Dunn v. Meridian Mut. Ins. Co.

Citation836 N.E.2d 249
Decision Date27 October 2005
Docket NumberNo. 49S02-0510-CV-500.,49S02-0510-CV-500.
PartiesJames B. DUNN, on behalf of himself and others similarly situated, Appellants (Plaintiffs below), v. MERIDIAN MUTUAL INSURANCE COMPANY, an Indiana Corporation n/k/a State Automobile Mutual Insurance Company, an Ohio Corporation, Appellees (Defendants below).
CourtIndiana Supreme Court

Jay P. Kennedy, Indianapolis, Andrew S. Friedman, Elaine A. Ryan, Phoenix, AZ, for Appellants.

Karl L. Mulvaney, Nana Quay-Smith, Candace L. Sage, Arthur P. Kalleres, Robert L. Gauss, Brent W. Huber, Indianapolis, for Appellees.

BOEHM, Justice.

We hold that uninsured motorist coverage of an automobile policy covers the liability of an uninsured motorist to the insured. If the insured's vehicle is damaged by an uninsured motorist and the insurer chooses to repair the vehicle, the insurer must pay any diminished value of the insured's vehicle, in addition to any costs of repair up to the policy limits.

Factual and Procedural Background

In March 2001, James Dunn, a Tennessee resident, was involved in an accident in Tennessee. The record does not include any other information about the accident, but the parties agree that Dunn's uninsured motorist (UIM) coverage applied. Dunn had $10,000 in UIM coverage with a $200 deductible. Meridian Mutual Insurance Company, Dunn's insurer, inspected his car and paid for $3,108.30 in repairs and waived the deductible. As explained in greater detail, under Allgood v. Meridian Sec. Ins. Co., 836 N.E.2d 243, 2005 WL 2789043 (Ind.2005), Meridian's collision coverage is limited to repair or replacement of a damaged vehicle and does not require it to compensate its insureds for any diminution of the value of the car resulting from having been in an accident. Meridian contends that its policy gives its insureds the same result in the case of an accident in which an uninsured motorist is liable to its insured.

Dunn filed a breach of contract claim against Meridian alleging that under his UIM coverage Meridian was required to pay not only for the cost of repairs to his car, but also for the diminished value of the car after the repairs attributable to it having been in an accident. Dunn's claim under UIM is only for the damage to his car including its diminished value, and appears to be in an amount under the UIM limit of $10,000. Dunn also sought certification as a class action. Meridian moved to dismiss for failure to state a claim upon which relief can be granted. Without deciding the class issue, the trial court granted Meridian's motion, finding that the policy was unambiguous and did not provide coverage for diminished value.1 The Court of Appeals decided this case before we handed down our opinion in Allgood. Relying on its decision in that case, Allgood v. Meridian Sec. Ins. Co., 807 N.E.2d 131, 138 (Ind.Ct.App.2004), aff'd by 812 N.E.2d 1065 (Ind.Ct.App.2004), the Court of Appeals reversed and remanded. Dunn v. Meridian Mut. Ins. Co., 810 N.E.2d 739, 740 (Ind.Ct.App.2004). We grant transfer.

Applicable Law

An insurance policy is governed by the law of the principal location of the insured risk during the term of the policy. Hartford Accident & Indem. Co. v. Dana Corp., 690 N.E.2d 285, 291 (Ind.Ct.App.1997), trans. denied; see also Restatement (Second) of Conflict of Laws § 193 (1971). Because Dunn was a Tennessee resident at the time he took out the policy, his claim is grounded in the law of Tennessee. Specifically, by issuing a policy to a Tennessee resident, Meridian, which was domiciled in Indiana, became subject to the Tennessee UIM statute. See United Farm Bureau Mut. Ins., Co. v. Hanley, 172 Ind.App. 329, 360 N.E.2d 247 (1977), trans. denied (Farm Bureau, domiciled in Iowa, was subject to Indiana's UIM statute); Dunn v. Hackett, 833 S.W.2d 78 (Tenn.Ct.App.1992) (State Farm, domiciled in Illinois, was subject to Tennessee's UIM statute).

Tennessee and Indiana doctrines of insurance policy interpretation appear to be the same. An insurance policy is a contract, and as such is subject to the same rules of construction as other contracts. Allstate Ins. Co. v. Dana Corp., 759 N.E.2d 1049, 1054 (Ind.2001); McKimm v. Bell, 790 S.W.2d 526, 527 (Tenn.1990). Interpretation of a contract is a pure question of law and is reviewed de novo. Harrison v. Thomas, 761 N.E.2d 816, 818 (Ind.2002); State ex rel. Pope v. U.S. Fire Ins. Co., 145 S.W.3d 529, 533 (Tenn.2004). If its terms are clear and unambiguous, courts must give those terms their clear and ordinary meaning. Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 947 (Ind.1996); Ralph v. Pipkin, No W2004-0179-COA-R3-CV, 2005 WL 1220132, at *2, 2005 Tenn.App. LEXIS 287, at *6 (Tenn.Ct.App. May 17, 2005). Courts should interpret a contract so as to harmonize its provisions, rather than place them in conflict. Whitaker v. Brunner, 814 N.E.2d 288, 294 (Ind.Ct.App.2004), trans. denied; S. Cast Stone Co. v. Adams, No. 1369, 1990 WL 198905, at *6, 1990 Tenn.App. LEXIS 862, at *15 (Tenn.Ct.App. Dec. 12, 1990). When interpreting an insurance contract courts must look at the contract as a whole. Meridian Mut. Ins. Co. v. Richie, 540 N.E.2d 27, 29 (Ind.1989); Ind. Farmers Mut. Ins. Co. v. Imel, 817 N.E.2d 299, 304 (Ind.Ct.App.2004); Winfree v. Educators Credit Union, 900 S.W.2d 285, 289 (Tenn.Ct.App.1995).

