Oregon Court of Appeals Reports

GONZALES v. FARMERS INSURANCE, A128598 (Or.App. 12-20-2006)
JOSE GONZALES, Appellant, v. AL BATHKE, Plaintiff, v.
GROUP, INC., a foreign corporation; and MID-CENTURY
INSURANCE COMPANY, a foreign corporation, Respondents.
9910-11479; A128598. Oregon Court of Appeals. Argued and
submitted September 18, 2006. Filed: December 20, 2006.

Appeal from Circuit Court, Multnomah County. Frank L.
Bearden, Judge.

Terrell W. Oxford, Texas, and Jeremy J. Brandon, Texas,
argued the cause for appellant. On the briefs were Susman
Godfrey, LLP, Texas, and Daniel J. Gatti and Gatti, Gatti,
Maier, Krueger, Sayer & Assoc., and Tom D’Amore and D’Amore
& Associates, and James Nelson and Nelson & Macneil, and
Christopher Hardman and Law Office of CR Hardman.

James N. Westwood argued the cause for respondents. With
him on the brief were Lois O. Rosenbaum and Stoel Rives

Before HASELTON, Presiding Judge, and ARMSTRONG and


Plaintiff Jose Gonzales appeals, assigning error to the
allowance of summary judgment in favor of defendants,
various Farmers Insurance-related companies.[fn1] The only
issue presented is whether, under the terms of his
automobile coverage with defendant, plaintiff is entitled
to recover payment for his vehicle’s “inherent diminished
value” (IDV) following a collision. Specifically, is
plaintiff entitled, in addition to payment for the cost of
repair to the vehicle, to recover for the difference in his
vehicle’s fair market value before and after the collision?
The trial court determined that a limitation of liability
provision in the auto policy precluded recovery for IDV. As
amplified below, we conclude that Dunmire Co. v. Or. Mut.
Fire Ins. Co., 166 Or 690, 114 P2d 1005 (1941), and Rossier
v. Union Automobile Ins. Co., 134 Or 211, 297 P 498 (1930),
which are to the contrary, are controlling and dispositive.
Consequently, we reverse and remand.

Summary judgment is proper if the “pleadings, depositions,
affidavits, declarations and admissions on file show that
there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of
law.” ORCP 47C. In reviewing the allowance of summary
judgment, we draw all reasonable inferences in favor of
plaintiff, who was the nonmoving party. West v. Allied
Signal, Inc., 200 Or App 182, 187, 113 P3d 983 (2005).

We state the material facts consistently with that standard
of review. In January 1998, plaintiff’s 1993 Ford pickup
truck, which was insured under the terms of a “car policy
Oregon” issued by defendant, 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.

Plaintiff subsequently filed a complaint against defendant,
alleging that, under the terms of the auto insurance
policy, defendant was obligated not only to pay for the
cost of repairing the pickup, but also to compensate
plaintiff for loss corresponding to IDV:

“In the event Defendants elect to repair a vehicle, they
are obligated to restore the vehicle to its pre-loss
condition. This includes the amount of loss of value to
the vehicle that occurs as a result of the accident that
is not repaired, called diminished value. Diminished
market value occurs in situations where an insured vehicle
has sustained damage such that the vehicle cannot be
repaired to its pre-loss condition. Even after being
repaired, these vehicles are worth less than similar
vehicles that are in their original condition. Diminished
market value is a loss which is not excluded by
Defendants’ insurance policy.”

Defendant moved for summary judgment, contending that,
under the terms of the auto policy, its liability was
limited to the actual cost of repairs. In so contending,
defendant relied on various provisions of the policy,
particularly its “Limits of Liability” provision. The
collision coverage provision of the policy states, “We will
pay for loss to your insured car caused by collision less
any applicable deductibles.” (Boldface in original.) The
policy, in turn, defines “Loss” as “direct and accidental
loss of or damage to your insured car, including its
equipment.” (Boldface in original.) The “Limits of
Liability” provision provides, in pertinent part:

“Limits of Liability

“[Defendant’s] limits of liability for loss shall not

“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.”

