Case Title: Gonzales v. Farmers Ins. Co.

Citation: 

Docket Number: S054486

State: oregon

Court: Oregon Supreme Court

Date: 2008-10-23T00:00:00Z

Document:
FILED: October 23, 2008
IN THE SUPREME COURT OF THE STATE OF OREGON
JOSE GONZALES,
Respondent on Review,
v.
FARMERS INSURANCE COMPANY OF OREGON,
an Oregon corporation;
FARMERS INSURANCE EXCHANGE;
a foreign corporation; FARMERS GROUP, INC.,
a foreign corporation;
and MID- CENTURY INSURANCE COMPANY,
a foreign corporation,
Petitioners on Review.
(CC 9910-11479; CA A128598; SC S054486)
En Banc
On review from the Court of
Appeals.*
Argued and submitted September 6,
2007.
James Westwood, of Stoel Rives LLP,
Portland, argued the cause and filed the briefs for petitioners on review.
Jeremy Brandon, of Susman Godfrey,
LLP, Dallas, Texas, argued the cause for respondent on review.  Daniel J.
Gatti, of Gatti, Gatti, Maier, Krueger, Sayer & Assoc., Salem, filed the
briefs for respondent on review.  With him on the briefs were Tom D'Amore,
D'Amore & Associates, Portland, James Nelson, Nelson & Macneil, Albany,
Christopher Hardman, Portland, and Terry Oxford, Susman Godfrey, LLP, Dallas,
Texas.
DURHAM, J.
The decision of the Court of
Appeals is affirmed.  The judgment of the circuit court is reversed, and the
case is remanded to the circuit court for further proceedings.
*Multnomah County Circuit Court,
Frank L. Bearden, Judge. 210 Or App 54, 150 P3d 20 (2006).
DURHAM, J.
This
is an action on an automobile insurance policy.  Plaintiff's insured vehicle
suffered property damage in an accident.  Defendants(1) paid for repairs to the
vehicle, but the repairs did not restore the vehicle to its pre-accident condition. 
Defendants contended that they were responsible for only the cost of the
repairs.  Plaintiff claimed that the policy made defendants liable for
plaintiff's entire "loss" and that, if the attempted repair could not
restore the vehicle to its pre-accident condition, then defendants were
responsible for the diminution of the value of the vehicle due to the accident.
The
trial court granted defendants' motion for summary judgment.  The Court of
Appeals reversed.  Citing two decisions from this court, the Court of Appeals
determined that an insurer in these circumstances must restore the vehicle to
its preloss condition or, if it could not do so, pay the insured the difference
in the repaired vehicle's fair market value before and after the collision.  Gonzales v. Farmers Ins. Co., 210 Or App 54,
150 P3d 20 (2006), citing Dunmire Co. v. Or. Mut. Fire Ins. Co., 166 Or
690, 114 P2d 1005 (1941), and Rossier v. Union Automobile Ins. Co., 134
Or 211, 297 P 498 (1930).  For
the reasons expressed below, we affirm the decision of the Court of Appeals.
The
Court of Appeals opinion sets forth the pertinent facts:
"In January 1998, plaintiff's 1993 Ford pickup truck,
which was insured under the terms of a 'car policy Oregon' issued by
defendant[s], was damaged in a collision.  As a result, plaintiff incurred
$6,993.40 in repair costs, which defendant paid, minus the deductible. 
However, notwithstanding those repairs, the pickup could not be completely
restored to its 'pre-accident condition.'  Consequently, even after being
repaired, the vehicle's market value was diminished."
Gonzales, 210 Or App at 57.  Defendants did not
compensate plaintiff for the alleged diminished value of his truck.
Plaintiff,
along with another individual, brought a class action against defendants. 
