Woodland Hills personal injury lawyer Barry P. Goldberg is often called upon to advise clients regarding “Diminution of Value” of motor vehicles after an accident. In fact, Mr. Goldberg has authored several articles on the topic. Uniformly, the insurers fight against payment of diminution in value, except in the rarest of cases. In particular, when a claim is made under your own auto policy, the contractual terms require only reasonable repair or total loss valuation. There is no mention of diminution of value. When a client does not recover for diminution of value, he or she thinks “The first thing is to kill all the lawyers!” (My apologies to Shakespeare and my fellow lawyers!)
A completely different analysis takes place in situations involving property insurance claims. On March 7, 2018, the California Court of Appeal in Doyle v. Fireman’s Fund, analyzed a claim made under the loss of “valuable possessions” section of a property damage insurance policy. To be sure, the analysis is very different from evaluating a vehicle damaged in an accident because “’Diminution in market value’ is not a ‘peril’ at all; it is a method of measuring damages.” (Citation omitted.)
But, it is not lost on the courts that this often presents and unfair situation which can be “tragic”. In the analysis of the Court: A Shakespearean Tragedy. Because the Doyle v. Fireman’s Fund case involved a tremendous loss to an insured that was “duped” into buying very expensive counterfeit wine, the Court of Appeal begged the audience for liberty to report the analysis in a Shakespearean tone:
“O thou invisible spirit of wine, if thou hast no name to be known by, let us call thee devil!” (Shakespeare, Othello, act II, scene 3.)
Indeed, consider the Court’s factual description:
“Yea verily, we are presented with a most unfortunate tale of a villainous wine dealer who sold millions of dollars’ worth of counterfeit wine to an unsuspecting wine collector. When the wine collector discovered the fraud, he filed an insurance claim based on his “Valuable Possessions” property insurance policy. The insurance company denied the claim. The wine collector sued for breach of contract. The trial court ruled in favor of the insurance company, sustaining its demurrer.” (Emphasis added.)
Further, the holding followed theme:
“We agreeth with the trial court; the wine collector suffered a financial loss, but there was no loss to property that was covered by the property insurance policy. In other words, the wine collector is stuck with the devil wine without recompense. A Shakespearean tragedy, to be sure.” (Emphasis added.)
The Court’s legitimate analysis found that Doyle (the insured) could not reasonably expect his Fireman’s Fund “Valuable Possessions” property insurance policy to reimburse him for his multiple purchases of wine, which was essentially valueless at the time of purchase:
“Indeed, when it comes to property insurance, diminution in value is not a covered peril, it is a measure of a loss. (State Farm Fire and Casualty Co. v. Superior Court (1989) 215 Cal.App.3d 1435, 1444 (State Farm).) In State Farm, a homeowner’s association (HOA) had purchased insurance to cover its condominium complex. The HOA filed a claim when it discovered latent deficiencies “allegedly due to building code violations, faulty workmanship and fraud by the builder[,]” even though “the policy specifically excluded recovery for latent defects, faulty workmanship and construction code violations.” (Id. at p. 1439.) After the insurance company predictably denied the claim, the HOA sued, arguing that “the actual loss was the ‘diminished value of the building’ which was a nonexcluded ensuing loss.” (Ibid.) The appellate court disagreed. “‘Diminution in market value’ is not a ‘peril’ at all; it is a method of measuring damages.” (Id. at p. 1444.)
Not surprisingly, in this counterfeit wine case, the insured suffered a diminution in value—he lost the money he had invested in his wine collection—because of the fraud. But the insured’s financial loss was not a covered peril, it is simply a measure of his damages.
The insured contended that unlike the property insurance policy in State Farm, the Fireman’s Fund property insurance policy did not limit itself to physical damages. But given the fundamental nature of property insurance, the policy purchased only insured him against potential harms to the wine itself, such as fire, theft, or abnormal spoilage; the insured did not insure himself against any potential financial losses. In effect, the insured did not buy a provenance insurance policy; he bought a property insurance policy.
The Court of Appeal could not contain itself from giving the insured some last bit of Shakespearean advice:
“Finally, we can merely offereth to Doyle this small piece of wisdom from the Bard of Avon: “The robbed that smiles steals something from the thief.” (Shakespeare, Othello, act I, scene 3.)
To be certain the loss of millions of dollars in value is tragic under any analysis. Insurance coverage is a very specific product that does not always make logical sense to the public which may assume that if there is an insurance policy, the insurer should pay for all losses. The same is true concerning automobile liability insurance policies. The policies must be read and considered carefully. In addition, it is imperative that the lawyer handling the claim must have the basic insurance policy interpretation skills in order to navigate the property damage claim process. Otherwise, the client will truly want to “First, kill all the lawyers!”