Yesterday, a 5-4 majority of the Washington Supreme Court held that certain auto insurance policies issued by Farmers Insurance Company of Washington required the company to pay for post-accident diminished value of repaired vehicles. The case arose out of a November 1998 automobile accident in which David Moeller’s Honda Civic CRX was damaged. Farmers paid the cost to repair the vehicle. Moeller acknowledged that the repairs were complete and acceptable. However, in May 1999, Moeller brought a class action breach of contract lawsuit against Farmers for failing to pay for the vehicle’s diminished value.

Our Supreme Court acknowledged that a majority of other jurisdictions have previously denied coverage for diminished value because an automobile policy’s reference to “repair or replace” unambiguously encompasses only a concept of tangible, physical value. Nevertheless, the Supreme Court disagreed with this view, noting that “the majority view’s framework ignores important presumptions in favor of the insurance consumer that are inherent in the rules of construction regarding insurance contracts.”

The court explained that the policy must be construed as the average person would read it. Through this lens, the majority held, a reasonable consumer looking at the relevant policy language would expect to be placed in the same position he/she was in prior to the accident.

The court also held the class was properly certified despite the difficulty of determining damages.