Insurers Win Key South Carolina Auto Damage Case
By Daniel Hays
NU Online March 26, 2:30 p.m. EST?A ruling by the South Carolina Supreme Court this week has come down on the side of insurers who argue that car accident damage insurance covers dents, not diminished value that an auto sustains from a crash.
The South Carolina high court decision in the class action Schulmeyer Vs. State Farm "strongly reinforced the true meaning of the basic auto insurance policy," said Kirk Hansen, claims director for the Alliance of American Insurers, Downers Grove, Ill., which tracks such cases.
"Policies," he noted, "are intended to provide for the cost of repairs necessary to restore the vehicle to its previous operating condition and appearance."
The case involved State Farm policyholder Albert Schulmeyer who argued that the company should pay for the full restoration value of his damaged pickup truck in addition to the actual repair costs.
State Farm adjusters had estimated the loss and paid $3,268, minus a deductible. Mr. Schulmeyer sought an additional $1,000 in "diminished value" and asked State Farm to reimburse him and other affected policyholders during the three years before the filing of the class action.
Mr. Hansen said nearly a dozen states have now ruled against the concept of diminished value, and only Georgia has gone in the opposite direction in the case of State Farm v. Mabry in 2001. "These cases are definitely going [in favor of] insurers," he commented.
He found the South Carolina case significant because the plaintiff had based his case on the Georgia ruling. The South Carolina court found the Georgia situation, where auto insurance contracts provide protection that encompasses both utility and value, was unique to Georgia.
Mr. Hansen said the Alliance is tracking cases in 24 states where the diminished value issue is being litigated. "A lot are on appeal and working their way up." Some, he added, may reach state supreme courts.
Greg LaCost, counsel for the National Association of Independent Insurers in Des Plaines, Ill., which submitted a friend of court brief in the Schulmeyer case, also described the South Carolina ruling as part of a trend around the nation. NAII said in a statement that the Georgia case was "an anomaly."
According to NAII, if insurers were forced to add the cost of diminished value to repair costs, fewer cars would be repaired, a greater percentage of vehicles would be totaled, and auto insurance premiums would rise.
State Farm's auto policy states that the limit of its liability for loss to property is "the lower of the actual cash value or the cost of repair or replacement."
The South Carolina Court found that the "policy does not recognize value as inherent in the concept 'repair or replacement.' The policy, read as a whole, defines repair or replacement as restoring the vehicle to pre-accident mechanical function and condition, and not as restoring value."
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