Replacement Cost Does Not Include the Diminution in Value for PPI Claims under the No Fault Act
Name: JF Warren, LLC et al. v. Consolidated Ins. Co., Docket No. 347762
Court/Judge: State of Michigan Court of Appeals—Chief Judge Murray, Judge Jansen, and Judge Markey
Decided: June 25, 2020
Pursuant to Michigan's No-Fault Act under MCL 500.3121(5), an insurer is required to pay the lesser of either: (1) the reasonable repair cost; or (2) the replacement cost less depreciation for "accidental damage to tangible property" from a motor vehicle accident. However, Michigan case law has been historically ambiguous about whether "replacement cost" included diminution in property value. The Court of Appeals' June 25, 2020, Opinion in JF Warren, LLC et al. v. Mainstay Motors, Inc. ("JF Warren"), makes it clear that "replacement cost" is limited to actual cash value ("ACV") for damaged property.
In JF Warren, a tow truck crashed into the plaintiffs' business property in Monroe, MI resulting in property damage to the building and business interruption. Of the two plaintiffs, one owned the building and the other rented the space to operate a bar and grill. The plaintiffs argued that the tow truck insurer's obligations for paying "replacement cost" under the No-Fault Act included diminution in value for the entire property, including undamaged portions of the property, as well as business interruption.
Relying on the Michigan Supreme Court's decisions in Smith v. Mich. Basic Property Ins. Ass'n, 441 Mich. 181, 196 n. 28; 490 N.W.2d 864 (1992); and Dupree v. Auto-Owners Ins. Co., 497 Mich. 1, 3-4; 857 N.W.2d 247 (2014), the JF Warren Court found that the "replacement cost less depreciation" is limited to ACV for the actual damaged property, not the undamaged portions of the property. The Court further reasoned that the plaintiffs failed to set forth any binding precedent or relevant authority establishing that "replacement cost" inluded recovery for diminished property value or business interruption.
Accordingly, "replacement cost less depreciation" is limited ACV for the damaged portion of the property and does not include costs for diminution in property value or business interruption. The Court also addressed the requirements for property protection insurance ("PPI") benefits in connection with plaintiffs' claimed loss of use under MCL 500.3121(5). The Plaintiffs argued that PPI benefits for "loss of use" were not limited to lost profits or business interruption and included costs for loss of goodwill, loss of anticipated benefit and loss of investment.
Again, the Court highlighted that the plaintiffs failed to provide any authority or basis for including these items and found that "loss of use" is limited to lost profits or business interruption. The Court also noted that the alleged losses for diminution of value, loss of goodwill, loss of anticipated benefit and loss of investment could be compensable under the plaintiffs' commercial property coverage had they purchased ordinance and law coverage, but the "plaintiffs' failure to do so does not make such damages compensable under the no-fault act."
The JF Warren Opinion clearly establishes that "replacement cost less depreciation" under Michigan's No-Fault Act does not permit recovery for diminished property value and is limited to ACV for only the damaged portion of the property. PPI benefits for "Loss of use" is also limited to lost profits or business interruption. In other words, No-Fault insurers are not responsible for diminished value of property, loss of goodwill, loss of anticipated benefit and loss of investment regardless of whether the injured party has commercial property or homeowner's coverage for the same. The Court also confirmed that "lost profits" must be proven with a reasonable degree of certainty before they are recoverable otherwise, they are mere speculation and conjecture. Meaning, a plaintiff's pledge to have their accounting expert verify lost profits at the time of trial is insufficient to survive a Motion for Summary Disposition.