Plaintiff alleged that his automobile insurance policy required defendants,
when they elected to repair a vehicle that had suffered property damage, to
restore the vehicle to its preloss condition.  Additionally, plaintiff alleged
that that obligation required defendants to pay for the amount of loss of value
to the vehicle if the vehicle could not be restored to its preloss condition,
called "diminished value."  Based on those allegations, plaintiff
asserted claims for breach of contract, breach of the implied duty of good
faith and fair dealing, and unjust enrichment.
Defendants
moved for summary judgment, arguing that the policy did not cover diminished
value.  Instead, defendants argued, the policy obligated defendants to repair
plaintiff's vehicle.  Defendants contended that the plain and ordinary meaning
of the word "repair" in the policy did not incorporate a duty to pay
diminished value.  Plaintiff 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
defendants and granted defendants' motion.  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.  Plaintiff relied on two cases decided
by this court more than 60 years ago:  Rossier and Dunmire. 
Defendants asserted that more recent decisions issued by this court had
superseded those cases and, in any event, that the cases were distinguishable
or should be overruled.  Defendants further argued that the policy's plain wording did not require payment for
diminished value.
The
Court of Appeals agreed with plaintiff and reversed the trial court's decision.  Gonzales, 210 Or App at
65.  After reviewing Rossier and Dunmire, the Court of Appeals
rejected defendants'
argument that subsequent decisions issued by this court had superseded those
cases.  Id. at 60-63, 65.  Instead, the Court of Appeals concluded that Rossier
and Dunmire mandated the result that plaintiff sought.  Id. at
65.  Defendants sought review.
Before
we turn to our analysis, we set forth the relevant wording from the insurance
policy in some detail.  The policy provides that defendants "will pay for
loss to [the] insured car caused by collision less any applicable deductibles." 
The policy defines "loss" as "direct and accidental loss of or damage to [the] insured car,
including its equipment."  Defendants' liability for that loss is limited
by the following provision:
"Limits of Liability
"Our limits of liability for loss shall not exceed:
"1.  The amount which it would cost to repair or
replace damaged or stolen property with other of like kind and quality; or with
new property less an adjustment for physical deterioration and/or depreciation."
The policy also
describes how loss will be paid by defendants:  "We will pay the loss in
money or repair or replace damaged or stolen property."  Finally, the
policy outlines the rights and responsibilities of the insurer and the insured,
and provides, in part:
"RIGHTS AND RESPONSIBILITIES
"* * * * *
"The insured has the right to payment for the loss
in money or repair or replacement of the damaged or stolen property,
at the option of the [insurer]."
(Bold and
capitalization in original; emphasis added.)  The policy includes no definition
of "repair."  Neither does it expressly include or exclude coverage
for diminished value in those terms.
We
begin our analysis by noting that this case calls for the interpretation of the
terms of the automobile insurance policy that defendants issued.  This case
does not call on the court to decide the principles applicable generally to
diminished value claims in property damage disputes of all kinds.
In
interpreting an insurance policy, we seek to ascertain the intent of the
parties.  Hoffman Construction. Co. v. Fred S. James & Co., 313 Or
464, 469, 836 P2d 703 (1992).  We determine the parties' intent by examining
the terms of the insurance policy.  Id.  If the policy expressly defines
the term in question, we apply that definition.  Holloway v. Republic
Indemnity Co. of America, 341 Or 642, 650, 147 P3d 329 (2006).  If the
policy does not define the term, we first look to the ordinary meaning of the
term.  Id.  We also consider "the particular context in which that
term is used in the policy and the broader context of the policy as a
whole."  Hoffman Construction Co., 313 Or at 470.  If the term has
only one plausible interpretation, we apply that interpretation and conduct no
further analysis.  Id.    If, after those steps, the term remains
susceptible to two or more reasonable interpretations, we resolve any doubt as
to the meaning of that term against the insurer.  Holloway, 341 Or at
650 (citations omitted).  With that analytical framework in mind, we turn to
the policy at issue.
