The Court of Special Appeals of Maryland reversed and remanded the decision of a lower court and determined diminution of value is a compensable part of a loss. The case is Fred Frederick Motors, Inc. v. Krause, 277 A.2d 464 (Md. Ct. Spec. App. 1971).
William E. Krause was driving a tractor-trailer and accidentally drove into a parked vehicle, which collided into three other vehicles. All four vehicles were owned by Fred Frederick Motors, Inc., an auto dealer. Three of the vehicles were new and held for sale, and the other was used. The repairs to the vehicles were paid for a total of $2182.02, but the dealer argued they were entitled to diminution of market value of the vehicles; although the vehicles had been repaired, they had still been involved in an accident. However, the trial court ruled that the limit of recovery was the cost of repairs, and that any loss of profits was not shown or proven.
The Court of Special Appeals noted that a precedent set by Taylor v. King, 213 A.2d 504 (Md. 1965) was that repairs restore a vehicle to substantially "the same condition" that it was in before the damage occurred. The Court opined that since "the same condition" was not defined, there were two possible definitions. One was that the condition of the vehicle referred only to the physical appearance and mechanical function of the vehicle, and the other was that the condition referred to the market value of the vehicle.
Under the first definition, if a vehicle looks and operates substantially the same after it has been repaired after an accident, then it has returned to the same condition. Under the second definition, if the market value has been lowered following repairs after an accident, then the vehicle has not been restored to its pre-loss condition, and the injured party should receive payment for the diminution in market value.
The Court of Special Appeals agreed with the second definition and used an example to support its argument. If a vehicle is completely destroyed, the policyholder receives the full market value of the vehicle. To be consistent, if the vehicle is damaged and repairable, the policyholder should, after repairs, receive the same market value prior to the damage. If the repaired vehicle doesn't have the same market value, the policyholder should receive additional damages to be made whole. To not award the diminution of value would create a discrepancy between having a total loss and a partial loss. The Court held that to be properly compensated for damage to the cars, the dealer should have received diminution in value resulting from the injury in addition to the cost of repairs.
Editor's note: This case affirms a major principle of insurance in that the injured party should be fully compensated for the wrong done to them. The insured should be fully restored to their pre-loss condition. In this case the dealer should, after repairs, have the market value of the four cars equal to their market value before the loss. Since they cannot be made whole after repairs, there should be an award for diminution in value. To do otherwise would unfairly penalize the injured party at no fault of their own.
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