The Worth Of 'Diminished Value' Claims In Ontario

Introduction

The claim goes by many names: "diminished value", "diminution in value" and "accelerated depreciation". The terms are interchangeably used to describe the economic loss of a property's value as a result of the property having been damaged.1 The concept of diminished value as it relates to vehicles is associated with the perceived loss of value in a vehicle following an accident-related repair. The "loss" is premised on the likelihood that an informed buyer will pay less to buy a vehicle that was in an accident compared with the amount the same buyer will pay for the same vehicle had it not been in an accident.

Common Law versus the Legislative Scheme

The common law has recognized and permitted diminished value claims since the early 20th century. In Payton v. Brooks2 the U.K. Court of Appeal determined that damages for diminished value could be claimed. Lord Roskill set out the following principle:

In a case where the evidence justifies a finding that there has been, on top of the cost of repairs, some diminution in market value - or, to put the point another way, justifies the conclusion that the loss to the plaintiff has not been fully compensated by the receipt of the cost of complete and adequate repairs, because of a resultant diminution in market value, I can see no reason why the plaintiff should be deprived of recovery under that head of damage.3

Diminished value claims are permitted in some U.S. states. In fact, some states permit individuals to claim the diminished value loss under their own auto policies.4 In Canadian provinces like British Columbia and Alberta, individuals can sue tortfeasors at fault for an auto accident for the diminished value of a vehicle. The quantification of the "stigma cost" associated with the vehicle being less than perfect is often difficult to prove.5 Generally, a plaintiff can sell the vehicle and quantify the loss as being the difference between the pre-accident and post-accident market value of the vehicle, or in lieu of a sale, a plaintiff can obtain expert evidence to calculate the value the loss.

Once upon a time, such claims were also permitted in Ontario. In the 1978 decision Wood v. Husband6, the plaintiff was selling a vehicle and had received an offer to purchase it. Before closing the sale, the vehicle was involved in an accident. The vehicle was repaired, but the purchaser no longer wanted to pay the offered purchase price. The plaintiff subsequently sold the vehicle for a lesser amount. The plaintiff sued the tortfeasor who caused the accident and claimed the diminution in the value of the vehicle caused by the accident. The quantum of the claim was the difference between the original offer and the ultimate purchase price. The court characterized the claim as one for recoverable economic loss because it was directly consequential upon the physical damage to the car. The loss in value of the vehicle was characterized as "depreciation" rather than "loss of expected profit"7. The depreciation was held to "fall within the accepted range of a tortfeasor's responsibility" and within the rule of compensation that "renders the tortfeasor responsible for the unexpectable costs of expected consequences"8. The court reasoned that a defendant may not expect the damage to the plaintiff's car to result in depreciation in its market value; however, it does not affect the defendant's liability for such damages.

Diminished value claims have been relatively unheard of in Ontario due to the "no-fault" legislative regime introduced into the province's Insurance Act in 1990. Section 263 prohibits the right to pursue claims for recovery for damages to an...