Gonzales v. Farmers Ins. Co.

• Decision Date: 23 October 2008
• Docket Number: CA A128598.,CC 9910-11479.,SC S054486.
• Citation: 345 Or. 382,196 P.3d 1
• Parties: Jose GONZALES, Respondent on Review, v. FARMERS INSURANCE COMPANY OF OREGON, an Oregon corporation; Farmers Insurance Exchange; a foreign corporation; Farmers Group, Inc., a foreign corporation; and Midcentury Insurance Company, a foreign corporation, Petitioners on Review.
• Court: Oregon Supreme Court

196 P.3d 1

345 Or. 382

Jose GONZALES, Respondent on Review, v. FARMERS INSURANCE COMPANY OF OREGON, an Oregon corporation; Farmers Insurance Exchange; a foreign corporation; Farmers Group, Inc., a foreign corporation; and Midcentury Insurance Company, a foreign corporation, Petitioners on Review.

CC 9910-11479.

CA A128598.

SC S054486.

Supreme Court of Oregon.

Argued and Submitted September 6, 2007.

Decided October 23, 2008.

On review from the Court of Appeals.^*

[196 P.3d 2]

James Westwood, of Stoel Rives LLP, Portland, argued the cause and filed the briefs for petitioners on review.

Jeremy Brandon, of Susman Godfrey, LLP, Dallas, Texas, argued the cause for respondent on review. Daniel J. Gatti, of Gatti, Gatti, Maier, Krueger, Sayer & Assoc., Salem, filed the briefs for respondent on review. With him on the briefs were Tom D'Amore, D'Amore & Associates, Portland, James Nelson, Nelson & MacNeil, Albany, Christopher Hardman, Portland, and Terry Oxford, Susman Godfrey, LLP, Dallas, Texas.

DURHAM, J.

This is an action on an automobile insurance policy. Plaintiff's insured vehicle suffered property damage in an accident. Defendants¹ paid for repairs to the vehicle, but the repairs did not restore the vehicle to its preaccident condition. Defendants contended that they were responsible for only the cost of the repairs. Plaintiff claimed that the policy made defendants liable for plaintiff's entire "loss" and that, if the attempted repair could not restore the vehicle to its preaccident condition, then defendants were responsible for the diminution of the value of the vehicle due to the accident.

The trial court granted defendants' motion for summary judgment. The Court of Appeals reversed. Citing two decisions from this court, the Court of Appeals determined that an insurer in these circumstances must restore the vehicle to its preloss condition or, if it could not do so, pay the insured the difference in the repaired vehicle's fair market value before and after the collision. Gonzales v. Farmers Ins. Co., 210 Or.App. 54, 150 P.3d 20 (2006), citing Dunmire Co. v. Or. Mut. Fire Ins. Co., 166 Or. 690, 114 P.2d 1005 (1941), and Rossier v. Union Automobile Ins. Co., 134 Or. 211, 291 P. 498 (1930). For the reasons expressed below, we affirm the decision of the Court of Appeals.

The Court of Appeals opinion sets forth the pertinent facts:

"In January 1998, plaintiff's 1993 Ford pickup truck, which was insured under the terms of a `car policy Oregon' issued by defendant[s], was damaged in a collision. As a result, plaintiff incurred $6,993.40 in repair costs, which defendant paid, minus the deductible. However, notwithstanding those repairs, the pickup could not be completely restored to its `pre-accident condition.' Consequently, even after being repaired, the vehicle's market value was diminished."

Gonzales, 210 Or.App. at 57, 150 P.3d 20. Defendants did not compensate plaintiff for the alleged diminished value of his truck.

Plaintiff, along with another individual, brought a class action against defendants. Plaintiff alleged that his automobile insurance policy required defendants, when they elected to repair a vehicle that had suffered property damage, to restore the vehicle to its preloss condition. Additionally, plaintiff alleged that that obligation required defendants to pay for the amount of loss of value to the vehicle if the vehicle could not be restored to its preloss condition, called "diminished value." Based on those allegations, plaintiff asserted claims for breach of contract, breach of the implied duty of good faith and fair dealing, and unjust enrichment.

Defendants moved for summary judgment, arguing that the policy did not cover diminished value. Instead, defendants argued, the policy obligated defendants to repair plaintiff's vehicle. Defendants contended that the plain and ordinary meaning of the word "repair" in the policy did not incorporate a duty to pay diminished value. Plaintiff responded that the plain meaning of "repair" encompassed restoration of the vehicle's preloss physical condition and, if that were not possible, payment for diminished value. The trial court agreed with defendants and granted defendants' motion. Plaintiff appealed and argued that Oregon precedent required an automobile insurer to fully repair the damaged vehicle and to pay for any remaining diminished value, unless the insurance policy expressly excluded such coverage. Plaintiff relied on two cases decided by this court more than 60 years ago: Rossier and Dunmire. Defendants asserted that more recent decisions issued by this court had superseded those cases and, in any event, that the cases were distinguishable or should be overruled. Defendants further argued that the policy's plain wording did not require payment for diminished value.

