Farmers Insurance v. R.B.L. Investment Co.
675 P.2d 1381, 1983 Ariz. App. LEXIS 652, 138 Ariz. 562 (1983)
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Rule of Law:
When personal property is negligently damaged but not destroyed, the owner is entitled to recover damages for the cost of repairs, any residual diminution in the property's fair market value after repairs, and compensation for the loss of use during the repair period.
Facts:
- R.D.C. Inc. (appellant) was a new car dealership that owned a new, unsold 1980 Audi.
- On October 30, 1980, while on a test drive, the Audi was struck by a vehicle whose driver, insured by Farmers Insurance Company (appellee), was at fault.
- The new Audi sustained significant damage requiring extensive repairs, which took many months to complete due to parts shipping.
- During the repair period, the dealership incurred interest expenses on the loan used to finance the vehicle for its inventory (i.e., 'flooring' costs).
- After the repairs were completed, the dealership sold the car for substantially less than the value of an identical new car that had never been in an accident.
Procedural Posture:
- Farmers Insurance Company offered to pay the dealership only the cost of repairs, which the dealership refused.
- Farmers erroneously issued a check for a much larger sum, which the dealership cashed.
- Farmers filed a lawsuit in the trial court against the dealership to recover the overpayment.
- The case was submitted to the trial court on stipulated facts to determine the proper measure of the dealership's damages.
- The trial court ruled that under Arizona law, compensable damages were limited to the cost of repair and did not include diminished value or interest expenses.
- The dealership, as the defendant, appealed the trial court's ruling on the measure of damages to the Arizona Court of Appeals.
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Issue:
Under Arizona law, may the owner of a negligently damaged motor vehicle recover damages for the loss in fair market value that persists after repairs are completed, in addition to the cost of repairs and compensation for the loss of the vehicle's use?
Opinions:
Majority - Hathaway, J.
Yes. The owner of a negligently damaged motor vehicle may recover for both the residual loss in market value after repairs and for the loss of use. The fundamental goal of damages is to fairly and adequately compensate the injured party. Limiting recovery to the cost of repairs is insufficient when the property, even after being repaired, has a lower market value than it did before the harm. Citing 'Anderson v. Alabam Freight Lines' and the Restatement (Second) of Torts § 928, the court found that proven residual diminution in value is a compensable element of damages. Furthermore, the interest payments ('flooring' costs) incurred by the dealership while the car was unavailable for sale constitute a direct and proximate result of the defendant's negligence and are a fair measure of compensation for the loss of use.
Analysis:
This decision formally aligns Arizona law with the modern view expressed in the Restatement (Second) of Torts, clarifying that damages for harm to personal property are not capped at the cost of repair. It establishes that a plaintiff can be made whole by recovering for the 'stigma' or 'diminished value' that attaches to property, like a vehicle, after a significant accident. The ruling also expands the concept of 'loss of use' for a commercial entity to include demonstrable carrying costs, such as interest, thereby recognizing the real-world economic losses incurred when commercial inventory is taken out of service.
