Written by Attorneys Robert T. Horst and Mark H. Rosenberg

Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

The Texas Supreme Court today removed any doubt over the continued viability of “inherent diminished value” claims under the first-party provisions of the Texas Standard Auto Policy by reversing and remanding two appellate court decisions. In its brief orders in State and County Mut. Fire Ins. Co. v. Macias, No. 02-0833 (Tex. Feb. 13, 2004) and Progressive County Mut. Ins. Co. v. Bailey, No. 02-0778 (Tex. Feb. 13, 2004), the Court reaffirmed its recent rejection of first-party inherent diminished value coverage in American Mfrs. Mut. Ins. Co. v. Schaefer, --- S.W.3d ---, 2003 WL 22417486, 47 Tex. Sup. Ct. J. 40 (2003).

While Schaefer appeared to extinguish any first-party "DV" claims in Texas, the Texas Supreme Court failed to immediately dismiss the pending appeals in Macias and Bailey at the time of the Schaefer decision. In fact, the Court unexpectedly ordered further briefing in both cases shortly after handing down its decision in Schaefer, leading to some concern that the Court would limit the scope of the Schaefer holding. However, today’s decisions remove all doubt regarding the issue.

These developments will significantly decrease the amount of diminished value claims brought under Texas insurance policies. However, the potential for such claims has not been completely eliminated. While Schaefer, Macias and Bailey hold that policyholders cannot recover under a first-party policy for any DV sustained by a vehicle that has been properly repaired, the Schaefer court emphasized that parties could still recover diminished value for vehicles that have not or cannot be properly repaired. Schaefer, 2003 WL 22417486 at *6. In addition, Schaefer, Macias and Bailey are applicable only to first-party automobile insurance claims, and do not extend to third-party liability insurance claims or claims made under uninsured/underinsured motorist provisions.

Despite these exceptions, the Texas Supreme Court’s rejection of first-party inherent DV claims in Schaefer, Macias and Bailey remains a very positive development. By joining the recent litany of decisions by state supreme and appellate courts rejecting claims for inherent diminished value, the Texas Supreme Court rulings should help ensure the elimination of inherent diminished value claims in the vast majority of states.