(Boldface in original.)[fn2] The policy further provides
that “[w]e will pay the loss in money or repair or replace
damaged or stolen property.” (Boldface in original.)
Finally, under “Rights and Responsibilities,” the policy
provides that “[t]he 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 [defendant].”

Plaintiff, in opposing summary judgment, argued that the
policy’s “Limits of Liability” provision did not preclude
recovery for IDV-related loss. Plaintiff argued, in part,
that the Oregon Supreme Court’s decisions in Dunmire Co.
and Rossier were dispositive.[fn3]

The trial court allowed summary judgment, concluding:

“Any ambiguity in an insurance contract is to be
construed against the insurer according to a long line of
Oregon cases. The essential question then becomes whether
or not there is any `ambiguity’ in the `repair’ clause
taken in context with the options that Defendant has
regarding reimbursement. The three options are not equal
in kind or in value to the insured. A cash payment would
likely take into [account] factors different from a
decision to repair the vehicle (which is only an option if
the vehicle is repairable) and the replacement option
could arguably include diminution of market value.
`Replace’ is defined as `to put back into former position’
or `take the place of’ (American Heritage Dictionary,
Third Ed., p. 1157) and thus, putting something back into
former position could arguably include the former
`undamaged’ position.

“However, `repair’ is defined (in the same Dictionary p.
1156) as meaning `to restore to a sound condition after
injury or damage’ which was done in this case. The
`repair’ option chosen by Plaintiff in this case along
with the standard definition of `repair’ coupled with no
specific mention anywhere about `diminution of market
value’ requires me to grant Defendant Farmers[‘s] motion
for summary judgment.”

The trial court, in so concluding, did not refer to either
Dunmire Co. or Rossier.

On appeal, as before the trial court, plaintiff invokes
Dunmire Co. and Rossier. Plaintiff contends that both cases
are dispositive and that the circumstances in Dunmire Co.,
in particular, were materially indistinguishable from those
presented here. Defendant, as described more fully below,
counters that Rossier is materially distinguishable; that
Dunmire Co. and Rossier were both wrongly decided in the
first instance; and that, in all events, neither Dunmire
Co. nor Rossier is controlling because both were premised
on a method of insurance policy construction that has been
superseded by the analysis described in Hoffman
Construction Co. v. Fred S. James & Co., 313 Or 464, 836
P2d 703 (1992). Defendant further contends that, under the
analysis described in Hoffman Construction Co., it is
entitled to prevail. For the reasons that follow, we agree
with plaintiff.

We begin, inevitably, with Rossier and Dunmire Co. In
Rossier, the plaintiff purchased a Studebaker sedan, which
was involved in an accident after it had been driven only
140 miles. 134 Or at 215. The car was insured under a
policy issued by the defendant. That policy provided
coverage for property damage to the vehicle caused by an
accidental collision. The policy further provided as

“`The company’s liability for loss or damage under this
endorsement by reason of any one collision is limited to
the actual cost of replacement of the property damaged or
destroyed, and in no event, to exceed the true cash value
of the automobile current at the time loss or damage

Id. at 213.

The defendant insurer took the position that, under the
policy, it was obligated to pay only “the actual cost of
replacement of damaged or broken parts.” Id. at 212. The
plaintiff, however, brought an action seeking to recover
the difference between the Studebaker’s precollision “fair
cash value” ($1,535) and its post-collision fair cash value
(which, the plaintiff alleged, was “no greater * * * than
$450”). Id. at 212-13. The trial court, over the
defendant’s objections, instructed the jury consistently
with the plaintiff’s construction of the policy, and the
jury awarded damages of $950. Id. at 212.

On appeal, the defendant assigned error to the instruction
on damages. The Supreme Court affirmed, concluding that
that instruction comported with the proper construction of
the policy — and, particularly, with its limitation
of liability provisions:

“That an insurer may, by contract, limit its liability,
is well recognized. It is also uniformly held that if
there is any doubt or ambiguity in the terms of such
limitation it will be resolved in favor of the insured. An
insurance policy, like any other kind of contract, must
be considered in its entirety and conflicting clauses
reconciled if possible.

