Property Damage Claims: Totaled Cars and Diminished Value in Georgia

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Repairing a wrecked car does not end what a Georgia insurer owes its own policyholder when the policy covers the damage and the car is still worth less than before the wreck. In State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498 (2001), the Supreme Court of Georgia held that an insurer’s option to repair “serves only to abate, not eliminate, the insurer’s liability for the difference between pre-loss value and post-loss value.” Which rules govern a totaled or damaged car depends on whose insurer is paying: the owner’s own insurer answers under the policy and under the Insurance Commissioner’s first-party regulation, and the at-fault driver’s insurer answers in tort and under a separate claims-handling statute.

Contract or Tort: Two Claims for the Same Car

Mabry drew the line by quoting an earlier decision: “In an action by the owner of personal property, such as an automobile, to recover for loss or damage sustained by him as a result of a tortious injury thereto, the measure of damages is to be determined under general principles of law. [Cit.] But in a suit on a contract, as a policy of insurance, whereby the owner is insured against actual loss or damage to an automobile by collision, the measure of the insurer’s liability will be determined according to the terms of the contract.” The plaintiffs in Mabry were policyholders with first-party claims against their own insurer, and the Court called the line of cases it relied on “contract cases” in which “the measure of damages comes from the contract.”

Diminished Value Under the Policy

The holding reads in full: “value, not condition, is the baseline for the measure of damages in a claim under an automobile insurance policy in which the insurer undertakes to pay for the insured’s loss from a covered event, and that a limitation of liability provision affording the insurer an option to repair serves only to abate, not eliminate, the insurer’s liability for the difference between pre-loss value and post-loss value.” The insurer argued that the recovery reached only defective repairs. The Court answered by walking through the earlier cases: in one, “there is no argument that the repairs were defective, only that they could not return the car to its pre-loss value,” and another was “only one in which the evidence showed diminution in value after repair.”

Total Loss Under the First-Party Regulation

Rule 120-2-52 sets procedures for “first party property damage claims arising under personal private passenger motor vehicle policies.” When the insurer “determines the insured vehicle to be a total loss” and the policy settles on actual cash value or replacement, the insurer may pay a cash-equivalent settlement or replace the vehicle (Rule 120-2-52-.06).

A cash-equivalent settlement is “based upon the actual cost less any deductible provided in the policy, to purchase a comparable automobile by the same manufacturer, same model year, with similar body style, similar options and mileage.” The cost is set by one or more listed methods, in order: two or more comparable automobiles within 50 miles of the county seat where the vehicle was principally garaged; if none, comparable automobiles within 100 miles, including the closest major metropolitan area; if none, dealer quotations from the 50-mile area; or a valuation source that meets the rule’s criteria for statistically valid fair market values.

Repair Estimates, Betterment, and Depreciation

When a car is repaired, the insurer’s estimate must be one that “will allow for repairs to be made in a workmanlike manner which would restore the damaged vehicle to its preaccident condition relative to quality, safety, function and appearance.” If the insured shows by a written estimate that necessary repairs will cost more, the insurer must respond within 15 days and either name a shop that will make the repairs at the insurer’s estimate or pay the difference (Rule 120-2-52-.04(1)).

Deductions for betterment and depreciation “shall be allowable only if” they reflect a measurable decrease in market value from the vehicle’s poorer condition or prior damage, or its general condition considering its age. Wear and tear or rust is capped at a $1,000 deduction, missing parts at their replacement cost, and the deductions together “shall be limited to 20% of the market value of the vehicle prior to the loss” (Rule 120-2-52-.04(2)). For example, imagine a car worth $30,000 before the loss: the 20 percent ceiling on these deductions would be $6,000.