The
policy contains an unambiguous promise by defendants to pay plaintiff "for
loss to your insured car caused by collision * * *" and defines
"loss" to mean "direct and accidental loss of or damage to your
insured car, including its equipment."  (Original boldface omitted.)  The
policy also entitles plaintiff "to payment for the loss in money or repair
or replacement of the damaged or stolen property," at defendants' option.
The
parties' central dispute turns on the meaning of the word "repair" in
the policy.  Specifically, plaintiff argues that "repair" includes
restoration of the preloss condition and value of the insured property, while
defendants argue that "repair" refers to only the restoration of the
function and appearance of the insured property.  Not surprisingly, the parties
offer different definitions of "repair."  Defendants offer the
following definition from Webster's Third New International Dictionary: 
"1 a :  to restore by replacing a part or putting together what is
torn or broken * * *.  b : to restore to a sound or healthy
state."  Webster's Third New Int'l Dictionary 1923 (unabridged ed
2002).
Plaintiff,
on the other hand, contends that defendants" definition is incomplete and cites other
definitions from Webster's: 
"2 : to make good : REMEDY * * *. 3 : to make up for: compensate for."  Webster's at 1923. 
Plaintiff also faults defendants for failing to include a definition of
"restore," because it is part of the definition of "repair." 
"Restore" means "to bring back to or put back into a former or
original state"  Id. at 1936.  Based on those definitions,
plaintiff asserts that "repair" includes the duty to restore the
vehicle's value.
Despite
their differences, the definitions of "repair" cited by both
plaintiff and defendants focus on the restoration of property, either to its
former state or to a healthy state.  Another source, Black's Law Dictionary,
defines "repair" as "[t]o mend, remedy, restore, renovate[;] [t]o
restore to a sound or good state after decay, injury, dilapidation or partial
destruction."  Black's Law Dictionary 1298 (6th ed 1990).  Like the definition from Webster's,
that definition focuses on the restoration of property to a former state.
An
interpretation of the same or similar policy terms in this court's prior case law
can supply helpful contextual evidence of the intent that underlies the use of
those terms in the policy in question here.  The parties acknowledge that two
prior decisions by this court are pertinent to that inquiry, although, as
noted, they disagree about the legal effect of those cases.  We turn next to a
consideration of that contextual evidence.
This
court's two previous decisions addressed whether similar automobile insurance
policies required payment for diminished value when the insurer had not
restored or could not restore the vehicle to its pre-loss condition.  The first
case, Rossier, 134 Or 211, addressed the issue of the proper
measure of property damages under an automobile insurance policy.  The policy
contained a general provision indemnifying the insured against loss or damage
by reason of accidental collision.  The policy also provided that the insurer's
liability was limited to "'the actual cost of replacement of the property
damaged or destroyed, and in no event, to exceed the true cash value of the
automobile current at time loss or damage occurs.'"  Id. at 213
(quoting the policy at issue).  The court determined that that provision
contemplated "that the insurer had the right to replace or repair broken
or damaged parts in an effort to put the automobile in substantially the same
condition as it was prior to the collision."  Id. at 214.
The
court addressed the question of the proper measure of the insurer's monetary
liability as a matter of contract interpretation:
"Unquestionably the primary object or
purpose of the plaintiff was to be indemnified against loss or damage to his
automobile resulting from accidental collision.  It is common knowledge that
the nature and extent of damage to a car may be such that replacement or repair
of broken parts will not compensate the insured for his loss.  In the instant
case plaintiff had a new car.  It had been driven only 140 miles.  A mechanic
called as an expert witness, speaking of the damage to the automobile, said,
'It was a wrecked car, you absolutely can't put a wrecked car back in the
condition it was before the wreck.'  The frame was sprung; rear axles bent;
upholstery seared with acid; doors battered; rear wheel broken; windows
shattered and otherwise injured.  To award him damages for the actual cost of
replacement of broken or damaged parts would, indeed, be inadequate relief. 
That there would be diminution of value as the result of collision as here
shown seems obvious.  In many instances the injury to the automobile may be of
such nature and extent that, after repairs have been made, there will be no
diminution of value.  Under such circumstances cost of repairs would be
equivalent to the difference between the value of the automobile before and
after collision."
