Cubberley & another v. Commerce Insurance Co.
(Massachusetts Supreme Judicial Court)
The amicus announcement in this case asks whether the 2016 Massachusetts standard auto insurance policy, approved by the Commissioner of Insurance, excludes coverage for the “inherent diminished value” (IDV) to a third party’s vehicle caused by a collision with the insured’s vehicle, and if so, whether that exclusion is permissible under Massachusetts insurance law. The Massachusetts Supreme Judicial Court has defined the IDV as the loss in market value to a vehicle due to the stigma of being in an accident, even after the vehicle has been fully repaired. The Superior Court in this case dismissed the plaintiffs’ complaint alleging the right to coverage for IDV, concluding that the auto policy clearly and permissibly excluded any such coverage.
The relevant language of the policy provides coverage for any “tangible property” damage to the third party’s vehicle but excludes coverage for “any decreased value or intangible loss” resulting from the collision:
[W]e [the insurer] will pay for damage or destruction of the tangible property of others . . . . The amount we will pay does not include . . . any decreased value or intangible loss claimed to result from the property damage unless otherwise required by law.In its amicus brief for the defendant, Commerce Insurancy Company, NELF argues that the policy’s clear distinction between “tangible property” damage and any resulting “decreased value or intangible loss” to the property is coextensive with the Court’s definition of “property damage” as consisting of both tangible and intangible damage. Moreover, the policy’s clear exclusion of “any decreased value or intangible loss” encompasses the IDV.
In this connection, NELF argues that the 2016 policy’s key distinction between covered tangible damage and excluded “decrease in value or intangible loss” is entirely absent in the 2008 standard policy that was in dispute in McGilloway v. Safety Insurance Co., 488 Mass. 610 (2021). In contrast to the 2016 standard policy, the 2008 policy broadly covered a third party’s loss of any legally cognizable “property damage,” thereby covering both tangible and intangible damage, including the IDV. Therefore, McGilloway is distinguishable and does not support the plaintiffs’ position.
NELF also argues that the auto policy’s excusion of IDV damages is legally permissible, Indeed, the Court has already concluded that a standard auto insurance policy can exclude IDV coverage under Massachusetts law. See Given v. Commerce Ins. Co., 440 Mass. 207, 212 (2003) (applicable standard auto policy “expressly exclude[d] payment [to insured] of any amount higher than repair or replacement costs, and thus expressly exclude[d] compensation for inherent diminished value” to insured’s auto)(emphasis added).
In particular, the standard auto policy in Given entitled the insured either to repair her vehicle (and recover those costs) or to recover the diminished value of her damaged but unrepaired vehicle. See Given, 440 Mass. at 212 (discussing same). However, regardless of which remedy the insured elected, the policy barred her from ever recovering more than the cost of physical repairs. “In any event, we [the insurer] will never pay more than what it would cost to repair or replace the damaged property.” Id. (emphasis added). Put otherwise, the standard auto policy in Given excluded recovery for any intangible, stigmatic harm to the vehicle that occurred apart from the physical damage, i.e., the IDV.
As the Court in Given explained, a standard policy can exclude IDV coverage because the Legislature is altogether silent on the issue. Since Massachusetts insurance law “neither explicitly forbids nor expressly allows the [IDV exclusion] in question,” the Commissioner has the discretion to achieve a “reasonable resolution of the statute’s silence.” Massachusetts Teachers’ Ret. Sys. v. Contributory Ret. Appeal Bd., 466 Mass. 292, 301 (2013) (cleaned up). Accordingly, the Commissioner may exercise his delegated power to fill the statutory gap and decide whether the IDV is covered or excluded, along with deciding many other provisions of the standard auto policy. “Property damage liability insurance is insurance containing provisions as prescribed in this section, among such other provisions, including conditions, exclusions, and limitations, as the commissioner of insurance may approve.” G. L. c. 90, § 34O (1st ¶) (emphasis added).
Notwithstanding Section 34O’s clear language defining “property damage liability insurance” as “containing . . . such other provisions, including . . . exclusions, . . . as the commissioner of insurance may approve,” G. L. c. 90, § 34O, the plaintiffs argue that Section 34O nonetheless requires the insurer to indemnify the insured for all proven tort damages that the insured has caused to a third party’s vehicle, including the IDV. For support, the plaintiffs rely on language contained in Section 34O’s second paragraph, which provides, in relevant part:
Every policy of property damage liability insurance shall provide that the insurer will pay on behalf of the insured all sums the insured shall become legally obligated to pay as damages because of injury to or destruction of property . . . caused by accident and arising out of the ownership . . . of the insured motor vehicle, subject to a limit of not less than five thousand dollars because of injury to or destruction of property of others in any one accident.
- L. c. 90, § 34O (2nd ¶) (emphasis added). The plaintiffs also argue that the 2016 standard policy incorporates this italicized statutory language by reference when it excludes “any decreased value or intangible loss claimed to result from the property damage unless otherwise required by law.” Add. 28 (emphasis added).
The plaintiffs are in error because they have ignored the operative language in Section 34O’s first paragraph, which expressly defines the term “property damage liability insurance” as “containing . . . exclusions . . . as the commissioner of insurance may approve.” G. L. c. 90, § 34O (1st ¶) (emphasis added). Accordingly, when Section 34O’s second paragraph provides that “every policy of property damage liability insurance” shall indemnify the insured for tort damages caused to a third party’s vehicle, this can only mean that the policy shall also contain the Commissioner’s approved exclusions (along with other approved policy provisions), as set forth in the first paragraph.
In short, Section 34O provides that the insurer’s duty to indemnify the insured is subject to the Commissioner’s approved exclusions, such as the IDV in this case. Only this interpretation of Section 34O preserves the Legislature’s express definition of “property damage liability insurance,” contained in the first paragraph, and harmonizes it with the language of the second paragraph on which the plaintiffs erroneously rely. To the contrary, the plaintiffs’ argument would render that clear statutory definition of “property damage liability insurance” superfluous. In so doing, the plaintiffs’ position would also eliminate the Commissioner’s expressly delegated power to approve exclusions and other policy provisions. This simply cannot be.