In Baldwin v. AAA Northern California (No. A142217, filed 6/13/16), a California appeals court upheld an order sustaining an insurer’s demurrer without leave to amend, dismissing a breach of contract and bad faith lawsuit alleging that the insurer was obligated to pay the “pre-accident value” of a pickup truck or to repair it to “original pre-accident condition” and holding that the insurer’s contractual right to pay for repairs coupled with a policy exclusion for diminution in value damages limited the insurer’s obligation to the cost of repair.
In Baldwin, the insured’s pickup truck was hit by another vehicle while parked. The truck suffered structural damage, and the insured submitted a first party property claim to his own insurer, AAA. He asserted that the truck was a total loss, but the insurer disagreed and had the vehicle repaired at a reported cost of $8,196, while providing a rental car during the interim.
The insured sued both the other driver and AAA, claiming that as a result of the collision and following repairs the truck’s future resale value was decreased by more than $17,100. AAA also insured the other driver, and plaintiff alleged that AAA was obligated to either to pay the entire pre-accident value of the pickup or to repair it to original pre-accident condition, but AAA did neither. He alleged that after the repair work was completed, the pickup did not match its pre-accident condition “with respect to safety, reliability, mechanics, cosmetics and performance.” He also sought additional payment because the rental vehicle was not equivalent to his pickup.
AAA demurred, contending that the plaintiff was essentially seeking reimbursement for the lost market value of his pickup, a loss that was specifically excluded under the policy. The trial court sustained the demurrer without leave to amend, and the appeals court agreed:
“Appellant alleges generally that it was not possible to repair his almost new pickup to its original pre-accident condition and that AAA’s attempted repairs did not restore the car to that standard. Other than the decline in future resale value, however, Appellant offers no specific factual allegations identifying any unrepaired damage or continuing performance issue with the insured vehicle. He does not allege that the pickup had specific mechanical problems when returned to him, was unsafe in any specific way, or had any specific cosmetic flaws. Indeed, in his opening brief, Appellant indirectly suggests the pickup may have been returned to him in a state arguably qualifying as a ‘normal running condition,’ although he vaguely cautions that repaired vehicles generally ‘may still be dangerous,’ and describes anecdotal reports of others (non-parties) who experienced grave post-repair accidents.”
The court pointed out that the policy stated that AAA “may pay the loss in money or repair . . . damaged . . . property” and the use of the term “may” “suggests AAA had the discretion to choose between the two options.” The Baldwin court cited Ray v. Farmers Ins. Exchange (1988) 200 Cal.App.3d 1411, as unambiguously giving the insurer the right to elect to repair if repair costs would be less than the actual cash value of the vehicle at the time of the loss. To hold otherwise “would make [the insurer] an insurer of the automobile’s cash value in virtually all cases and would render essentially meaningless its clear right to elect to repair rather than to pay the actual cash value of the vehicle.”
The Baldwin court observed that repairing a car to its pre-accident condition does not mean restoring it to its original condition when it left the factory or showroom floor, because “no repair can ever restore a vehicle to its pristine factory condition,” and applying such a standard would mean “no vehicle could be adequately repaired.” (Citing Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409.)
The Baldwin court reinforced its decision by pointing out that the AAA policy had an exclusion for “‘loss’ ‘caused by diminution in value of your insured car . . . by reason of a loss otherwise covered by this policy,” an exclusion not found in earlier decisions ruling out coverage for diminution in value claims. The court rejected both “conspicuous, plain and clear” and public policy arguments against the exclusion, finding it unambiguous and not contrary to public policy. In particular, the court said that there was no evidence that repairable cars pose any particular danger to the public.
Having found no breach of contract, the Baldwin court also found no bad faith, saying that “courts are not at liberty to imply a covenant directly at odds with a contract’s express grant of discretionary power.” (Citing New Hampshire Ins. Co. v. Ridout Roofing Co. (1998) 68 Cal.App.4th 495.) Plus, the Baldwin court rejected the possibility of a third party bad faith claim against AAA via the other driver’s policy, citing Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287. Finally, the Baldwin court upheld the dismissal without leave to amend, saying that even at the appellate stage the plaintiff had not tried to add any new factual allegations to suggest that he was seeking anything other than pure diminution in value damages.
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