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A federal district court in California has ruled that an automobile insurance policy that provided liability coverage for “property damage” did not cover nonphysical “stigma damage” to an automobile that had been struck by another vehicle.

The Case

After William Leroy Hennessy struck Jay Photoglou's vehicle, Mr. Photoglou made a claim for the damage.

Mr. Hennessy's insurer, Infinity Insurance Company, paid to repair the physical damage to Mr. Photoglou's vehicle but refused to pay for the alleged additional decrease in market value to his car due to nonphysical “stigma damages.”

Mr. Photoglou sued Mr. Hennessy in small claims court seeking those additional damages, which Mr. Photoglou labeled as “[d]iminished value to vehicle due to 'stigma/diminished value' as a result of the hit and run police report and its affect [sic] on public records such as 'CarFax' but not limited to 'CarFax.'”

Mr. Hennessy and Mr. Photoglou stipulated to the entry of judgment against Mr. Hennessy in the amount of $10,000 “for diminished value.”

Mr. Hennessy sought to have the judgment paid by Infinity, which refused on the ground that inherent diminished value, or “stigma damages,” were not covered by Mr. Hennessy's insurance policy.

Mr. Hennessy then sued Infinity for, among other things, breach of contract.

Infinity moved for summary judgment.

The Infinity Policy

The Infinity insurance policy provided liability coverage for “property damage,” defined as:

physical damage to tangible property, including destruction or loss of its use, which is caused solely by an accident covered under this policy and occurring while the policy is in force.

The District Court's Decision

The district court granted Infinity's motion.

In its decision, the district court found that the terms of Infinity's insurance contract and the meaning of those terms were “clear from the document's plain language.”

The district court reasoned that the Infinity policy provided coverage for “property damage,” meaning “physical damage to tangible property.” The district court ruled that diminution in value – also known as “stigma damages” – was “not itself a form of physical damage.”

The district court added that an insurance policy that did not cover stigma damages did not conflict with California's insurance law.

Accordingly, the district court concluded, to the extent Mr. Hennessy's claim was premised on a breach of the duty to pay, the “plain language of the contract” conclusively established that Infinity had no duty to pay under these circumstances, and Mr. Hennessy's complaint against Infinity failed to state a claim.

The case is Hennessy v. Infinity Ins. Co., No. CV 18-9323-R (C.D. Cal. Jan. 28, 2019). Attorneys involved include: For William Leroy Hennessy, Individually, on Behalf of All Others Situated and the State of California, Plaintiff: Montie S Day, LEAD ATTORNEY, Day Law Offices, Reno, NV; George E Mardikian, Day Law Offices, Reno, NV; Itamar B Tehrani, State Law Firm APC, Encino, CA. For Infinity Insurance Company, Defendant: Ara DerHartonian, Charles A Danaher, Theona Zhordania Sheppard Mullin Richter and Hampton LLP, Los Angeles, CA.

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.