“Unquestionably the primary object or purpose of the
plaintiff was to be indemnified against loss or damage to
his automobile resulting from accidental collision. It is
common knowledge that the nature and extent of damage to a
car may be such that replacement or repair of broken
parts will not compensate the insured for his loss. * *
* To award him damages for the actual cost of replacement
of broken or damaged parts would, indeed, be inadequate
relief. That there would be diminution of value as the
result of collision as here shown seems obvious. In many
instances the injury to the automobile may be of such
nature and extent that, after repairs have been made,
there will be no diminution of value. Under such
circumstances cost of repairs would be equivalent to the
difference between the value of the automobile before and
after collision.

“In addition to the general provision indemnifying the
assured against loss or damage by reason of accidental
collision, the policy provided for a limitation of
liability `to the actual cost of replacement of the
property damaged or destroyed.’ ‘Replacement’ as thus
used means, in our opinion, the restoration of the
property to its condition prior to the injury. Such
restoration may or may not be accomplished by repair or
replacement of broken or damaged parts. It cannot be said
that there has been a complete restoration of the property
unless it can be said that there has been no diminution
of value after repair of the car.”

Id. at 214-16 (emphasis added).

As support for that conclusion, the court noted that its
holding comported with the “weight of authority” of other
courts that had resolved the same coverage issue. Id. at
216. The Rossier court quoted with particular approval the
following language from Standard Accident Ins. Co. of
Detroit v. Richmond, 297 SW 879, 880 (Tex Civ App 1927):

“`The injury being one for which the appellant was liable
under the terms of the policy, the appellee had the right
to claim full compensation for his loss. That loss was the
difference between the value of the car before and after
the injury. Appellant had, in effect, contracted to do
all that reasonably could be done to restore the car to
its original condition in the way of making repairs and
replacements, or to pay the full amount of damages
sustained. The testimony indicates that the principal
damage was to the body of the car. Witnesses testified
that this could not be restored to its original condition
by merely being repaired. It was damaged to the extent
that this was impossible, they stated. Appellant contends
that it was only required to pay the cost of restoring the
car to substantially the same condition it was in before
the injury. That is true, if the words “substantially the
same” mean a condition which made the car equal in value
to what it was before the injury. Anything less than that
would not be adequate compensation for the loss

Rossier, 134 Or at 216 (emphasis added).

In Dunmire Co., the insured vehicle, a Packard, was damaged
in a collision. The policy issued by the defendant insurer
limited the insurer’s liability to “`what it would * * *
cost to repair or replace the automobile, or parts thereof,
with other of like kind and quality.'” 166 Or at 699. The
defendant contended that the plaintiff’s recovery should be
limited to the amount (roughly $600) that the plaintiff was
charged for repair of the vehicle. Id. Conversely, the
plaintiff contended that the proper measure of recoverable
loss under the policy was the difference between the
Packard’s preaccident and post-accident market value
(approximately $1,000). As in Rossier, the trial court
agreed with the plaintiff.

Again, the Oregon Supreme Court affirmed, quoting with
approval its holding in Rossier regarding the meaning of
“replacement.” Dunmire Co., 166 Or at 699-700 (quoting
Rossier, 134 Or at 215-16). The Supreme Court noted,
particularly, that the policy language in Dunmire Co. was
“identical” to that in Stoops v. First American Fire Ins.
Co., 160 Tenn 239, 22 SW2d 1038 (1930), which it had cited
with approval in Rossier:

“In [Stoops] the policy of insurance contained language
identical with that employed in the policy here before us,
in relation to the liability of the insurer in the event
of damage to the automobile. The court held that the
clause was ambiguous and required construction. It
further held that the recovery by the assured was not
limited to the cost of repairs and replacements, unless
such repairs and replacements restored the automobile to
as good condition as it was in before it was damaged.”

