The Washington Court of Appeals recently clarified that insurers cannot exclude diminished value claims when an innocent person has his or her car damaged by an uninsured driver. Pacheco v. Oregon Mutual Ins. Co., 447 P.3d 207 (2019). To help explain what that means, its useful to take a detour into property damage insurance claims.
Generally, when a car is damaged, its resale value is hurt. There are two categories of damage that fall under this concept, although they are somewhat interchangeable concepts. Diminished value is when the repair was not totally successful to return the car to its pre-collision status. Stigma damages refers to the concept of the “intangible taint” that follows a car for it having been in a crash. When making a claim for property damage through another driver's insurance, the carrier will pay for “diminished value,” even though that usually refers to both stigma and diminished value claims.
However, if the driver who caused the wreck did not have insurance, or if the insurance was insufficient to cover the damages, the claim will go through your own uninsured/underinsured (“UM/UIM”) coverage, assuming you elected to purchase that coverage. As a side note, it is a wonderful coverage to purchase, and you should strongly consider it. The problem is that many UM/UIM policies contain exclusions for diminished value, meaning your insurance company will not pay for the damage.
The question then becomes, “Can they do that?” The Pacheco court answered this question, “No, they can't do that.” And, with that, the landscape of Washington insurance law shifted.
UM/UIM coverage has certain minimum requirements, as set by statute, RCW 48.22.030. Because the legislature has passed this statute, courts view it as the public policy of the state of Washington. Insurance contracts are void where they violate public policy.
The Court drew on the narrow definition of “property damage” in the statute, as “physical damage to the insured motor vehicle.” Because diminished value, under the strict definition stated above, is physical in nature, the court found that “the diminished value of a vehicle from physical injury is property damage as defined in the UIM statute. An express policy exclusion for coverage for diminished value of the damaged vehicle is therefore contrary to the UIM statutory language.”
In short, regardless of what it says in an insurance policy, Washington insurers cannot deny claims for diminished value when the causing driver had no coverage or insufficient coverage. It might take some time for them to recognize this new development, and it can be helpful to remind them of their contractual obligations, where appropriate.
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