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In Gonzales v. Farmers Ins. Co. of Oregon, 196 P.3d 1 (Or. 2008), the insured, whose truck was damaged in a collision, sued his motor vehicle insurer, asserting claims for breach of contract, breach of implied duty of good faith and fair dealing, and unjust enrichment.

The defendant insurer had paid for repairs to the vehicle, but the repairs did not restore the vehicle to its pre-accident condition. The defendants contended that they were responsible for only the cost of the repairs. Defendants argued the policy obligated them only to repair the plaintiff's vehicle, as the plain and ordinary meaning of the word "repair" in the policy did not incorporate a duty to pay diminished value.

The plaintiff insured responded that the plain meaning of "repair" encompassed restoration of the vehicle's preloss physical condition and, if that were not possible, payment for diminished value. The trial court agreed with the defendants and granted the defendants' motion for summary judgment.

The plaintiff appealed and argued that Oregon precedent required an automobile insurer to fully repair the damaged vehicle and to pay for any remaining diminished value, unless the insurance policy expressly excluded such coverage; the plaintiff relied on two cases decided by the Oregon Supreme Court more than 60 years ago. The defendants asserted that more recent decisions had superseded those cases and, in any event, that those cases were distinguishable or should be overruled. The defendants further argued that the policy's plain wording did not require payment for diminished value.

The court of appeals agreed with the plaintiff and reversed the trial court's decision. After reviewing prior case law relied on by the plaintiff, the court rejected the defendants' argument that subsequent decisions issued by the Oregon Supreme Court had superseded those cases. Instead, the court of appeals concluded that the prior case law mandated the result that the plaintiff sought. The defendants sought review.

The Oregon Supreme Court affirmed the decision of the court of appeals, holding that "repair," for the purposes of an automobile insurance policy entitling the insured to receive, at the insurer's option, payment for the loss in money or repair or replacement of the damaged vehicle, encompassed the restoration of the vehicle to its condition prior to a collision. Thus, if an attempted repair did not or could not result in complete restoration of the vehicle's preloss condition, the vehicle was not repaired, and the resulting diminution of value of the vehicle was a loss to the insured which was caused by a collision, and the insurer was liable under the policy for that loss.

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