Dunmire Co., 166 Or at 700.[fn4]

Here, defendant does not contend that the “Limits of
Liability” provision in its coverage is materially
distinguishable from the limitation of liability construed
and applied in Dunmire Co. Rather, defendant contends that
both Dunmire Co. and Rossier have been overruled sub
silentio because their rationales have been “superseded” by
(in defendant’s characterization) the “recently developed”
methodology for interpretation of insurance policies stated
in Hoffman Construction Co.[fn5]

Defendant’s position rests, and depends, on a false
premise. Hoffman Construction Co. did not alter
long-standing principles of Oregon law governing
construction of insurance policies. To be sure, Hoffman
Construction Co. may have synthesized and amplified those
principles in an especially useful fashion, but it made no
bones about its antecedents. Further, Rossier and Dunmire
Co. comported, at least ostensibly, with the same

In Hoffman Construction Co., the court summarized the
methodology under Oregon law for construing insurance
policies. As with other contracts, in interpreting
insurance policies, “`[t]he primary and governing rule * *
* is to ascertain the intention of the parties.'” 313 Or at
469 (quoting Totten v. New York Life Ins. Co., 298 Or 765,
770, 696 P2d 1082 (1985)) (brackets in Hoffman Construction
Co.). The court specifically addressed the proper
application of the maxim that ambiguous terms in an
insurance policy are to be construed against the drafter,
i.e., the insurer, and explained that that “tie-breaking”
maxim does not apply when disputed language is merely
literally subject to more than one plausible
interpretation. Rather, a true ambiguity supporting the
application of the “construe against the drafter” maxim
exists “only if two or more plausible interpretations of
that term withstand scrutiny, i.e., continues to be
reasonable, after the interpretations are examined in the
light of, among other things, the particular context in
which that term is used in the policy and the broader
context of the policy as a whole.” 313 Or at 470 (emphasis
in original).

Hoffman Construction Co. did not purport to announce any
new method of construction. Indeed, as support for the
propositions quoted above, the court quoted precedents
dating to 1954, viz., I-L Logging Co. v. Mfgrs. & Whlse.
Ind. Exc., 202 Or 277, 317, 275 P2d 226 (1954).[fn6] In
short, Hoffman Construction Co. did not transform Oregon
law governing the interpretation of insurance policies. As
plaintiff correctly observes, “Hoffman neither announced a
new rule nor renounced an old one. If it did anything new,
it simply unpacked what has always been the rule.”

Dunmire Co. and Rossier (albeit construing different policy
language) comported with that methodology. They explicitly
addressed the meaning of the term “replace” or
“replacement” — and, to the extent that any
ambiguity remained after considering the parties’ intentions
as expressed in the totality of the policy, resolved any
remaining question regarding the limitations of liability
in favor of the plaintiff insureds.[fn7]

It may be — and we imply no view on the matter
— that, as defendant contends, Dunmire Co. and
Rossier were wrongly decided in the first instance. But
neither has been implicitly abrogated by some subsequent
material change in Oregon law governing the construction of
insurance policies. To the extent, if any, that the Oregon
Supreme Court may have erred in applying then-applicable
— and still applicable — principles of policy
construction, defendant’s recourse lies with that court.
See Schiffer v. United Grocers, Inc., 143 Or App 276, 284,
922 P2d 703 (1996), rev’d, 329 Or 86, 989 P2d 10 (1999)
(“Those decisions, however old, are still good — or,
at least, binding — law. * * * We are not in the
business of overruling decisions of the Oregon Supreme

Reversed and remanded.

[fn1] Plaintiff Bathke’s complaint was voluntarily
dismissed. The defendants in this case are Farmers
Insurance Company of Oregon, Farmers Insurance Exchange,
Farmers Group, Inc., and Mid-Century Insurance Company. For
convenience, we refer to the remaining plaintiff as
“plaintiff” and to the defendants collectively as

[fn2] Defendant does not contend that the policy’s
definition of “loss” does not include diminution of value.
Rather, defendant argues that any recovery of IDV is
precluded by the “Limits of Liability” provision.

