A new car was stolen from our insured auto dealer's lot. The vehicle was driven to another state and abandoned. The police recovered the car and returned it to the insured, but the car had about 3,000 miles put on it by the thieves. There was no physical damage to the car but the insured says the car cannot be sold as “new” because of the mileage, so he has suffered a loss. The insurer sees this as an indirect loss, one of diminished value, and so not covered by the auto policy. What is your opinion? Further, how would this be handled if the auto policy were a personal auto policy?

New York Subscriber

It is our opinion that the vehicle did not suffer a “loss” as defined on the business auto policy. The physical damage section of the auto policy applies to direct and accidental loss or damage to the covered auto. Direct loss is just that — a direct physical loss to the auto. A loss in value, in that the car cannot be sold as new, is diminution in value and that is not physical damage. The majority of courts throughout the country that have heard the issue say that diminution in value is not physical damage to the covered property.