An Indiana court of appeals recently reversed a lower court ruling dismissing a diminished value suit, and remanded the case to district court, prompting an appeal to the state’s supreme court.

In the case, Allgood v. Meridian Security Insurance Co., the appellate court held that the trial court erred in granting Meridian’s motion to dismiss Allgood’s claim for damages for failure to pay for diminished value. Meridian petitioned for a rehearing and insurance trade associations submitted an amicus curiae. The appellate court denied that petition, reaffirmed its decision, and remanded the case to the trial court for further proceedings.

“The court of appeals is going against the national trend which has rejected the diminished value argument,” said Robert Hurns, counsel for the Property Casualty Insurers Association of America. “The language of the contract clearly does not require payment for diminished value when a vehicle has been fully repaired. In addition, there is no objective way to determine diminished value.”

The role of auto insurance is to repair or replace a damaged vehicle to pre-accident condition, he added. “It was never intended to guarantee the value of a vehicle before or after a repair is made.”

In its opinion, the court of appeals noted that, as a consequence of its decision, insurers might add exclusions to their policies that specifically state that insurers will not pay for diminished value. Regardless of who wins this case, insurers should exercise that option and state explicitly that diminished value is excluded, said Hurns.

According to PCI statistics, the Indiana decision is counter to the precedents and policies of 42 states and the District of Columbia. States sanctioning payments for diminished value in some form include Texas, North Carolina, Massachusetts, Maryland, Louisiana, Kansas, Hawaii, and Georgia.

Within a week of the appellate court decision, Meridian announced its intention to file a petition to appeal the case to the Indiana Supreme Court. The insurer will argue that the language of the policy in question “is unambiguous and does not provide coverage for diminution in value.”