[fn3] Before the trial court, as on appeal, the parties
cited myriad decisions from other jurisdictions addressing
claims under auto insurance policies for recovery of
IDV-related loss. Specifically, plaintiff cites MFA Ins.
Co. v. Citizens Nat. Bank of Hope, 260 Ark 849, 545 SW2d 70
(1977); Hyden v. Farmers Ins. Exchange, 20 P3d 1222 (Colo
Ct App 2000), cert den (Colo 2001); State Farm Mut. Auto.
Ins. Co. v. Mabry, 274 Ga 498, 556 SE2d 114 (2001); Dodson
Aviation v. Rollins, et al., 15 Kan App 2d 314, 807 P2d
1319, rev den, 249 Kan 779 (1991); Federal Ins. Co. v.
Hiter, 164 Ky 743, 176 SW 210 (1915); Ciresi v. Globe &
Rutgers Fire Ins. Co., 187 Minn 145, 244 NW 688 (1932); and
Weems v. Service Fire Ins. Co. of New York, 181 Tenn 1, 178
SW2d 377 (1944).

In response, defendant cites Siegle v. Progressive
Consumers Ins. Co., 819 So2d 732 (Fla 2002); Sims v.
Allstate Ins. Co., 365 Ill App 3d 997, 851 NE2d 701 (2006);
Allgood v. Meridian Sec. Ins. Co., 836 NE 2d 243 (Ind
2005); Given v. Commerce Ins. Co., 440 Mass 207, 796 NE2d
1275 (2003); Davis v. Farmers Ins. Co. of Arizona, 140 NM
249, 142 P3d 17 (NM Ct App), cert granted, 140 NM 543
(2006); Culhane v. Western Nat. Mut. Ins. Co., 704 NW2d 287
(SD 2005); Black v. State Farm Mut. Auto. Ins. Co., 101
SW3d 427 (Tenn Ct App 2002), appeal den (Tenn 2003); and
American Mfrs. Mut. Ins. Co. v. Schaefer, 124 SW3d 154 (Tex
2003). Defendant also argues that the weight of authority
identified in George J. Couch, 12 Couch on Insurance
§ 177:19 (3d ed 1998), supports the denial of IDV
claims under similar circumstances.

[fn4] The Tennessee Court of Appeals has distinguished
Stoops and declined to adhere to it as binding authority
with respect to the recoverability of IDV in analogous
circumstances. See Black v. State Farm Mut. Auto. Ins. Co.,
101 SW3d 427, 429 (Tenn Ct App 2002), appeal den (Tenn

[fn5] Defendant also identifies various factual distinctions
between the circumstances presented here and those in
Rossier. However, with respect to Dunmire Co., defendant’s
sole contentions both in briefing and at oral argument were
that (1) Dunmire Co. was wrongly decided and (2) in all
events, given Hoffman Construction Co., Dunmire Co. is no
longer good law.

[fn6] The portion of I-L Logging Co. cited in Hoffman
Construction Co., in turn, cited cases and treatises dating
back to 1939. See, e.g., 202 Or at 317-18, 336; see also
Clark Motor Co. v. United Pac. Ins. Co., 172 Or 145, 149,
139 P2d 570 (1943) (reiterating principle that insurance
policy, including limitation of liability provision, is to
be construed as a whole: “All parts and clauses must be
construed to determine if and how far one clause is
modified, limited, or controlled by others[.]”).

[fn7] Rossier recited the rule for construing ambiguous
statutes against the insurer, but never explicitly
determined whether the provision at issue was, in fact,
ambiguous. See 134 Or at 214-17. Similarly, as noted,
Dunmire Co. relied upon the Tennessee decision, Stoops, in
which a similar policy provision was held to be ambiguous
and was, thus, construed against the insurer. 166 Or at
700. The court explained, and relied upon, the Tennessee
court’s reasoning, but never explicitly held that the
provision before it was ambiguous. Id.