INSURER OWES DIMINISHED VALUE UNDER UNINSURED MOTORIST COVERAGE

The Fort Worth Court of Appeals recently determined that an insurer owed diminished value over the cost of repairs paid for under the insured’s underinsured motorist (“UM”) coverage.  In Noteboom v. Farmers Texas County Mutual Insurance Company, 406 S.W.3d 381 (Tex.App-Fort Worth, July 11, 2013), the insured vehicle was involved in a collision and the insured vehicle was repaired under their collision coverage.  But it was later determined that the other vehicle was uninsured and the insurer refunded the difference in the higher deductible taken under the collision coverage.  However, a dispute arose concerning whether the insured’s were entitled to diminished value under these circumstances and a lawsuit was filed.  The trial court granted summary judgment in favor of the insurer and the insured appealed.

On appeal, the court observed that the underinsured motorist policy language provides coverage for those damages to which an insured may be legally entitled against the responsible party and, that diminished value is one element of those damages.  Also, the Texas Department of Insurance has issued a related bulletin providing some insight on this issue.  Lastly, the policy provides that if both collision and UM are available the insured may choose the coverage under which they recover. And, based in part on the fact that Farmers refunded the difference in the deductible, the court found that the insured chose recovery under the UM coverage.  The court also disregarded arguments that paying for repairs and diminished value amounted to double recovery.  Based on the stipulated amount of the alleged diminished value, the Fort Worth Court of Appeals reversed the trial court’s summary judgment in favor of the insurer and rendered judgment in favor of the insured.