In Blakely v. State Farm Mut. Ins. Co., 406 F.3d 747 (5th Cir. 2005), the court ruled that an auto insurer was not liable for paying diminished post-repair value and that a policy preclusion for recovery of diminished value was not against public policy.

Several insureds who submitted claims for auto repairs to their auto insurer, State Farm, brought action against the insurer because they alleged they should have been compensated for the lowered market values of their vehicles following repairs.

The insureds' policies provided limits of liability for loss that were the lower of "1. the actual cash value; or 2. the cost of repair or replacement." The "cost of repair or replacement" was defined as "1. the cost of repair or replacement agreed upon by you and [State Farm]; 2. a competitive bid approved by [State Farm]; or 3. an estimate written based upon the prevailing competitive price."

While State Farm adjusted and paid for repairs and losses, the insureds claimed that they were also entitled to the diminished value of their vehicles. The insureds stated that Mississippi law requires inclusion of diminished value in the term "cost of repair or replacement." State Farm countered that the policy' plain and unambiguous language limited its liability to the cost of repair or replacement.

The court said that the Mississippi Supreme Court recognized the concept of diminished value, but in that case the policy did not provide a limiting definition of "repair" or "cost of repair" as in the State Farm policy.

The court further stated that the State Farm policy "explicitly outlined the three bases for such 'cost of repair or replacement'…There is no mention of additional recovery for any loss in, or diminished, value; nor can any policy text be understood in its 'plain, ordinary, and popular sense'…to mean such diminished value is recoverable." Based on the limiting definition and reading the policy in the plain and ordinary sense, the court concluded that no additional recovery for diminished value was available.

The insureds then argued that even if the court interpreted the policy as providing no coverage for diminished value, "the policy should be invalidated as against Mississippi public policy because it does not permit recovery for diminished value." The court, though, found nothing in Mississippi law requiring insurers to include diminished value as part of all auto insurance policies.

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