Court Opinion

ID: 9719522
Source: CourtListenerOpinion
Date Created: 2023-08-26 07:55:13.922049+00
Date Added: 2024-06-11T12:24:11.387092
License: Public Domain

CARR, J.
I dissent. The majority’s conclusion that diminution in market value of a repaired automobile by reason of its status as a wrecked car is not recoverable under the collision policy at issue herein, is, in my view, a windfall for the insurer, Farmers. The majority’s holding excused it from considering and determining whether the trial court prejudicially erred in instructing the jury on and submitting for the jury’s determination the legal issue of whether the contract obligated the insurer to pay its insured for loss of market value. I have considered the issue, tendered by appellant, find submitting this legal issue to the jury to be erroneous, the instructions to be improper and the error prejudicial. I would reverse the judgment.
*1419I
The interpretation of the policy is a question of law. (Evid. Code, § 301, subd. (a).) Initially, it is the trial court’s function to determine what the policy means and to instruct the jury accordingly. It is error to leave the interpretation to the jury. (Ibid.; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865 [44 Cal.Rptr. 767, 402 P.2d 839]; California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 35 [221 Cal.Rptr. 171].) Unless the interpretation turns on the credibility of extrinsic evidence, the trial court’s interpretation is not conclusive if an appeal is taken. Ah appellate court is free to disregard the trial court’s interpretation and to reach its own independent determination of the meaning of the policy provisions. (Bareno v. Employers Life Ins. Co. (1972) 7 Cal.3d 875, 881 [103 Cal.Rptr. 865, 500 P.2d 889].) Any ambiguities in the contract are to be construed in favor of the insured. (Gov. Code, § 1654; Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 464 [113 Cal.Rptr. 711, 521 P.2d 1103].) The words used in a policy of insurance are to be interpreted in their ordinary and popular sense, as a person of average intelligence and experience would understand them. (Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 272 [203 Cal.Rptr. 672].)
In the present case, plaintiff’s claim for breach of contract based on Farmer’s failure to pay for diminution in value derives from the following provision contained in the insurance contract: “The limit of the Company’s liability for loss shall not exceed the actual cash value of the damaged or stolen property, or if the loss is of a part, its actual cash value, at the time of loss, nor what it would then cost to repair or replace the damaged or stolen property or part with other of like kind and quality, less depreciation.”
The policy further provides the insurer “may pay for the loss in money or may repair or replace the damaged or stolen property or any of its parts
This appears to be a case of first impression in California. In Owens v. Pyeatt (1967) 248 Cal.App.2d 840 [57 Cal.Rptr. 100], in which a policy provision almost identical with the one herein was at issue, the court did not definitely address the issue of the recovery of diminution of value damages. What the court did was hold that an insurer under the policy provision at issue is liable for the preaccident value of a vehicle restored to its preaccident physical condition while suffering a loss in value would be considered repaired to “like kind and quality.” The court did not define “like kind and quality” other than to note that it means “substantially the same condition [as] before the accident.” (Id., at p. 849.) The majority does not construe Owens as requiring an insurer to both repair a wrecked automobile to its *1420preaccident physical condition and market value and follows that conclusion with a quote from Couch on Insurance that “ ‘[w]here the insurer, in the exercise of its option to repair, restores the automobile to its normal running condition, there is by hypothesis no total loss of the insured vehicle.’ ” (Maj. opn., p. 1417.) The Couch statement is not this case either as to the language of the policy provision or the condition of the vehicle at issue. The Ray automobile was not totalled, though there may be those who assert it should have been, and the policy provision was not restoring the automobile to “its normal running condition” but repaired “with other like kind and quality.” That is the problem with the analysis of the majority opinion and like opinions of other jurisdictions which permit no recovery for diminution in value. Like kind and quality is equated with the physical condition of the car, not the market value. Like kind and quality are the critical words of this policy provision. If a car is repaired but it has a substantially diminished value because of its status as a repaired wrecked car, can it be said that it is of like kind and quality as before the accident causing the damage?
