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Progressive Casualty Insurance Co. has reached a $19.4 million to $20 million settlement in a Georgia class action lawsuit that sought coverage of first-party diminished-value claims. Because the agreement has not yet been filed in the Georgia courts, Progressive says it can release few specifics of the deal.
Diminished value is the difference between a vehicle's original value and its decreased value after having been in an accident. Many states allow auto insurers to exclude diminished value from policies, and the war on the validity of them has raged between the insurance industry and consumers for years.
The original Georgia case law that supports diminished-value claims was decided in November 2001 by the Georgia Supreme Court and involved State Farm Insurance, which agreed to pay $100 million for diminished value on claims dating back to December 1993, and as much as an additional $100 million in future claims over the next six years. The company is also on the hook for about $50 million in lawyers' fees and court costs.
In making its judgment, the court declared that "the documents from State Farm acknowledged that there is a common perception that a wrecked vehicle is worth less simply because it has been wrecked." Even employees for State Farm testified that there is potential for diminution of value in every automobile accident.
Auto insurers have argued that their responsibility is to pay for repairs to a vehicle, not to pay for the full value of a vehicle. According to standard policy language, however, the insurer must return the consumer to full pre-loss value, minus any deductible. The Georgia Supreme Court determined that there is a difference between repair cost and full value, although other states have narrowed the definition of value to mean "repair cost."
Following the State Farm court decision, Insurance Commissioner John Oxendine issued a directive to all Georgia auto insurers that the State Farm case represented the law of Georgia and they should all comply with its findings.
"It only applies to cases that are still open, but I know that many insurance companies are being very quick to open old cases now to settle this before they have to go to court," says Oxendine.
Allstate has also settled a class action lawsuit and will pay as many as 274,000 Georgia policyholders a total of $59 million for the diminished value on claims dating from January 1997.
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