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Massachusetts court rules third-party diminished value payment not insurer’s responsibility

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Insurance | Legal
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The Massachusetts Supreme Judicial Court stands with a lower court’s ruling that Commerce Insurance Co. didn’t breach its contract with two individuals when refusing to pay for inherent diminished value (IDV), and clarified the state’s law regarding IDV responsibility.

The class action lawsuit brought by third-party claimants Jeffrey Cubberley and Philip Seaver was dismissed in Superior Court and brought to the Supreme Judicial Court on appeal. Cubberley and Seaver were involved in a collision that a court ruled was the responsibility of both of them.

In its Jan. 30 opinion, the court summarized the actions taken by both parties.

“Commerce successfully moved to dismiss the complaint on the grounds that it had no legal obligation to pay for IDV damages and that the plaintiffs therefore failed to allege facts plausibly suggesting an entitlement to relief. Each plaintiff’s vehicle was damaged in a collision caused by another driver insured under a policy issued by Commerce.

“The policy included language consistent with part 4 of the 2016 standard [auto insurance] policy, which states, in relevant part: ‘The amount we will pay is the amount the owner of the property is legally entitled to collect through a court judgment or settlement for the damaged property. We will pay only if you, a household member or someone else using your auto with your consent is legally responsible for the accident. The amount we will pay includes, if any, applicable sales tax and the loss of use of the damaged property. The amount we will pay does not include compensation for physical damage to, or towing or recovery of, your auto or other auto used by you or a household member with the consent of the owner, or any decreased value or intangible loss claimed to result from the property damage unless otherwise required by law.'”

The plaintiffs argued that without IDV compensation, they weren’t paid for the difference between the previous value of their vehicles and their lower market value following the collision and repairs.

The case was stayed pending the Supreme Judicial Court’s ruling on McGilloway v. Safety Ins. Co., which gave way to support part of the court’s decision to agree with the dismissal of the Cubberley case. Following the McGilloway decision, the plaintiffs filed a second amended complaint.

In McGilloway, the court ruled that “IDV damages were recoverable under part 4 of the 2008 edition of the standard Massachusetts automobile policy.”

“In granting Commerce’s dismissal, the motion judge concluded that part 4 of the 2016 standard policy excludes coverage for IDV damages to third-party vehicles and, therefore, Commerce had no obligation to pay the plaintiffs,” the Cubberley opinion states. “Consequently, the judge did not address whether the plaintiffs lacked standing to pursue their claims due to their failure to secure a final judgment against the insureds before suing Commerce.”

The judicial court ruled that “a third-party claimant must first secure a final judgment against the insured party before suing the insurer for an alleged failure to pay damages under the policy.”

“The plaintiffs lack standing to pursue their breach of contract claim, as they have not obtained a final judgment against Commerce’s insureds. Further, the plaintiffs’ complaint does not plausibly establish an entitlement to relief, as part 4 of the 2016 standard policy specifically excludes IDV damages,” the opinion states. “Accordingly, we affirm the dismissal of the plaintiffs’ complaint.”

While the court agreed that the plaintiffs lacked standing, the judges decided it would be beneficial for public policy to eliminate any uncertainty regarding whether part four of the 2016 standard provides coverage for IDV damages to a third-party claimant’s vehicle.

Pointing back to McGilloway, the court cited the same 2013 precedent as it did in that decision: “A policy of insurance whose provisions are plainly and definitely expressed in appropriate language must be enforced in accordance with its terms.”

In determining the meaning of those provisions, the court cited a 1990 ruling: “We are guided by ‘what an objectively reasonable insured, reading the relevant policy language, would expect to be covered.'”

“Contrary to the plaintiffs’ claims, part 4 of the 2016 standard policy excludes coverage of IDV damages to a third-party claimant’s vehicle. It states: ‘The amount we will pay does not include compensation for… any decreased value or intangible loss claimed to result from the property damage unless otherwise required by law.’ Additionally, part 4 limits third-party coverage to ‘damage or destruction of… tangible property,’ and damage to tangible property does not include IDV.”

The plaintiffs also argued that part four provides coverage for their IDV damages under the clause “otherwise required by law.” The court disagreed, stating that the insurance commissioner has the authority to approve standard policy terms, including exclusions.

“Pursuant to G. L. c. 90, § 34O, automobile insurers must cover ‘all sums the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including loss of use thereof, caused by accident and arising out of the ownership, maintenance or use… of the insured motor vehicle.’ The plaintiffs contend that ‘all sums’ include IDV damages.

“Because the commissioner exercised this authority when he approved the exclusion of IDV damages from coverage under part 4 of the 2016 standard policy, the statute does not ‘otherwise require’ Commerce to cover the plaintiffs’ third-party IDV claims.”

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