Diminishing Returns - Divisional Court Confirms Motor Vehicle Accident Claims For Diminished Value Are Statute Barred By Insurance Act

• Law Firm: McCague Borlack LLP
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Author: Mr Matthew Dugas and Sandra White
• Published date: 13 February 2023

Diminished value claims for property damage to automobiles are statutorily barred by section 263 of the Insurance Act, R.S.O. 1990, c. I.8.

At least that is what section 263 of the Insurance Act appeared to do. However, Ontario insurers have long been plagued by persistent claims, especially in the Small Claims Court. All of the actual reported decisions dismissed these claims, but the decisions tended to be fact-specific. Without any clear decisions by a higher Court, new claims would arise with some new variation of the diminished value argument.

The theory of diminished value (also referred to as accelerated depreciation) is that there is a difference in market value between a vehicle that had been in an accident (even if it was fully repaired without issue), as opposed to the same type of vehicle but with a clean accident history.

The degree to which this perceived diminished value actually exists and can be properly quantified may remain an interesting point for economists, but for lawyers and Ontario automobile insurers, this is now a moot point - any such claims are indeed statutorily barred by section 263 of the Insurance Act, an interpretation which for the first time is confirmed in a Divisional Court appeal.

Justice McCarthy of the Divisional Court categorically rejected a claim for diminished value to an Ontario-insured automobile as statutorily barred in his decision Gordon-Taitt v. Travelers Canada Corp. and Jennifer Polak, 2022 ONSC 712. Leave to appeal the matter to the Court of Appeal was applied for but denied.

The Appellant/Plaintiff appealed a small claims decision by Deputy Judge Kowalishin dismissing her diminished value claim. That trial decision was appealed to the Divisional Court and is the subject of the decision by Justice McCarthy.

Does s.263 of the Insurance Act, R.S.O. 1990, c. I.8 prohibit claims for diminished value?

The starting point for this issue is section 263 of the Insurance Act. Section 263 is a statutory bar for claims against another driver for property damage. The argument of the defendants, accepted here by the Divisional Court, is that this statutory bar against claims for property damage includes claims for diminished value. Section s.263 states:

s. 263(1) This section applies if,

(a) an automobile or its contents, or both suffers damage arising directly or indirectly from the use or operation in Ontario of one or more automobiles;

(2) If this section applies, an insured is entitled to recover for the...