In past blogs, my colleague, Patricia Forte, has tracked the case law on the state of “diminished value” claims in Ontario. A recent Superior Court case, Zheng v. Certas Home and Auto Insurance Co., provides further insight as to the limited “value” of advancing a diminished value claim against the vehicle owner’s own insurer.
By way of background, the concept of “diminished value” under review is the perceived loss of value of a vehicle following an accident-related repair. The substance of the claim is that an informed purchaser will pay less for a vehicle that has been in an accident than the same buyer would pay had the same vehicle not been involved in an accident.
In certain Canadian provinces, like British Columbia and Alberta, individuals can sue tortfeasors at fault for an auto accident for the diminished value of the vehicle. Diminished value claims in tort are permitted in some U.S. states, and some states permit individuals to claim diminished value loss under their own automobile policies.
Volkswagen recognized a (non-insurance related) subset of diminished value claims in its agreement to settle the lawsuit brought by the U.S. Department of Justice and the Environmental Protection Agency arising out of TDI (diesel) vehicles. Volkswagen agreed to buy back or, if approved, repair vehicles affected by the recall. In either case, Volkswagen agreed to provide owners with an additional “restitution payment” to compensate owners for the diminished value of their vehicles. As of October 26, 2015, the resale value of affected model cars in the U.S. was down by between 5% and nearly 16%, depending on models, as compiled from used auction prices by Black Book and Kelley Blue Book.
Diminished value is a legitimate consumer concern. Some automobiles, such as pristine collector automobiles, may suffer significant diminished value in the resale market if they are damaged and then repaired.
Since Ontario introduced its “no fault” auto insurance regime in 1990, s. 263 of the Insurance Act has barred claims for recovery of damages to an insured’s automobile, to its contents and for loss of use against anyone other than the insured’s insurer. In order for s. 263 to apply, the following criteria must be met:
- An automobile or its contents, or both, suffers damage arising directly or indirectly from the use or operation in Ontario of one or more other automobiles;
- The automobile that suffers damage, or in respect of which the contents suffer damage, is insured under a motor vehicle liability policy issued by an insurer licenced to undertake automobile insurance in Ontario; and
- At least one other automobile involved in the accident is insured under a motor vehicle liability policy issued by an insurer licenced to undertake automobile insurance in Ontario.
Section 263(5)(a.1) permits an exception to a right of action between two insureds if:
(1) there is an agreement for the damage, content, loss of use; and
(2) the agreement must be between the plaintiff and the person at fault (negligent) for the damage.
These exception based cases would typically arise in a circumstance where a tortfeasor agrees to pay the cost to repair a plaintiff’s vehicle following an accident without the parties resorting to their insurance. Subject to this limited exception, s. 263(2) provides that the insured is entitled to recover property damage to the vehicle, its contents and loss of use from their own insurer.
As noted in our earlier blogs, the case law establishes diminished value claims with a basis in tort against the driver of another insured vehicle will not succeed in Ontario. Tort actions against uninsured motorists for single vehicle accidents or non-auto tortfeasors can presumably proceed. Non-tort claims, i.e. claims based in contract, may be permitted.
In Zheng, Justice Petersen of the Superior Court addressed Ms. Zheng’s appeal from the dismissal of her claim for diminished value in the Brampton Small Claims Court. Ms. Zheng was represented by the same counsel who appeared in Renwick v. Allstate Insurance Company, 2016 CanLII 44178 (ON SCSM), referenced in our October 11, 2016 blog.
Ms. Zheng was involved in a motor vehicle accident for which she was not at fault. Her vehicle sustained damage as a result. A claim was made against her own insurer Certas, who elected to repair the physical damage to her vehicle at their expense. Despite the repair, Ms. Zheng sought to recover the diminished value of her vehicle from Certas.
At trial, Ms. Zheng provided expert evidence, accepted by Deputy Judge Da Silva, that the value of her vehicle had been diminished by $9,750 due to the accident. The Court, however, did not accept or award diminished value damages, on the basis s. 6.6 of the Ontario Automobile Policy (“OAP”) gives the insurer the right to repair a vehicle rather than pay for the damage. Deputy Judge Da Silva interpreted the word “rather” in s. 6.6 to mean “either/or”. Certas, therefore, had the right to repair rather than pay damages. Deputy Judge Da Silva found no ambiguity in s. 6.6 and noted there would be no reasonable expectation on the part of Ms. Zheng to receive compensation for diminished value damages when the insurer had exercised its right to repair.
The Court further found: “diminished value, although it exists in reality, is not included in s. 263(2) of the Insurance Act. Similarly, it is not in s. 6.2 of the OAP.” Further, Deputy Judge Da Silva found even if he determined Certas had not elected to repair the vehicle, he still would have dismissed the action on the basis that Certas was not liable for diminished value under the OAP coverage.