The Court of Appeals agreed with plaintiff and reversed the trial court's decision. Gonzales, 210 Or.App. at 65, 150 P.3d 20. After reviewing Rossier and Dunmire, the Court of Appeals rejected defendants' argument that subsequent decisions issued by this court had superseded those cases. Id. at 60-63, 65, 150 P.3d 20. Instead, the Court of Appeals concluded that Rossier and Dunmire mandated the result that plaintiff sought. Id. at 65, 150 P.3d 20. Defendants sought review.

Before we turn to our analysis, we set forth the relevant wording from the insurance policy in some detail. The policy provides that defendants "will pay for loss to [the] insured car caused by collision less any applicable deductibles." The policy defines "loss" as "direct and accidental loss of or damage to [the] insured car, including its equipment." Defendants' liability for that loss is limited by the following provision:

"Limits of Liability

"Our limits of liability for loss shall not exceed:

"1. The amount which it would cost to repair or replace damaged or stolen property with other of like kind and quality; or with new property less an adjustment for physical deterioration and/or depreciation."

The policy also describes how loss will be paid by defendants: "We will pay the loss in money or repair or replace damaged or stolen property." Finally, the policy outlines the rights and responsibilities of the insurer and the insured, and provides, in part:

"RIGHTS AND RESPONSIBILITIES

"* * * * *

"The insured has the right to payment for the loss in money or repair or replacement of the damaged or stolen property, at the option of the [insurer]."

(Boldface and capitalization in original; emphasis added.) The policy includes no definition of "repair." Neither does it expressly include or exclude coverage for diminished value in those terms.

We begin our analysis by noting that this case calls for the interpretation of the terms of the automobile insurance policy that defendants issued. This case does not call on the court to decide the principles applicable generally to diminished value claims in property damage disputes of all kinds.

In interpreting an insurance policy, we seek to ascertain the intent of the parties. Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464, 469, 836 P.2d 703 (1992). We determine the parties' intent by examining the terms of the insurance policy. Id. If the policy expressly defines the term in question, we apply that definition. Holloway v. Republic Indemnity Co. of America, 341 Or. 642, 650, 147 P.3d 329 (2006). If the policy does not define the term, we first look to the ordinary meaning of the term. Id. We also consider "the particular context in which that term is used in the policy and the broader context of the policy as a whole." Hoffman Construction Co., 313 Or. at 470, 836 P.2d 703. If the term has only one plausible interpretation, we apply that interpretation and conduct no further analysis. Id. If, after those steps, the term remains susceptible to two or more reasonable interpretations, we resolve any doubt as to the meaning of that term against the insurer. Holloway, 341 Or. at 650, 147 P.3d 329 (citations omitted). With that analytical framework in mind, we turn to the policy at issue.

The policy contains an unambiguous promise by defendants to pay plaintiff "for loss to your insured car caused by collision * * *" and defines "loss" to mean "direct and accidental loss of or damage to your insured car, including its equipment." (Boldface omitted.) The policy also entitles plaintiff "to payment for the loss in money or repair or replacement of the damaged or stolen property," at defendants' option.

The parties' central dispute turns on the meaning of the word "repair" in the policy. Specifically, plaintiff argues that "repair" includes restoration of the preloss condition and value of the insured property, while defendants argue that "repair" refers to only the restoration of the function and appearance of the insured property. Not surprisingly, the parties offer different definitions of "repair." Defendants offer the following definition from Webster's Third New Int'l Dictionary: "1 a: to restore by replacing a part or putting together what is torn or broken * * *. b: to restore to a sound or healthy state." Webster's Third New Int'l Dictionary 1923 (unabridged ed. 2002).

Plaintiff, on the other hand, contends that defendants' definition is incomplete and cites other definitions from Webster's: "2: to make good: REMEDY * * *. 3: to make up for: compensate for." Id. at 1923. Plaintiff also faults defendants for failing to include a definition of "restore," because it is part of the definition of "repair." "Restore" means "to bring back to or put back into a former or original state" Id. at 1936. Based on those definitions, plaintiff asserts that "repair" includes the duty to restore the vehicle's value.

Despite their differences, the definitions of "repair" cited by both plaintiff and defendants focus on the restoration of property, either to its former state or to a healthy state. Another source, Black's Law Dictionary, defines "rep...