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Diminished Value (DV) The interpretation of any insurance policy is a matter of law and in many cases it is the responsibility of the courts to determine the meaning of a particular insurance provision. It would stand to reason that if you truly wanted to know if something is, or is not owed you would look to past court rulings and opinions.
In the beginning of this century, when motorized vehicles were first involved in collisions, they sometimes had accidents with horses. The law of the day recognized that if a horse was injured it might heal but still have "permanent injury", making it weaker, or slower. If a person had an ice wagon or milk route, the horse would actually know the route, and stop at the houses that were on the route. The iceman or milkman would simply walk behind the wagon delivering his products. A replacement horse may have been younger, or stronger, but the new horse would have to be "driven" to the next house, and tied up at each stop. Either of these efforts would cause great difficulties for the owners.
For reasons such as this, the courts recognized diminished value in animals, and applied the same principle to automobiles as well. The theory behind this is simple indemnification, or making one "whole" after an accident. If something is not "just as it was" before the accident, then the injured party would not have been made "whole". The law also does not allow anyone to profit from the insurance policy, but they should not suffer any uncompensated losses either. Furthermore, the law bars anyone from mitigating their own loss at someone else's expense, as is the case with many insurers.
Early automobile insurance policies were basic, and so was the description of repairs. A 1919 insurance policy from Maryland Casualty Company on a Pierce Arrow states that the limit of collision shall be "limited to the actual cash value of the property at the time of the damage thereto, or the cost of it's suitable repair or replacement." Of course, even back then people looked to the courts to decide what was a proper description of "suitable", or who would determine whether it was or was not "suitable".
In another policy from American Mutual Liability Insurance Company on a 1923 Ford Coupe it states "the actual cash value of the property injured or destroyed at the time of such incident or destruction, shall not exceed the actual cost of the repair or replacement." During the early days of the automobile, and collision repair, the manufacturing techniques and materials were simple. Most collision repair shops evolved from the local blacksmith shop. This simple means of construction was much easier to duplicate in the repair process then today's vehicles. In these early days of automobile insurance, the description of the repair was as simple as the cars themselves, however the courts still recognized diminished value, as evidenced by the following cases from that same period.
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