defendant insurers to restore the damaged vehicle to its pre-loss condition and that if this could not be accomplished, they must compensate the insured for the diminished value of the vehicle. The court did note, however, that the diminished value did not include the "stigma" that might be attached to a repaired vehicle by prospective buyers.

The decision of the Court of Appeals reversing the lower court's opinion was affirmed. The case was remanded to the lower court for further proceedings consistent with the Supreme Court decision.

Gonzales vs. Farmers Insurance Company of Oregon-CC9910-11479; CA A128598; SC S054486-Supreme Court of Oregon-October 23, 2008-196 Pacific Reporter 3d 1