Key Decisions

November 2012- An Insurer May Elect To Pay

(filed under: Key Decisions Archive | November 20, 2012)

An Insurer May Elect To Pay For Repairing Damaged Property Rather Than Declaring It A Total Loss

Carson v. Mercury Insurance Company
(Cal. Ct. of App., 4th Dist.), filed September 24, 2012


Melody Carson was involved in an automobile accident with a third party, shortly after buying a new car.  At the time of the accident, Carson’s vehicle had a market value of $25,000.  Her Mercury Insurance Company automobile insurance policy gave Mercury the option of repairing or paying for Carson’s vehicle, subject to several express liability limitations and exclusions.  One limitation was that diminution in value was not covered.

Rather than declaring the car a total loss and paying Carson $25,000 to replace the vehicle, Mercury elected to pay to repair the car.  The initial repair estimates were approximately $8,000.  Carson picked the shop that repaired the vehicle.  During the repair process, the shop discovered additional damages and Mercury paid a total of $18,774 to repair the vehicle.

Carson was unhappy with Mercury’s decision to repair the car, and unsatisfied with the work performed at the repair shop.

Carson sued Mercury for breach of contract and breach of the implied covenant of good faith and fair dealing.  She asserted Mercury should have taken into consideration her financial interests, specifically that her repaired vehicle would have a diminished stigma value.  In addition, she asserted her vehicle was constructed in a way that could never be repaired to its safe preaccident condition and value.  Carson alleged Mercury was obligated to declare the car a total loss.  She also asserted Mercury wrongfully asserted subrogation rights against the at-fault driver.

Mercury prevailed at trial.


The Court of Appeal affirmed.

The court ruled that the policy gave Mercury the option of paying for repairs or declaring the car a total loss.  It had the right to pay for repairs.  Carson failed to show Mercury failed to pay to repair her car.  Although Carson showed the car had not been repaired properly, she failed to show it could not have been repaired properly.  Moreover, she selected the shop that did the repair.

The court rejected Carson’s argument that the policy was ambiguous as to what it meant to repair a damaged car and that as such it should have been interpreted as meaning to perfect, factory new condition.  It also rejected her argument that not covering diminution in value was against public policy.

As a result, Mercury did not breach the contract of insurance.  Moreover, Mercury did not breach the implied covenant of good faith and fair dealing as it did not deprive Carson of any of the expected benefits of the contract.


This case largely follows Ray v. Farmers Ins. Exch., 200 Cal.App.3d 1411 (1998).

One significant aspect of this case is the court’s suggestion that insurers consider changing their policies to include damages for diminution in value due to a collision.