Jim Porter: Must auto insurer pay replacement value vs. repair costs? | SierraSun.com

Jim Porter: Must auto insurer pay replacement value vs. repair costs?

TRUCKEE, Calif. – One of the outcomes of an automobile accident is dealing with insurance companies. The experience can be good or not so good. If your car is almost “totaled,” are you entitled to be paid the replacement value in cash or may your insurance company have the car repaired?

Auto Insurance Claim

65 year-old Melody Carson bought her very first new car, a 2008 Honda Accord, for $31,000. That in itself is interesting. She was insured by Mercury Insurance (the same folks that spent hundreds of millions on failed Proposition 33).

Not too long after she purchased the car Carson was injured in an accident caused by Guy Anderson who had minimal insurance coverage of $15,000 per person, $30,000 per accident and $10,000 for property damage. Word of advice: Always purchase more coverage than the minimum. Always.

Carson had a Mercury-approved repair facility prepare an estimate – $8,000. Mercury authorized the repairs. The pre-accident value of her car was $25,000.

Once they got into the repairs, they found more damage, and the cost to repair totaled $19,000. After the repairs, her almost-new Honda had a “diminished stigma value” of $8,000. Oops.

Carson v. Mercury Insurance

As you can imagine, Melody Carson was not pleased that Mercury chose to repair her car rather than declare it a total loss and pay her $25,000 to replace the vehicle, especially since it was instantly devalued to a third of what she paid.

Carson sued Mercury for breach of contract and breach of the implied covenant of good faith and fair dealing which is implicit in every contract. She claimed Mercury should have factored in that her Honda would only be worth $8,000 once repaired, i.e. Mercury had an obligation to declare the Honda “totaled” and pay full replacement value.

Insurance Policy

Carson had collision coverage with Mercury as follows: “The Company’s liability shall not exceed the lesser cost of the following options: (1) repair or replace the motor vehicle or any part thereof, using original or non-original equipment manufactured parts, with deduction for depreciation, or (2) pay the agreed or appraised value of the motor vehicle.”

Per the terms of the policy, Mercury could pay to have the Honda repaired right up to its value of $25,000. In fact, it paid $19,000.

Carson argued Mercury was legally required to consider the vehicle’s diminution in value after the repairs, such that the car should have been “totaled” and replaced.

Bob Dylan

Part of the case involved whether a couple of car mechanics who were not engineers and had minimal formal education were qualified to testify for Carson using simple “common sense,” i.e. even a lay person could tell the car was totaled.

Her attorney quoted Bob Dylan in Subterranean Homesick Blues: “You don’t need a weather man to know which way the wind blows.” (I just had to get that into this column.) She lost that argument.


The Court of Appeal ruled for Mercury finding the company was entitled to have the car repaired notwithstanding it was worth very little afterwards.

After this case, Mercury added a specific exclusion clause in its policies declining any coverage for diminution in value – further reducing its exposure.

Boring Column

I grant you this column is boring under anyone’s standards, but this insurance issue comes up a lot, especially in our area where there are so many snow and ice-caused collisions. Now you know the California insurance law of repair v. replace.

Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. He was the Governor’s appointee to the California Fair Political Practices Commission and McPherson Commission, both involving election law and the Political Reform Act. Jim’s practice areas include: real estate, development, construction, business, HOAs, contracts, foreclosures, mediation and other transactional matters. He may be reached at porter@portersimon.com or at the firm’s website http://www.portersimon.com.

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