IS DAMAGE HISTORY COMPENSABLE UNDER YOUR AUTO INSURANCE POLICY?

A recent Supreme Court decision has taken up the question whether in addition to replacing damaged parts on a car after an accident, an insurance company has the obligation to pay for the loss in the car’s value simply from having been damaged in an accident. This case, a class action involving State Farm, involves interpretation only of that company’s policies and therefore may not apply to policies of other insurance companies.

The case is interesting because it explores the nature of the damage a car suffers in an accident in addition to the replaceable parts that are bent or broken. It appears that our court accepts that even after all of the replaceable parts affected are in fact replaced, there remains an amount of damage that is compensable under a policy that agrees to compensate for “loss” to the vehicle. The court differentiated between so-called “stigma damages” and what it called “weakened metal” damages. “Stigma” damages are those that reflect the loss in resale value that exists for a car that has been damaged in an accident, even if it has been fully repaired. Such “stigma damages” are not compensable under this Supreme Court decision. One has in mind the recent news article about the winner of a $380,000 Lamborghini who wrecked his new car after only a few hours’ ownership, and the effect on its value of having been in a nationally reported accident, no matter the extent of repairs. The “weakened metal” type of damages reflects that some parts of a damaged vehicle under today’s technology of unitized body construction for cars cannot be replaced to as new condition.

The court decided that it must interpret the insurance policy from the standpoint of the consumer, and that under such circumstances the alternative in the policy for the company to either repair or “total” the vehicle and replace it, did not eliminate the company’s obligation to pay for loss in value if the company elected to repair the vehicle. The court determined that the insured had the right to expect to be put in the same position he or she was before the accident, and that having a car whose value was diminished by the existence of “weakened metal” damage would not meet that standard unless the insurance company paid the difference in value to the insured in cash.

Based on this decision, people who are involved in “fender bender” accidents may be entitled to cash in addition to the repair of their vehicles. It is important to review the language of the policy involved.

The foregoing is for education and may not be interpreted as legal advice.

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