Id. at 215.
The
court also determined that the policy term "replacement" embraced the
repair or replacement of damaged property:
"'Replacement' as thus used means, in our
opinion, the restoration of the property to its condition prior to the injury. 
Such restoration may or may not be accomplished by repair or replacement of
broken or damaged parts.  It cannot be said that there has been a complete
restoration of the property unless it can be said that there has been no
diminution of value after repair of the car."
Id.
at 215-16.
The
court also relied on and quoted a court decision from Texas that had construed
a similar limitation of liability clause:
"'The injury being one for which the
appellant was liable under the terms of the policy, the appellee had the right
to claim full compensation for his loss.  That loss was the difference between
the value of the car before and after the injury.  Appellant had, in effect,
contracted to do all that reasonably could be done to restore the car to its
original condition in the way of making repairs and replacements, or to pay the
full amount of damages sustained.  The testimony indicates that the principal
damage was to the body of the car.  Witnesses testified that this could not be
restored to its original condition by merely being repaired.  It was damaged to
the extent that this was impossible, they stated.  Appellant contends that it
was only required to pay the cost of restoring the car to substantially the
same condition it was in before the injury.  That is true, if the words
"substantially the same" mean a condition which made the car equal in
value to what it was before the injury.  Anything less than that would not be
adequate compensation for the loss sustained.'"
Id. at 216 (quoting Standard Accident Ins.
Co. of Detroit v. Richmond, 297 SW 879, 880 (Tex Cir App 1927)).  On the
basis of the foregoing reasoning, the court in Rossier concluded that
the trial court had applied the correct measure of damages:
"The conclusion reached in the instant case
that the proper measure of damages is the difference between the fair cash
value of the car before and after the injury is supported by the weight of
authority:  [citations omitted]."
Id.
Rossier
is helpful in resolving the present dispute, even though the court in that case
did not separately define the term "repair."  The court rejected the
contention that an insurer can satisfy its obligation to restore a vehicle to
its pre-accident condition without diminished value solely by paying for the
cost of repairs.  According to Rossier, if repairs to a vehicle do not
restore the vehicle to its pre-accident condition, then the correct measure of
damages is "the difference between the fair cash value of the automobile
before and after the collision."  Id. at 212.
In
Dunmire, 166 Or 690, the second case relied upon by plaintiff and the
Court of Appeals, this court addressed a slightly different provision than that
at issue in Rossier.  In Dunmire, the policy limited the insurer's liability to "'what it would then
cost to repair or replace the automobile, or parts thereof, with other of like
kind and quality.'"  Id. at 699 (quoting policy).  The trial court
had awarded to the plaintiff in that case the difference between the value of
the car before the accident and after the accident, minus the deductible.  Id. 
This court relied on Rossier as well as a decision from Tennessee, Stoops
v. First Am. Fire Ins. Co., 160 Tenn 239, 22 SW2d 1038 (1930), which involved
the same policy wording that was before this court in Dunmire.  166 Or
at 700.  In Stoops, the Tennessee Supreme Court had concluded that that
policy wording was ambiguous and held that the plaintiff's recovery was not
limited to the cost of repair unless repair had restored the automobile to its
condition prior to the accident.  Dunmire, 166 Or at 700 (discussing Stoops).(2) On the basis
of Rossier and Stoops, this court concluded that the trial court
did not err in refusing to limit plaintiff"s recovery to the cost of repairing the
damaged automobile.  Id.
Defendants
contend that Rossier and Dunmire are distinguishable and, if they
are not distinguishable, that those cases should be overruled.  In Rossier,
this court interpreted the policy term "replacement" to embrace
replacement or repair of broken parts.  The policy clause at issue in Rossier
did not contain the word "repair."  Here, however, the limitation of
liability clause provides for either repair or replacement, at defendants'
option.  Thus, although the reasoning in Rossier is helpful and
persuasive in addressing the instant case, the specific term construed in Rossier
is not precisely the same as that at issue in this case.
