In a carefully watched choice affecting Massachusetts auto insurers, policyholders, and third-party claimants, the Supreme Judicial Court docket has dominated that the 2016 Massachusetts Customary Vehicle Insurance coverage Coverage doesn’t present property harm protection for inherent diminished worth (IDV) claims made by third events.
As outlined by the Supreme Judicial Court docket, IDV damages arising out of property harm signify “the distinction between the market worth of a motorized vehicle instantly earlier than a collision and the automobile’s market worth after a collision and subsequent repairs,” even when these repairs absolutely restore the automobile to its pre-accident situation.
The Supreme Judicial Court docket choice, issued on January 30, 2025, in Cubberley v. The Commerce Insurance coverage Firm resolved two authorized points. The primary is whether or not the 2016 coverage’s specific exclusion of “decreased worth or intangible loss” barred IDV claims regardless of the coverage’s “until in any other case required by regulation” exception. The second is whether or not third-party claimants might immediately sue insurers for IDV damages with out first acquiring judgments towards the insureds who precipitated the tangible property harm loss to their autos.
The Cubberley Court docket dominated insurers haven’t any obligations to IDV claims beneath the 2016 Vehicle Insurers Bureau coverage kind, which differs materially from the 2008 coverage kind that the Court docket beforehand interpreted in McGilloway v. Security Insurance coverage Firm supplied protection for IDV claims. See Company Checklists’ article of October 26, 2021, “Supreme Court docket Guidelines Auto Insurance policies Cowl Automobiles’ Submit-Restore Losses of Worth.”
The Court docket additionally dominated that third-party claimants couldn’t immediately sue a legal responsibility insurer for any damages attributable to its insureds, together with IDV damages, until the claimant had recovered a judgment towards the insured for the insured damages.
The importance of this concern to the Massachusetts insurance coverage market is mirrored by the three amicus briefs filed within the case – from the American Property Casualty Insurance coverage Affiliation and Massachusetts Insurance coverage Federation collectively, the New England Authorized Basis, and the Massachusetts Academy of Trial Attorneys. Every group acknowledged that the Court docket’s interpretation of the 2016 coverage language would have substantial implications for claims dealing with vehicle property harm claims, protection disputes, and private legal responsibility for insureds.
Details of the Cubberley Case’s IDV Claims
The Cubberley case attraction arose from two separate accidents involving Commerce-insured drivers. In March 2018, Philip Seaver’s 2017 Honda Civic was broken in an accident with Commerce’s insured, Anthony Fallica. The next yr, in March 2019, Jeffrey Cubberley’s Ford Focus was broken in an accident with one other Commerce insured, Cindy Maclean. In each circumstances, Commerce accepted legal responsibility for its insureds and paid for the complete value of repairs to revive the autos to their pre-accident bodily situation.
Nevertheless, each Seaver and Cubberley claimed their autos suffered inherently diminished worth past the bodily harm that Commerce paid to restore. They argued their autos had been value much less within the resale market just because that they had been in accidents, although they had been absolutely repaired.
When Commerce denied their IDV claims, they filed a category motion lawsuit in search of to signify all equally located third-party claimants whose IDV claims Commerce had denied beneath the 2016 coverage.
The case’s procedural path displays its significance to Massachusetts auto insurance coverage regulation. Initially filed in Superior Court docket, it was transferred to the Enterprise Litigation Session in Boston after which stayed pending the SJC’s choice within the McGilloway case then pending earlier than the Supreme Judicial Court docket. After the McGilloway choice dominated that the 2008 coverage’s property harm settlement lined IDV claims, the keep was lifted. Commerce then moved to dismiss, arguing that the plaintiffs lacked standing to sue immediately with out first acquiring judgments towards the insureds and that the 2016 coverage’s specific exclusion barred protection for IDV claims.
After the Enterprise Litigation Session agreed with Commerce’s place and dismissed the Cubberley swimsuit, the Supreme Judicial Court docket accepted the Cubberley plaintiffs’ appeals for direct appellate assessment, bypassing the Appeals Court docket.
The Court docket’s Evaluation of The 2016 Coverage Language
The Supreme Judicial Court docket’s evaluation targeted on the variations between the 2016 coverage language and the 2008 coverage language beforehand interpreted in McGilloway. The Court docket emphasised that whereas McGilloway had discovered protection for IDV claims beneath the 2008 coverage, that call was “narrowly tethered to the particular language within the 2008 normal coverage.”
The important thing variations in Half 4. Property Injury of the 2016 coverage that drove the Court docket’s evaluation had been:
First, the 2016 coverage explicitly limits protection to “harm or destruction of the tangible property of others.” In distinction, the 2008 coverage broadly lined “property harm” with out the “tangible property” limitation. The Court docket discovered this distinction vital as a result of, as established in McGilloway, IDV damages signify an intangible loss in market worth relatively than bodily harm to tangible property.
Second, and most critically, the 2016 coverage accommodates an specific exclusion stating that “The quantity we can pay doesn’t embody compensation for… any decreased worth or intangible loss claimed to end result from the property harm until in any other case required by regulation.” No comparable exclusionary language appeared within the 2008 coverage.
