Texas Supreme Court Rules Against Diminished Value

October 24, 2003

In overturning a lower court ruling, the Texas Supreme Court has ruled that insurance contracts do not require an insurer to pay a
policyholder for the vehicle’s so-called diminished value.

In the case of American Manufacturers Mutual Insurance Co., et al v.
Schaefer, Gary Schaefer filed a class action lawsuit against several insurance companies seeking a ruling that personal auto policies cover diminished value. The district court granted summary judgment in favor of the insurer, but the Court of Appeals for the Ninth Judicial District reversed that decision.

“The Texas Supreme Court correctly ruled that the contract language is clear-cut and does not require the payment for diminished value when a vehicle has been fully and adequately repaired,” said Donald Hanson, southwestern regional manager for the National Association of Independent Insurers (NAII).

The court said that to expand the ordinary meaning of repair to include an intangible, diminished value element would ignore the policy’s language or give the contract’s text a meaning it never intended. In addition, the court took into account arguments advanced in an amicus brief filed by NAII that cited the Texas Department of Insurance bulletin as well as numerous other
state court decisions that state an insurer is not obligated to pay for diminished value.

Within the last few years there have been numerous court decisions
supporting insurers on the issue of diminished value. State supreme and appellate courts in Alabama, Delaware, Florida, Louisiana, Maine, Missouri, South Carolina, and Wisconsin have recently addressed the issue and ruled that diminished value is not recoverable.

“Earlier this year the South Carolina Supreme Court rejected the diminished value argument. Now with this decision, Texas is in the mainstream regarding the issue. As in Texas, most of these caseshave been dismissed based on clear, unambiguous policy language,” said Hanson.

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