Insurance – Auto – ‘Inherent diminished value’

Where a defendant insurance company denied a plaintiff’s claim for the “inherent diminished value” of a vehicle damaged in an accident, a judgment dismissing the plaintiff’s complaint should be affirmed despite his contention that IDV damages are recoverable under Massachusetts law.

Affirmed.

“Following Michael Merullo’s collision with a driver insured by Amica Mutual Insurance Company, Merullo submitted a claim to Amica for the ‘inherent diminished value’ (‘IDV’) of his car resulting from the accident. Amica denied the claim, asserting that such damage was not covered under the driver’s liability policy. Merullo subsequently filed suit. Because the particular arguments that Merullo advances on appeal fail to convince us that coverage is provided, we affirm the district court’s decision dismissing his claims. …

“On May 29, 2020, Merullo’s vehicle was damaged in a collision with a driver insured by Amica. The driver was covered under the 2016 edition of the Massachusetts standard auto policy (the ‘2016 Policy’), as approved by the state insurance commissioner. …

“Citing Part 4 of the 2016 Policy, Amica refused to cover any IDV damage, asserting that such damage was not covered under the plain language of the policy. …

“With respect to Merullo’s breach of contract claim, the parties agree that Massachusetts substantive law governs our interpretation of the policy. …

“This appeal centers around the following provision within Part 4: ‘The amount we will pay does not include compensation for . . . any decreased value or intangible loss claimed to result from the property damage unless otherwise required by law.’ On its face, this sentence (the ‘IDV Exclusion’) excludes IDV coverage unless such coverage is ‘required by law.’ Merullo argues that Massachusetts law, via two related steps, does indeed require such coverage. He points first to the holding in McGilloway [v. Safety Ins. Co., 174 N.E.3d 1191, 1196 (Mass. 2021)] that IDV damages are recoverable against the driver-insured who is liable for damages to another person’s car. 174 N.E.3d at 1196. He then points to Massachusetts General Law chapter 90, section 34O, which he says requires insurers to provide coverage coextensive with the insured’s liability (up to $5,000).

“Merullo is correct in describing the holding of McGilloway. But he stops short of establishing that section 34O requires that a property damage liability insurance policy provide coverage coextensive with the insured’s liability. …

“Merullo did assert at oral argument yet another, very different theory: that the IDV Exclusion addresses only claims for damage suffered by the insured, and thus does not bar IDV coverage with respect to damage suffered by third parties. …

“As stated above, the IDV Exclusion provides: ‘The amount we will pay does not include compensation for physical damage to, or towing or recovery of, your auto or other auto used by you or a household member with the consent of the owner, or any decreased value or intangible loss claimed to result from the property damage unless otherwise required by law.’ This sentence establishes two separate exclusions: It excludes compensation for (i) ‘physical damage to, or towing or recovery of, your auto or other auto used by you or a household member with the consent of the owner’ or (ii) ‘any decreased value or intangible loss claimed to result from the property damage.’ The parties agree that the first exclusion, through its reference to ‘your auto or other auto used by you or a household member with the consent of the owner,’ applies only to first-party claims brought by the insured. Merullo asserts that the second exclusion — for IDV claims — is also so limited, and that IDV coverage is therefore required with respect to third-party claims.

“There are two key defects in Merullo’s argument. First, there is nothing in the text to indicate that the term ‘your auto’ applies to the sentence’s second clause. If ‘your auto’ were meant to apply to the IDV clause, then the IDV clause would likely have been placed alongside the other types of damage mentioned, rather than after the ‘your auto’ clause. Thus, the policy would read: ‘The amount we will pay does not include compensation for physical damage to, towing or recovery of, [or any decreased value or intangible loss claimed to result from physical damage to] your auto or other auto used by you or a household member with the consent of the owner.’ But instead, IDV is mentioned in an entirely distinct clause, separated from the first by ‘or’ plus a comma.

“Second, Part 7 of the 2016 Policy, which addresses first-party collision coverage, already unambiguously excludes IDV claims, providing: ‘We will pay the cost to repair the auto or any of its parts up to the actual cash value of the auto or any of its parts at the time of the collision. We will not pay for any decrease in value claimed to result from the loss. The most we will pay will be either the actual cash value of the auto or the cost to repair the auto, whichever is less.’ (emphasis added). We thus see no reason why Part 4 — which addresses third-party liability coverage — would specify that IDV is not covered with respect to first-party claims. Part 7 makes that clear on its own.

“Putting this analysis together, both exclusions in Part 4 make sense. The first one makes clear that Part 4 applies only to third-party claims, and the insured should look to other parts of the policy for coverage of the insured’s own vehicle. And the second one, as stated above, addresses IDV within the context of the third-party claims otherwise covered in Part 4. …

“The failure of Merullo’s breach of contract claim is fatal to his remaining claims alleging that Amica engaged in ‘unfair claims settlement practices.’ Merullo alleges various violations of Massachusetts chapters 93A and 176D, which jointly regulate unfair settlement practices in the insurance industry. … But as the district court correctly pointed out, Merullo’s unfair settlement claims all rest on the same faulty premise: that Amica ‘was required to pay IDV and failed to do so.’ … As discussed above, Merullo’s presented arguments do not persuade us that Amica was, in fact, required to pay IDV damages. Therefore, the district court correctly concluded that Amica’s refusal to pay those damages was neither unfair nor deceptive.”

Merullo v. Amica Mutual Insurance Company (Lawyers Weekly No. 01-185-23) (13 pages) (Kayatta, J.) Appealed from a decision by Casper, J., in the U.S. District Court for the District of Massachusetts. Kevin J. McCullough, with whom Michael C. Forrest and Forrest, Mazow, McCullough, Yasi & Yasi were on brief, for the plaintiff-appellant; Christopher M. Reilly, with whom Anthony J. Antonellis, Mara E. Finkelstein and Sloane and Walsh were on brief, for the defendant-appellee (Docket No. 23-1005) (Sept. 20, 2023).

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