A claimant was involved in a car accident with our insured. The claim against the insured was for property damage done to the other car and included about $5,000 that the claimant said he lost in diminished value. We don't think that diminished value claims are payable under the auto policy. What is your view on this subject?

Tennessee Subscriber

Diminution in value claims are not usually paid under the physical damage section of an auto policy. This is the intent of physical damage coverage because the insuring agreement applies to direct and accidental damage, and direct damage is the actual physical damage done to the car, not a loss in value. Some courts began to question this approach and ruled that since diminution in value was not specifically excluded by the terms of the policy, it was covered. This is especially true, said the courts, since a damaged vehicle did actually lose some value after an accident even if it was expertly repaired. The business auto policy responded to this thinking with an exclusion directly excluding loss to a covered auto due to diminution in value. The personal auto policy has an endorsement, PP 13 01, that can be put on the auto policy to exclude diminution in value.