One question that comes in from time to time is whether a liability insurance policy (either personal, commercial general, or auto) must cover the loss in value of damaged property in addition to the cost of repairs. This comes up a lot with high-end cars, such as the Ferraris, Corvettes, and Maseratis of the world. The car gets hit by an at-fault driver. The car’s owner sees the resale value of the car plummeting and wants the other driver to pay for that. So, does the at-fault driver (and therefore the driver’s insurance company) have to cover that loss of value?
No.
The courts in New York and Connecticut have arrived at similar answers to this question, and they won’t make sports car owners happy. The New York State Court of Appeals (the state’s highest court) addressed the issue in 2002 in Fisher v. Qualico Contracting Corp.:
“As recognized in our case law, however, replacement cost and diminution in market value are simply two sides of the same coin. Each is a proper way to measure lost property value, the lower of the two figures affording full compensation to the owner."
Similarly, the Connecticut Supreme Court ruled held in a 1951 decision, Whitman Hotel Corporation v. Elliott & Watrous Engineering Co.:
“The ultimate measure of damages in a case such as this is the diminution in the value of the plaintiff’s property caused by the defendant’s tort. It is, however, well established that such diminution in value may be determined by the cost of repairing the damage, provided, of course, that that cost does not exceed the former value of the property and provided also that the repairs do not enhance the value of the property over what it was before it was damaged."
Therefore, in both states the owner of the damaged property is entitled to the cost of repair or the reduction in the property’s value, whichever is less. This is obviously not good news for owners of damaged luxury cars, but the courts have been clear. Don’t expect liability insurers to pay for diminished value.