Insureds Claiming “Diminished Value” Damages under Ontario’s OAP1 Auto Policy [1]

“Does “damages” in its various manifestations in the OAP, the [Insurance] Act and the Statutory Conditions include Diminished Value? Is …[an insured] estopped from claiming Diminished Value? Is this a contractual claim defined by the statutory policy or does the insurer stand in the place of the at fault tortfeasor?  Is this a collision claim which provides for strict “repair” on a contract or a claim where the insurer pays its own insured for the full gamut of damages, including Diminished Value?  Which section or sections of the OAP are applicable? Does the failure of …[the insurer] to provide the mandated written notice regarding its election to repair deprive it of any rights?” [2]

So queried Deputy Judge Prattas in the recent Small Claims Court decision Renwick v. Allstate Insurance Company of Canada. [3] The case dealt with the issue of whether the “diminished value” of an automobile following an accident is a proper cause of action for damages by an insured against his insurer.  The decision deals with the motion brought by the insurer, Allstate, to strike the claim and dismiss the action of the insured, Renwick, on the basis that it disclosed no reasonable cause of action.  The motion was dismissed.

Background

Renwick owed a Jaguar that was involved in an accident in December 2014.  Renwick was not at fault for the accident.  Allstate ultimately chose to repair the vehicle.  Renwick maintained that Allstate was responsible to pay him the diminished value for his vehicle. [4]  Allstate refused.

Renwick started the Small Claims Court action against Allstate maintaining that his luxury vehicle had sustained a “diminished value”.  His position was that his vehicle was worth less after the repairs than it was before the accident.  He claimed that his vehicle now had a “stigma” from having been involved in an accident, and that its resale value has been reduced because of it.

Renwick and Allstate agreed that their respective rights, duties and obligations are governed by the OAP1 Policy, the Insurance Act and its regulations.

Renwick took the position that the diminished value of his vehicle was a loss or damage covered by his auto policy, and for which he should be indemnified.  His position relied on case law adjudicated in jurisdictions outside of Ontario.  The foundation of Renwick’s position was that diminished value is a common law right.  Nothing in the Insurance Act, its regulations, the OAP1 Policy or the Statutory Conditions, specifically exclude the payment of diminished value damages.

Renwick relied, in part, on the broad wording in Section 6.2 of the policy, for example, requiring an insurer to:

“…pay the cost of damage to the automobile, its equipment, contents and for loss of use of the automobile or contents arising from an accident for which another person would have been legally responsible in the absence of Section 263 of the Insurance Act (Ontario).” [Emphasis added.]

Renwick argued that the provisions of section 6.2 of the Policy do not eliminate an insurer’s liability to pay for other uncompensated elements; “damage” covered in Section 6.2 includes the common law damage for “diminished value”.

Renwick also argued that Allstate’s failure to give written notice of its intention to repair the vehicle somehow compromised its position or obligations.

Allstate’s position on the motion was that it had complied with its obligations under the policy and the Insurance Act.  The policy was a standard policy and contained the standard terms required by the Act and its regulations.  Allstate maintained that there is no obligation in the policy or the Act to provide coverage for “diminished value”.  Allstate also argued that the “no fault” regime in Ontario prohibited all claims for diminished value.

For reasons that are unclear, counsel focussed attention on Section 5 of the policy, which addresses “Uninsured Automobile Coverage”.  Allstate also relied on the wording of the Statutory Conditions and maintained that its only obligation was to pay the lower of: (1) the cost to repair the loss or damage; or (2) the actual cash value of the vehicle at the time it was damaged.

Allstate concluded that the language of the policy is unambiguous and leaves no room for interpretation that the obligation of an insurer includes indemnity for the “diminished value” or stigma loss of a vehicle.

Decision

In his analysis of the submissions, Deputy Judge Prattas was persuaded that Renwick produced enough case law to show that the right to “diminished value” damages has been accepted in other common law provinces and that it may also exist in Ontario.  The Deputy Judge noted that the cases decided outside of Ontario were not binding, but they had persuasive value. Deputy Judge Prattas was also satisfied that there was sufficient evidence that there may in fact be a diminished value in Renwick’s vehicle that has not been properly compensated by Allstate.  In the circumstances of the case, Deputy Judge Prattas concluded that there was a triable issue.  Deputy Judge Prattas dismissed Allstate’s motion.  The action was permitted to proceed to trial.

It is important to note that Deputy Judge Prattas was not deciding the merits of the issue.  He simply noted that, for the purpose of the motion, there was a legitimate or genuine dispute justifying a trial.  It was not “plain and obvious” to him on the motion that there was no triable issue in the case to justify its dismissal.

A key point in Deputy Judge Prattas’ determination appears to have been the effect of the no-fault scheme itself.  Though the no fault regime in Ontario prohibits all tort actions for recovery of property damages against a negligent party, the right of an insured to sue his insurer for “damages” to his automobile is preserved in section 263(5)(a), which reads, in part:

“…an insured has no right of action against any person involved in the incident other than the insured’s insurer for damages to the insured’s automobile or its contents or for loss of use…” [Emphasis added.]

Deputy Judge Prattas ceded the possibility that the reference to “damages”, broadly interpreted, could include “diminished value” damages as contemplated by common law.

What Insurers Should Know

The case lacks an in-depth consideration of the complex legislative and regulatory scheme and history. There is no reference to the modern approach to statutory and policy interpretation that requires the adoption of an interpretation that complies with the legislative text, promotes the legislative purpose, and produces a reasonable and sensible meaning.[5]

For example, the apparent broad wording of section 263(5)(a) of the Insurance Act needs to be juxtaposed with the specific wording of the OAP1 Policy.  The Policy is the indemnifying agreement. Moreover, the preamble of the section 8 – Statutory Conditions [6] contain a paramountcy clause, which states, in part:

“… If there is a discrepancy between these conditions and the wording in the policy these conditions prevail.”

Paragraph 6(5) of the Statutory Conditions specifies a limit to an insurer’s liability:

“The insurer shall not be liable for more than the actual cash value of the automobile at the time any loss or damage occurs, and the loss or damage shall be ascertained or estimated according to the actual cash value with proper deduction for depreciation, however caused, and shall not exceed the amount that it would cost to repair or replace the automobile…”

Counsel representing Renwick advises that the case resolved prior to trial, and so the issue lives on to be judicially determined in another case.

There has been a surge of cases dealing with the concept of recovery for “diminished value” damages in Ontario.  Renwick is the first contemporary case in Ontario about which the author is aware where a claim for diminished value is made in the context of a first party claim by an insured against an insurer.  The case suggests that upon cursory review of the issue, the answer to the question of first party recovery for “diminished value” is “maybe”. The prediction is that upon a more comprehensive review of the issue, the answer will be a definitive “no”.