As a result, Ms. Zheng appealed on the factual issue of whether Certas had elected to repair her vehicle as well as the legal issue of the trial judge’s error in denying payment of diminished value as a component of damages under s. 263(2) of the Insurance Act and s. 6.2 of the OAP. Certas, in addition to seeking a dismissal of the appeal, brought a cross-appeal arguing the Court erred in accepting diminished value as a type of economic loss and finding diminished value in the amount of $9,750 as a result of the accident.
On appeal, Justice Petersen addressed the appropriate standard of review to be applied to the various issues, noting the standard to be correctness for questions of law and palpable overriding error for questions of fact and mixed fact and law.
On the factual question of whether Certas had exercised its option pursuant to s. 6.6 of the OAP to repair Ms. Zheng’s vehicle, Justice Petersen was unable to find a palpable error. He noted the evidence that Certas assigned an appraiser to evaluate the extent of damage to Ms. Zheng’s vehicle, the appraiser recommended to Certas that the car be repaired and based on that recommendation, Certas decided to effect the repairs at its own expense and that decision was communicated to Ms. Zheng. Certas approved Ms. Zheng’s choice of body shop to conduct the repairs, and Ms. Zheng authorized the body shop to do the work.
Ms. Zheng, for her part, argued there was no election to repair as she had not been provided with formal notice in writing of such an election. She also argued s. 6.6 of the OAP required Certas to “complete the work” if an election to repair is made. Instead of “completing the work,” she argued Certas paid her chosen auto body shop to complete the work.
Justice Petersen found that where provisions of the insurance contract are mandated by law, interpretation of the contract was more akin to statutory interpretation than contractual interpretation. Statutory interpretation would require an interpretation consistent with the purposes of the Insurance Act, which in accordance with the findings of the Court of Appeal in Clarendon National Insurance v. Candow, included a reduction in insurance premiums by eliminating transaction costs inherent in the tort system.
Further, notwithstanding the OAP is a mandated statutory policy, consumer protection remained a consideration, such that words in insurance contracts must be given their plain and ordinary meaning. In analysis, Justice Petersen noted that if Justice Da Silva had erred in his interpretation of OAP 1, it was an error of law linked to his factual finding; and, therefore, the higher standard of correctness would apply on review. Applying this standard, Justice Petersen found the trial judge correctly interpreted the OAP and correctly determined Certas elected and exercised its right to repair within the meaning of s. 6.6.
This finding was made despite the fact that Certas did not provide Ms. Zheng with written notice of its decision to repair her vehicle. Justice Petersen noted that s. 6.6 did not stipulate that written notice was a precondition to the insurer’s exercise of its right to repair a vehicle. Rather, the requirement for written notice arose only after an insurer has made an election to repair. It is not a precondition to the election taking effect. In contrast to other sections of the OAP, s. 6.6 does not include the word “must”.
It was noted that Ms. Zheng was not prejudiced by Certas’ failure to provide her with formal written notice of its election to repair the vehicle. Ms. Zheng received actual notice of the election within the seven day period, as Certas’ decision to repair the vehicle was verbally communicated to her.
Justice Petersen also applied a common sense perspective to the alternate argument that s. 6.6 required Certas to take control of the vehicle and repair it themselves, finding this interpretation was not one an ordinary person would adopt. Specifically, “ordinary people are well-aware that insurance companies are not in the business of conducting auto body work or automotive repairs.”
Most importantly, however, Justice Petersen rejected Ms. Zheng’s argument that Certas’ repair of the vehicle did not preclude her claim for damages for diminished value. Justice Petersen found as follows:
Once Certas elected to exercise its right to repair Ms. Zheng’s vehicle “rather than pay for the damage,” it was only responsible for the cost of the repairs, up to a maximum of the actual cash value of the vehicle at the time of the accident (per s. 6.2 of the OAP). Its contractual obligation was simply to repair the vehicle, which it did.
Having so found, Justice Petersen held that there was no need for him to determine whether the trial judge erred in concluding the claim for diminished value could not have succeeded under the OAP even if Certas had not made the election. The issue of whether s. 6.2 of the OAP and s. 263(2) of the Insurance Act excluded a diminished value claim did not arise on the facts of the case. In other words, it was a moot issue. As such, the Court declined to express an opinion on the trial judge’s ruling that diminished value was not a component of the “’cost of damage of the automobile’ covered by s. 6.2 of OAP 1.” The Court further declined to express an opinion of the correctness of the ruling that diminished value does not form part of the “damages to the insured’s automobile” within the meaning of s. 263(2) of the Act. Similarly, the Court did not find it necessary to rule on Certas’ cross-appeal as the issues were moot (save for costs). Costs of appeal were awarded in favour of Certas.
The trend shows diminishing value in pursuing these claims. That said, the creativity of counsel knows no bounds. There may yet be an opportunity to “add value” to diminished value claims.