As the majority has noted, courts in other jurisdictions have developed two distinct lines of authority in the construction of insurance clauses similar to the one herein.
Various jurisdictions have ruled the insurer is not liable for diminution in value under an insurance contract provision requiring the insurer to “repair or replace” with “like kind and quality.”
In Bickel v. Nationwide Mutual (1965) 206 Va. 419 [143 S.E.2d 903], the Virginia court interpreted the phrase “to repair or replace the property or such part thereof with other of like kind or quality” to deny recovery for diminution of value, reasoning that the insurer was obligated only to repair or replace the damaged parts with like kind or quality. In General Accident Fire & Life Assurance Corp. v. Judd (Ky. 1966) 400 S.W.2d 685, the Kentucky court construed similar language to refer only to the physical condition and not the market value. Similar rulings have been made by courts in Illinois (Haussler v. Indemnity Co. of America (1923) 227 Ill.App. 504) and South Dakota (Stucker v. Travelers Indemnity (1957) 77 S.D. 27 [84 N.W.2d 566]). In each of these cases, the contract language was interpreted to require only restoration of physical condition, not restoration of value.
What appears to be a majority of jurisdictions have found diminution in value a recoverable item of damage under contract language essentially identical to that in the present case. In Superior Pontiac Co. v. Queen Insurance Co. of Amer. (Tex. 1968) 434 S.W.2d 340, the Texas Supreme Court held the cost of repairs of a stolen but recovered vehicle would not *1421compensate the insured for the loss she had suffered because it would not restore the automobile to substantially its former condition and value. In so holding the Supreme Court reversed the ruling of the Court of Appeals of Texas that “repair” and “replace” in the insurance policy meant restoration of the car to substantially the same condition as before the theft. Similar rulings have been made by the courts of Oregon (Rossier v. Union Automobile Ins. Co. (1930) 134 Ore. 211 [291 P. 498]; Dunmire Motor Co. v. Oregon Mut. Fire Ins. Co. (1941) 166 Ore. 690 [114 P.2d 1005]); Kansas (Venable v. Import Volkswagen, Inc. (1974) 214 Kan. 43 [519 P.2d 667, 68 A.L.R.3d 1184]); South Carolina (Campbell v. Calvert Fire Ins. Co. (1959) 234 S.C. 583 [109 S.E.2d 572]); Georgia (Dependable Insurance Co. v. Gibbs (1962) 218 Ga. 305 [127 S.E.2d 454]); and Mississippi (Potomac Insurance Co. v. Wilkinson (1952) 213 Miss. 520 [57 So.2d 158, 43 A.L.R.2d 321]).
I believe the correct and more enlightened view is that espoused by a majority of jurisdictions, that contract provisions which require the insurer when repairing or replacing a damaged vehicle with “other of like kind and quality” to pay for any diminution in value of the repaired automobile by reason of its status as a wrecked car. The reasoning of the court in Campbell v. Calvert Fire, supra, 234 S.C. 583 [109 S.E.2d 572], demonstrates the soundness of this position.
In Campbell, the insurance contract provided: “The limit of the company’s liability for loss shall not exceed either (1) the actual cash value of the automobile, or if the loss is of a part thereof the actual cash value of such part, at time of loss or (2) what it would then cost to repair or replace the automobile or such part thereof with other of like kind and quality, with deduction for depreciation, or (3) the applicable limit of liability stated in the declarations. [H] ‘The company may pay for the loss in money or may repair or replace the automobile or such part thereof, as aforesaid . . . .’” (109 S.E.2d at p. 575.)