The law governing UIM coverage is also the same for these purposes. Like Indiana, Tennessee requires insurers to offer UIM coverage to its drivers. See Ind.Code § 27-7-5-3 (2004); Tenn.Code Ann. § 56-7-1201 (2005). The purpose of UIM statutes "is to protect drivers from uninsured and under-insured motorists." Gaston v. Tenn. Farmers Mut. Ins. Co., 120 S.W.3d 815, 821 (Tenn.2003). Accord Corr v. Am. Family Ins., 767 N.E.2d 535, 540 (Ind.2002) (The purpose of UIM statutes "is to give the insured the recovery he or she would have received if the underinsured motorist had maintained an adequate policy of liability insurance." (citing 12 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 171:2 (1995))); Kirk v. Lowe, 70 S.W.3d 77, 80 (Tenn.Ct.App.2001) (UIM statutes "gives the insured motorist the protection he would have had if the alleged tortfeasor had assumed his own financial responsibility by purchasing liability insurance."). Thus, UIM coverage gives the victim of an accident with an uninsured motorist the right to recover the damages the victim would have recovered from the uninsured motorist, up to the limits of the UIM coverage liability.

In sum, although we conclude that Tennessee's UIM statute and Tennessee doctrines of contract interpretation govern this case, the parties do not suggest any difference between the law of Indiana and that of Tennessee, and we see no basis to conclude that there is any.

UIM Coverage for Diminished Value

Dunn contends that Part C of his policy, entitled "Uninsured Motorists Coverage" applies to his claim. Part C provides:

A. We will pay compensatory damages which an "insured" is legally entitled to recover from the owner or operator of an "uninsured motor vehicle" because of:

1. "Bodily injury" sustained by an "insured" and caused by an accident; and

2. "Property damage" caused by an accident if the Schedule of Declarations indicates that both bodily injury and property damage Uninsured Motorists Coverage applies.

Meridian responds that it paid Dunn's claim under its collision ("Part D-Coverage for Damage to Your Auto") coverage. Meridian argues that under Part D Meridian's liability is limited to:

[T]he lesser of the:

1. Actual cash value of the stolen or damage property; or

2. Amount necessary to repair or replace the property with other property of like kind and quality.

This "Limit of Liability" provision applies by its terms only to "Part D" i.e., to the collision coverage. It does not, therefore, come into play as to UIM ("Part C") coverage.

The Court of Appeals assumed that the "Limit of Liability" in Part D applied to Dunn's claim but concluded, consistent with the Court of Appeals' holding in Allgood, that the obligation to "repair or replace the property with other property of like kind and quality" included coverage for diminished value. Dunn, 810 N.E.2d at 740. Accordingly, the Court of Appeals held that Dunn was entitled to recover the amount of any diminished value of his car resulting from the accident and repair.

In Allgood, we reversed the Court of Appeals' ruling on which the Court of Appeals relied here. Specifically, we held that the collision coverage of a policy similar to Dunn's did not include payment for diminution in value. Allgood, 836 N.E.2d at 245, 2005 WL 2789043. Here, however, Dunn contends that his claim is not for damage to his automobile, which is subject to Part D's "Limit of Liability" provision that excludes diminution of value in collision coverage. Rather he asserts a right to indemnity under his UIM coverage, which essentially gives him the right to recover from his own insurer the amount for which an uninsured motorist is liable. We agree that Dunn is entitled to recover any diminution in the value of his vehicle resulting from the damage inflicted by an uninsured motorist, subject to the policy limits on Dunn's UIM coverage. The tortfeasor has no "Limit of Liability" comparable to the limitation on Dunn's collision coverage and therefore Dunn is entitled to recover the full amount of his damages from the accident, including any diminution of value of his car after its repair.

Tennessee courts have not addressed whether diminished value is recoverable under language which requires an insurer to pay "compensatory damages which an `insured' is legally entitled to recover" from an uninsured driver. In Wiese-GMC, Inc. v. Wells, 626 N.E.2d 595, 598 (Ind.Ct.App.1993), trans. denied, our Court of Appeals followed the Restatement (Second) of Torts in holding that damages recoverable from a tortfeasor who damages property include diminution of value of a repaired chattel. According to Restatement (Second...

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