We
disagree, however, that Dunmire is distinguishable.  The phrase
containing the word "repair" in the policy in Dunmire was virtually
identical to the policy wording at issue here.  As we noted, the policy in Dunmire
limited the insurer's liability to "what it would then cost to repair or
replace the automobile, or parts thereof, with other of like kind and
quality."  166 Or at 699 (quoting policy).  Defendants point out that Dunmire
does not state whether the policy at issue gave the insurer the option, as the
policy at issue here does, to pay the cost of repair or to pay the cost of
replacement.  That is an important distinction, defendants contend, because, in
the absence of the provision expressly giving the insurer such a choice, the
court in Dunmire would have construed the policy in a way that would
have afforded the insured more protection.
We
disagree with defendants' reading of Dunmire.  The policy in that case
phrased the insurer's obligation in the disjunctive:  "repair or
replace."  Thus, the policy did afford the insurer the opportunity to
satisfy its liability by choosing either to repair or replace the damaged
vehicle.  The policy under consideration here afforded defendants the same
substantive choice.  Defendants' contention provides no basis for
distinguishing Dunmire.
We
conclude that Dunmire's interpretation of "repair" applies to the provision at issue
here.  Under Dunmire, "repair" encompasses the restoration of
the vehicle to its condition prior to the collision.  Dunmire, 160 Or at
699-700.  We see no reason to overrule that well-established legal
interpretation.  Therefore, under the policy at issue, if an attempted
"repair" does not or cannot result in a complete restoration of the
vehicle's preloss condition, the vehicle is not "repair[ed],"
and the resulting diminution of value of the vehicle remains a "loss to
[the] insured car caused by collision" for which defendants are liable
under their policy.(3)
The
particular context of the word "repair" in the instant policy also
demonstrates that defendants' obligation includes payment for diminished value
where repair cannot restore a vehicle to its preloss condition.  See Hoffman
Construction Co., 313 Or at 470 (explaining that policy interpretation
requires us to examine the "particular context in which that term is used
in the policy and the broader context of the policy as a whole").
The
policy requires defendants to pay for "loss to [the] insured car caused by
collision less any applicable deductibles."  The policy defines loss
broadly:  "direct and accidental loss of or damage to [the] insured
car."  Defendants do not dispute that the policy definition of loss is
broad enough to include diminished value.  "Repair," therefore, when
viewed in the context of this policy, which contains a broad definition of
loss, incorporates the concept of restoration of a vehicle's pre-loss condition
or, if the insurer cannot or will not restore the vehicle to that condition,
payment for diminished value.
In
the "limits of liability" provision, the word "repair"
appears in the same sentence as the phrase "of like kind and
quality."  Plaintiff contends that that phrase modifies both the word
"repair" and the word "replace."  Because the word
"quality" in that phrase signifies value, plaintiff argues,
"repair" must restore the automobile to the same quality or condition
that existed before the accident.  Significantly, the provision at issue in Dunmire
contained the same phrase.  On the basis of Dunmire, we agree that the
phrase "of like kind and quality" is another factor supporting our
conclusion that defendants are obligated to restore the damaged vehicle or, if
the vehicle cannot be restored, to compensate plaintiff accordingly.
We
hold that "repair," as used in the policy at issue in this case,
requires defendants to restore plaintiff"s vehicle to its pre-loss physical condition. 
If defendants do not or cannot so restore plaintiff"s vehicle, defendants must compensate a
plaintiff for the diminished value of the vehicle.
Defendants
assert that plaintiff's claim, when reduced to its essence, would lead to an
absurd result:  if an insurer has restored a vehicle to its preloss condition,
an insurer nevertheless is obligated to pay for diminished value that results
from only stigma attached to that vehicle because the vehicle has been involved
in a collision.  Defendants argue that the supposed negative perception of
prospective buyers regarding a repaired car's worth following a collision is
not included in the policy's definition of "repair."