Claims Against the At-Fault Driver’s Insurer

A claim against the other driver is a tort claim, and under Mabry its measure comes from “general principles of law” rather than from a policy. Under those principles, the Court of Appeals has measured the loss as the difference between the vehicle’s value before and after the collision; when the owner has had the vehicle repaired, the loss can be shown instead by the reasonable value of the labor and materials for the repairs plus any permanent loss in value that remains after the repair, so long as the total does not exceed the vehicle’s value before the injury (Perma Ad Ideas of America, Inc. v. Mayville, 158 Ga. App. 707 (1981)). In that case the owner offered no evidence of the car’s value after the repairs, so the only damages shown were the repair costs, and because the owner had accepted a check for that amount marked as a full and final payment, the court held the claim settled by accord and satisfaction.

The claims-handling duty comes from statute. When property covered by a motor vehicle liability policy is damaged or destroyed, the insurer must adjust the loss fairly and promptly, make a reasonable effort to investigate and evaluate the claim, and, where liability is reasonably clear, make a good faith effort to settle with the claimant (OCGA 33-4-7(a)). If the claimant delivers a demand letter by statutory overnight delivery or certified mail, return receipt requested, offering to settle for an amount certain, the insurer refuses within 60 days, and the claimant ultimately recovers at least the demand, the insurer may owe, beyond the loss, up to 50 percent of the insured’s liability for the loss or $5,000, whichever is greater, plus reasonable attorney’s fees (OCGA 33-4-7(a), (c)). The insurer breaches that duty when, after investigation, liability has become reasonably clear and the insurer in bad faith offers less than the amount reasonably owed under all the circumstances known to it (OCGA 33-4-7(b)).

Frequently Asked Questions

How quickly must the owner’s own insurer act on a claim?
It must acknowledge the claim within 15 days, affirm or deny liability within 15 days after receiving a completed proof of loss on a motor vehicle policy, and tender payment within 10 days after coverage is confirmed and the amount is determined and not in dispute (Rule 120-2-52-.03(1), (3), (4)). If it needs more time, it must say why within five business days after the 15 days run, and the total time to accept or deny “shall not exceed 60 days” from notice of the claim unless the file documents that requested information has not been submitted (Rule 120-2-52-.03(5)).

What if the owner and the insurer agree on liability but not on the amount?
Either one may ask the Insurance Commissioner in writing to arbitrate. A claim settled that way is binding on both parties, “but shall not preclude or waive any other rights either party has under common law” (Rule 120-2-52-.03(6)).

Does a total-loss payment include sales tax and title fees?
It includes “all applicable taxes, license fees and other fees incident to the transfer of ownership of a comparable automobile,” limited to “the amount that would have been paid on the totaled, insured vehicle at the time of settlement” (Rule 120-2-52-.06).

How long does an owner have to sue over damage to a car?
An action for injury to personal property must be brought within four years after the right of action accrues (OCGA 9-3-31), and an action for the destruction of personal property carries the same four years (OCGA 9-3-32). A claim for injury to the person from the same crash has two years (OCGA 9-3-33).

Does the jury learn that the at-fault driver’s insurer is being sued for bad faith?
Not at first. The insurer stays an unnamed party, not disclosed to the jury, until a verdict awards at least the amount of the claimant’s demand, and only then does the trial resume on the question of bad faith (OCGA 33-4-7(d)).

  • State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498 (2001)
  • Perma Ad Ideas of America, Inc. v. Mayville, 158 Ga. App. 707 (1981)
  • Ga. Comp. R. & Regs. 120-2-52-.02, -.03, -.04, -.06
  • OCGA 33-4-7(a), (b), (c), (d)
  • OCGA 9-3-31; OCGA 9-3-32; OCGA 9-3-33

Disclaimer

This article provides general information about vehicle property-damage claims under Georgia law. It is not legal advice and does not create an attorney-client relationship. Which authority applies depends on whose insurer is paying, on the policy language, and on the specific facts. A person dealing with a total loss or a repaired vehicle that has lost value should consult a licensed Georgia attorney about the particular situation.

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