The insured, who repaired his automobile before reporting the accident, testified he sustained a total loss and the trial court rendered judgment for the insured in the sum of $1500. The South Carolina Supreme Court reversed and remanded, holding this testimony did not sustain recovery on the basis of total loss. In discussing the measure of damages for retrial, the court stated: “The purpose of a policy of this kind is to compensate the insured in full for any loss or damage to his automobile less any deduction specified. Under its terms, the Company has the option after a collision of having the automobile repaired. As pointed out in Rossier v. Union Automobile Insurance Co., 134 Or. 211, . . . ‘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 the *1422cost of repairs would be equivalent to the difference between the value of the automobile before and after collision’. But as there pointed out, restoration of the car to its former condition ‘may nor 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.’ In America Standard County Mutual Insurance Co. v. Barbee, Tex. Civ. App., 262 S.W.2d 122, 123, the Court said: ‘The words “repair” and “replace” used in a policy of this kind mean the restoration of the automobile to substantially the same condition in which it was immediately prior to the collision and it would not be restored to the condition if the repairs left the market value of the automobile substantially less than the value immediately before the collision.’” (109 S.E.2d at p. 576.) The court in Campbell concluded: “It follows . . . that where there is a partial loss and the automobile can be repaired and restored to its former condition and value, the cost of repairs is the measure of liability, less any deductible sum specified in the policy. But if, despite such repairs, there yet remains a loss in actual value, estimated as of the collision date, the insured is entitled to compensation for such deficiency. Under these circumstances some courts adopt as the measure of damages the difference between the fair cash value of the car before and after the collision. [Citations.] Other courts achieve substantially the same result by adding any diminution in value to the cost of repairs. [Citations.] . . . [fl] Either of the foregoing methods assures fair protection under a policy of this kind.” (109 S.E.2d at pp. 576-577, italics added.)
Similarly, in Venable v. Import Volkswagen, Inc., supra, 519 P.2d 667, the Kansas Supreme Court interpreted the following phrase: “ ‘The limit of the Company’s liability for loss shall not exceed the actual cash value of the damaged or stolen property, if the loss is of a part, its actual cash value, at the time of loss, nor what it would then cost to repair or replace the damaged or stolen property or part with other of like kind and quality, less depreciation.’ ” (Id., at p. 672, original italics.) In upholding a jury award for the insured of the loss in value after repairs, the court stated: “When an insurer makes an election to repair or rebuild under a ‘repair, restore or replace clause’ in its policy the insurer is then obligated to put the vehicle in substantially the same condition as it was prior to the collision so as to render it as valuable and as serviceable as before.” (Ibid.)
This interpretation is the only reasonable construction of a contract provision requiring an insurer to “repair or replace” the damaged property or part with other of “like kind and quality.” To permit the insurer to repair the car to comparable physical condition and function while its value has plummeted does not compensate the insured with a car of “like kind and quality” as the average person would understand those words. The purpose *1423of the policy is to compensate plaintiff for any loss or damage, less any deduction. Plaintiff is entitled to have a car just as valuable as the car was before the accident. Anything less would not be adequate compensation for the loss sustained.
I find unpersuasive the majority’s conclusion that this interpretation of the policy language would “render essentially meaningless [Farmer’s] clear right to elect to repair rather than to pay the actual cash value of the vehicle at the time of loss.” (Maj. opn., p. 1417.) In many instances, the total cost of repairs plus any diminution in value would not approach the preaccident value of the automobile. Farmers is not deprived of its right to elect to repair the damaged vehicle as the most economical means of paying claims; rather, Farmers may not elect to restore the car to its preaccident physical condition without compensating for loss of value when such election deprives plaintiff of his contractual right to an equally valuable automobile. I conclude that, as a matter of law, the provisions require the insured to restore the vehicle to its preaccident value.
In this case, the trial court did not construe the language of the policy and therefore did not instruct the jury as to the applicable law. The lower court apparently determined diminution in value was a proper element of damages under the policy as Farmer’s demurrer to plaintiff’s first cause of action embodying the breach of contract claim.1 Nevertheless, the court refused to instruct the jury with plaintiff’s proposed instruction No. 6 which provided: “If the automobile could not be repaired to like kind and quality, or if repaired, the repaired vehicle was not of like kind and quality, plaintiff was entitled to either (1) be paid the actual cash value of his vehicle at the time of the collision, (2) have his car replaced with one of like kind and quality, or (3) be paid the difference between the actual cash value of the car at the time of the collision, less its actual cash value after repairs.”