In
this case, plaintiff does not claim damages for stigma, as defendants describe
that concept above.  Plaintiff submitted an affidavit in opposition to
defendants' summary judgment motion that stated that he was "not satisfied
that [his] vehicle had been repaired with like kind and quality parts, and was
not restored to its preloss condition.  The vehicle had a number of problems
that did not exist before."  Plaintiff also submitted two expert
affidavits describing the inability of body shops to restore preloss physical condition
in certain circumstances.  Because this case involved a genuine dispute about
whether defendants had restored the vehicle to its preloss condition, we need
not decide whether the policy requires payment for a claim based solely on
"stigma."
The
trial court granted summary judgment to defendants because it concluded that a
vehicle is "repaired," within the meaning of the policy, when the
insurer restores it to a sound condition after damage.  That premise permitted
the trial court to disregard plaintiff's factual contentions that, despite
defendants' repair efforts, the vehicle still was damaged and had not been
restored to its preloss condition.  However, that approach alters the
interpretation of the policy term "repair" that this court has
followed consistently since Dunmire.
The
trial court erred by granting summary judgment to defendants.  Summary judgment
is appropriate only when there is no genuine issue of material fact and when
the moving party is entitled to judgment as a matter of law.  ORCP 47 C.  Based
on the affidavits submitted by plaintiff, a genuine issue of material fact
exists as to whether defendants' attempt to repair plaintiff's vehicle restored
the vehicle to its preloss condition.  If it did not, then defendants'
selection of the repair option under the policy has not compensated plaintiff
for the loss to his insured vehicle, and he remains entitled to either a
genuine repair of the vehicle, as we have discussed, or compensation for the
diminished value of the unrepaired vehicle.  Summary judgment was therefore
inappropriate.
The
decision of the Court of Appeals is affirmed.  The judgment of the circuit is
reversed, and the case is remanded to the circuit court for further
proceedings.
1. The
defendants in this case are Farmers Insurance Company of Oregon, Farmers
Insurance Exchange, Farmers Group, Inc., and Mid-Century Insurance Company
(collectively, "defendants").  Additionally, the complaint brought by
the other named plaintiff, Al Bathke, was voluntarily dismissed.  The trial
court did not certify a class.
2. In Stoops, the Tennessee
Supreme Court held that the insurer in that case was liable to the insured for
the depreciation in the value of his automobile resulting from the accident,
where repairs and replacement would not restore
the automobile to its original value.  22 SW2d at 1040.  The policy included,
as one of its "general conditions," a provision that the liability of
the insurer "shall in no event exceed the limit of liability, if any,
stated in Paragraph C (actual cash value, less $50.00), nor what it would
then cost to repair or replace the automobile or parts thereof with other of
like kind and quality."  Id. at 1038 (emphasis in original)
(internal quotation marks omitted).  In analyzing that policy wording, the
court reviewed the other parts of the policy.  Id. at 1039.  The
policy's first clause provided that the defendant insured the plaintiff for a
term specified, "to an amount not exceeding the actual cash value of the
property at the time any loss or damage occurs, nor, in any event, the limits
of liability, if any[.]"  Id. (quotation marks omitted).  The
limitation of liability, contained in the "general conditions"
section and quoted above, created a "double alternative," according
to the court, but did not clarify what measure of liability applied to a
particular circumstance.  Id.  In light of that "alternative and
ambiguous limitation of liability," the court concluded that the
alternative limitations should be applied to "afford the insured the full
protection contemplated."  Id.
3. We note that Dunmire was
decided in 1941.  Thus, the definition of repair adopted in Dunmire has
been part of the legal landscape for well over 60 years.  Nothing in Dunmire
or this case, however, prevents insurers from including a definition of repair
in automobile policies that excludes diminished value from coverage.  According
to plaintiffs, many insurance policies do exclude such coverage.