The plaintiffs primarily argued that protection existed, regardless of this exclusionary language, due to the “until in any other case required by regulation” exception. They contended that each the McGilloway choice and G.L. c. 90, § 34O (the obligatory property harm insurance coverage statute) created authorized necessities for IDV protection that triggered this exception.
The Court docket rejected each arguments. Relating to McGilloway, the Court docket emphasised that its prior choice merely interpreted particular coverage language and didn’t create a common authorized requirement for IDV protection “regardless of the coverage language.” As for the statute, the Court docket famous that G.L. c. 90, § 34O expressly authorizes the Commissioner of Insurance coverage to approve “circumstances, exclusions, and limitations” in auto insurance policies. For the reason that Commissioner permitted the 2016 coverage with its IDV exclusion, the statute couldn’t be learn to require protection that the coverage explicitly excludes.
The Court docket additionally rejected the plaintiffs’ argument that the Commissioner exceeded his authority in approving the IDV exclusion. The Court docket discovered the exclusion aligned with the Commissioner’s statutory energy to approve coverage exclusions and didn’t battle with G.L. c. 90, § 34O’s primary mandate that insurers cowl property harm legal responsibility. The Court docket famous that the statute’s $5,000 minimal protection requirement itself demonstrates that insurers needn’t cowl all sums an insured would possibly owe.
The Standing Requirement: A Separate Foundation for Dismissal
Though the Court docket’s interpretation of the 2016 coverage language resolved the protection concern, it additionally addressed what it known as a “threshold concern” – whether or not third-party claimants have the authorized proper or “standing” to sue an insurer immediately with out first acquiring judgments towards the insureds who precipitated their damages.
The Court docket’s standing evaluation centered on two statutes: G.L. c. 175, § 112 and § 113. Collectively, these statutes set up what the Court docket known as a “two-step process” that third-party claimants should comply with:
1. First, get hold of a last judgment towards the insured tortfeasor
2. Then, if vital, pursue the insurer to succeed in and apply the insurance coverage coverage to fulfill that judgment
The Court docket emphasised that this process shouldn’t be merely procedural formality however a authorized prerequisite for third-party claimants to have standing to sue a tortfeasor’s insurer for damages. Quoting from an earlier choice, the Court docket reiterated that “acquiring a judgment is a vital predicate for sustaining a reason behind motion towards” an insurer.
Neither Cubberley nor Seaver had obtained judgments towards Commerce’s insureds earlier than suing Commerce immediately. The Court docket rejected their argument that Commerce’s fee of restore prices constituted an admission of legal responsibility that made acquiring judgments pointless. Because the Court docket defined, “an insurer’s fee to a 3rd get together based mostly on the insured’s potential legal responsibility ‘shouldn’t be the identical factor as conceding legal responsibility’ or admitting the scope of legal responsibility.”
The Court docket famous that whereas Massachusetts regulation does enable direct actions towards insurers in some circumstances – significantly beneath G.L. c. 93A and c. 176D for unfair claims settlement practices — these statutory exceptions do not override the legal requirement that a claimant reduce their claim to a judgment requirement before seeking to reach and apply the insurance policy to satisfy their claim for damages against the policy’s insured.
Requiring a claimant to satisfy this condition precedent of obtaining a judgment against the insured serves several practical purposes in the Court’s opinion: (1) It prevents premature litigation over insurance coverage before the claimant establishes the insured’s liability, (2) It protects insurers from having to defend multiple suits over the same accident, (3) It ensures that the insured’s liability defenses are fully considered before insurance coverage is determined, and (4) It maintains the fundamental nature of liability insurance as an indemnity contract for the insured rather than a direct benefit to third parties.
Third-party Property Damage Claimants Still Have The Right To Collect IDV Damages
The Cubberley decision only decided that the 2016 standard auto policy’s property damage provision did not provide coverage for inherent diminished value claims.
The decision affirmed, as stated in McGilloway that third-party property damage claimants can recover for provable IDV damages to their vehicles. However, the Cubberley changes from whom the third-party claimant may recover:
- If the driver causing the IDV damage is insured by an insurer using the 2008 auto policy form, the insurer is responsible for any provable IDV damages.
- If the driver causing the IDV damage is insured by an insurer using the 2016 auto policy form, the insured is personally responsible for paying any provable IDV damages.
Whether it is the insurer or the insured who might have potential liability for IDV damages, the Court emphasized that IDV damages are not automatically “inherent” when a vehicle is damaged and repaired. As stated in both McGilloway and reaffirmed in Cubberley, a third-party claimant must prove “with individualized proof” both that:
- The vehicle has actually suffered IDV damages
- The specific amount of IDV damages at issue
A Comment on Agents Advising Clients Contemplating Seeking IDV Damages From an Uninsured Driver
An insurance agency advising one of their insureds considering pursuing an IDV claim against a driver who has no IDV coverage might suggest they carefully weigh the cost-benefit of suing an uninsured driver for IDV damages.
As a matter of legal proof, a third-party claimant seeking to recover for IDV damages, even with 100% liability, will need expert testimony in any court proceedings to prove both the existence and amount of any IDV damage to their vehicle as required by the Supreme Judicial Court.
The costs of an expert in an IDV lawsuit are not recoverable expenses and, when paid, can possibly reduce any IDV damages if the court awards IDV damages at all to zero.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Connect with me directly, by calling me at 617-598-3801.
