Some repairers say DV claims hurt business because there are more total losses

A wave of class action lawsuits are being filed in the Georgia court systems as consumers react in the aftermath of the decision by the state’s Supreme Court in 2001 that ruled insurers must consider diminished value (DV) in first-party claims by policyholders, and is raising concerns that insurers have lowered the total-loss threshold because they must pay out additional compensation. And if more vehicles are totaled, that means there are fewer vehicles for autobody shops to repair. 

One of the latest DV cases, at press time, is the class action lawsuit Myron G. Walker, et al. vs. American National General Insurance Co., et al. This suit, filed in the Superior Court of Muscogee County in Georgia on June 30, asserts that the $4,702.47 paid to the plaintiff for repairs doesn’t figure in any DV. What’s more, the lawsuit asserts, is that no one from the insurance company provided Walker with any information or materials explaining his right to make a DV claim and have it considered by the insurer. The lawsuit is suing for one count of breach of contract and one count of equitable relief. 

The lawsuit alleges that on Dec. 25, 2002, Walker’s 2001 Chevrolet Silverado truck, which was insured by American National at the time, was in a collision. After making the claim, American National authorized repairs to Walker’s vehicle and paid him for them. However, when the claim was adjusted and the repairs were authorized, no one from American National provided Walker with any information about his right to make a DV claim, according to the lawsuit. The suit also claims that the insurers failed to evaluate Walkers’ DV loss and failed to offer to pay him this loss.

“American National’s failure to account for diminution in value as an element of loss and failure to pay its insured plaintiff the diminution in value of his vehicle, breached the insurance contract, including the covenant of good faith and fair dealing inherent therein,” the lawsuit states. “American National’s breach of contract has injured and harmed the plaintiff and has proximately caused him damages for which he seeks recovery.”

Walker is seeking class action certification for two plaintiff classes. One would be composed of all of American National’s policyholders. The second class would be composed of all former or current American National policyholders who presented first-party physical damage coverage claims within the past six years but were not additionally compensated for DV.

In Mabry vs. State Farm Mutual Automobile Insurance Co., the precursor lawsuit to the Walker case, the Georgia Supreme Court ruled that auto insurance policies issued in Georgia have for 75 years required auto insurers to compensate their policyholders for the full amount of their loss—and this includes DV—when the insured presents first-party physical damages claims. This means all insurers within the state of Georgia must not only pay to repair a policyholder’s vehicle to pre-accident condition, but they must pay an additional amount to compensate for any DV sustained by the repair.

According to the Alliance of American Insurers (AAI), Neal Pope, the attorney who sued State Farm in Mabry and filed the Walker case filed a similar suit, Case, et al. vs. GuideOne Elite Insurance Co., et al. June 26. Pope also has filed DV suits against several other insurers doing business in Georgia and plans to file more class action lawsuits within the next few months, according to AAI. At press time, Pope did not return calls from ABRN seeking comment.

Kirk Hansen, director of claims for the AAI, says settlements related to DV have cost insurers doing business in Georgia more than $358 million since the Georgia Supreme Court ruling two years ago. This, along with the “flood of lawsuits” following the Mabry case, will just increase the cost of auto insurance for Georgians. “The Alliance continues to believe that the court erred in reaching its decision in that [the Mabry] case,” Hansen says. 

Gene Hamilton, owner of the Atlanta-area based Sports & Imports multi-shop locations, says if the courts decide for Walker in this case, “It will do nothing more than take more cars out of the shops. This has done nothing for the parties involved—the insurer, claimants and repairers—but become a lottery ticket.” Because insurers determine whether a car should be repaired or totaled depending on the severity of the damage, if insurers must pay out for DV, more vehicles will be totaled, Hamilton says. Prior to the Georgia Supreme Court decision in Mabry, Hamilton says, insurers were totaling vehicles at 75 percent of their value. This has changed to 50 percent to 60 percent of their value, with DV making up the margin. 

Hamilton does acknowledge that there are some legitimate reasons for DV, such as disclosure of paintwork and bodywork when selling a vehicle, Hamilton says. 

By law, an automobile dealer must disclose that a used car has been damaged. “But for the repairer side, the Supreme Court decision was a step back,” he says. “You’d think it would be big win for consumers, but it just goes back into the policy.”If the Walker case wins, it will decrease the amount of repair dollars spent, and dealers and the aftermarket will also see decreased sales, Hamilton adds. 

Robert Hurns, legal counsel for the Illinois-based National Association of Independent Insurers (NAII), told ABRN in an earlier interview that the majority of states do not allow for DV claims in their policy language. “If you take a look at the theory of DV, there isn’t even agreement,” Hurns said, referring to DV claims in first- and third-party claims as well as the idea of inherent diminished value. 

Despite the Georgia Supreme Court’s ruling that all insurers in the state must now consider and pay DV, as well as the wave of class action lawsuits popping up in this area within the past few years, many other courts continue to dismiss DV cases.