Insurance Company Not Liable For Diminished Value

Everything else being equal, a purchaser of a used car will pay more for a car that has never been involved in an accident than he will for one that has been previously damaged and repaired. This loss in value, sometimes called a "stigma loss," is real and affects the market value of a car. Unfortunately, insurers in Illinois are not required to compensate automobile owners for this loss.

In a recent decision, the Illinois Appellate Court held that an automobile insurance policy that obligated the insurer to compensate its insureds for any "direct or incidental loss" up to an amount equal to the "actual cash value" of a damaged car did not require it to pay for any stigma loss. Although the insureds argued that a stigma loss was a "loss" that should be covered, the court found that another provision--which stated that the insurer's liability "would not exceed what it would cost to repair or replace the property or part with another of like kind or quantity"--precluded coverage for any stigma loss.

The court reasoned that, even if stigma damage is a "loss," the limitation on coverage to the amount necessary to repair or replace the damaged car meant that the insurer was not liable for covering stigma damage because the ordinary meaning of "repair" and "replace" showed that the policy intended to cover only physical damage to the vehicle. The court went on to hold: "To expand the ordinary meaning of 'repair or replace . . . with other of like kind or quantity' to include an intangible, diminished value element would be ignoring the policy's plain language or giving the policy's text a meaning never intended." Therefore, even if the value of a repaired automobile is less than the value of an otherwise identical automobile that has never been in a collision, the insurer is not obligated to compensate the owner for this loss.

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