Stating that proposed instruction No. 6 was encompassed within instruction No. 29, the court instructed the jury: “If you find that plaintiff’s automobile could not reasonably be restored to a condition of like kind and quality as it was prior to the collision, and if you find that defendant’s failure to pay plaintiff the actual cash value of the said vehicle was a breach of its contract of insurance, then you may award plaintiff the difference between the actual cash value of the said vehicle at date of the accident and after repair. . . .”
*1424In instructing the jury in the language of instruction No. 29, the trial court submitted for the jury’s determination the legal question concerning the duty owed by Farmers to its insured under the provisions of the policy. This was error.2 The question of whether the contract obligated Farmers to pay plaintiff for his car’s diminution in value after repairs restored it to its preaccident physical condition was not a factual issue. The only factual issues which should have been submitted to the jury were whether the automobile was restored to its preaccident operating condition and whether there was any diminution in value after the repairs were completed, not whether the defendant insurer breached the insurance contract by its failure to pay the actual cash value of the vehicle. This was a legal issue.
The trial court’s refusal to instruct the jury with plaintiff’s proposed instruction No. 6 while incorrectly submitting the legal question of the contract’s meaning to the jury pursuant to instruction No. 29 constitutes reversible error. Although a trial court may properly refuse an instruction on the ground that the point is covered by other instructions, the court’s refusal to give a proper instruction or the giving of an improper instruction, may be reversible error if it is affirmatively shown the error was likely to mislead the jury. (7 Witkin, Cal. Procedure (3d ed. 1985) Trial, § 240, pp. 246-247.) In this case, the error misled the jury as the instruction given did not inform the jury of the duty imposed upon Farmers under the contract. It was incumbent upon the trial court to properly instruct the jury on the controlling legal principles applicable to the case so that the jury would have a complete understanding of the facts. The jury returned a general verdict for Farmers. Therefore, I cannot discern whether the jury determined Farmers owed no duty to pay for diminution in value or whether it believed plaintiff had not proven actual loss of market value after the repairs to his car. Under these circumstances, the error must be deemed *1425prejudicial as it is unclear whether a result more favorable to plaintiff may have ensued had proper instructions been given.
I would therefore reverse the judgment.3
A petition for a rehearing was denied June 1, 1988.

The record lacks a copy of the order overruling Farmer’s demurrer to plaintiff’s third attended complaint. It shows only that the matter was argued and submitted and that Farmers thereafter answered the third amended complaint. The record does reflect, however, that the court overruled Farmer’s demurrer to plaintiff’s second amended complaint. It appears the court considered diminution in value as a proper element of damages as the issue was raised in closing argument to the jury.

 Farmers urges that plaintiff may not complain of any error in instruction No. 29 as he “invited” the error by proferring instruction No. 5. Plaintiff’s proposed instruction No. 5 provided: “If you find that plaintiff’s automobile could not reasonably be restored to a condition of like kind and quality as it was prior to the collision, and if you find that defendant’s failure to pay plaintiff the fair market value of the said vehicle was a bad faith breach of its contract of insurance, then you may award plaintiff the greater of the fair market value of the said vehicle or the reasonable value of the loss of use of the said vehicle from the date of the said bad faith breach to the date of your judgment. The value of loss of use is the fair rental value of an automobile of like kind and quality as plaintiff’s vehicle was prior to the collision over the period of time in question.” Farmers urges the changes to this instruction which were incorporated into instruction No. 29 were favorable to plaintiff as they omitted the reference to proving “bad faith” breach of contract, thereby lowering plaintiff’s burden of proof. The argument is specious as Farmers misconstrues the purpose of the proposed instruction. Plaintiff hoped the court would instruct the jury with this instruction so that the jury would determine the factual question whether Farmers acted in bad faith for the purpose of deciding plaintiff’s claims charging breach of the covenant of good faith and fair dealing and related actions. In removing the bad faith language, the trial court transformed a factual question into a legal one not properly submitted to the jury.

 As I conclude this instructional error mandates reversal, I do not reach plaintiff’s contention that the court erred in refusing to instruct the jury as to adhesion contracts.