AIC 302 TEST PAPER ANSWERS AND QUESTIONS SET
A+
✔✔Policy definition of "repair or replace" - ✔✔Some policies define "repair or replace"
to mean restoring the auto to its pre-accident mechanical function and condition. Other
policies define it as returning the auto to substantially the same pre-accident physical,
operating, and mechanical condition. According to some courts, both definitions
preclude any interpretation that the value of the auto will be restored to its pre-accident
value.
✔✔Language stating the insurer will not pay more than the cost to repair or replace the
auto - ✔✔Some policies further indicate that the insurer will not pay more than the cost
to repair or replace the auto, which preserves the insurer's option to limit payment under
the policy.
✔✔Violation of fundamental rule of contract construction - ✔✔In a few cases, courts
ruled that obligating an insurer to pay an insured for a loss that could not be reasonably
repaired or replaced, as is the case with diminished value, violates a fundamental rule
of contract construction.
✔✔Potential negative effect on society - ✔✔To some, allowing diminished value claims
payments could negatively affect society. The thinking is that if insurers are consistently
required to pay diminished value claims, more damaged autos would be designated as
constructive total losses, and auto owners would be more likely to minimally repair their
autos, increasing the number of damaged autos being used on roadways and creating
potential hazards for the public. In addition, premiums may increase if insurers had to
pay for more constructive total losses—which, in turn, would constitute a disservice to
society.
✔✔These are some common reasons courts rule that diminished value claims should
be paid: - ✔✔Economic interpretation of policy language
Ambiguity in policy language should favor the insured
State Farm Mutual Automotive Insurance Company v. Mabry
, ✔✔Economic interpretation of policy language - ✔✔In some cases, state courts use an
economic interpretation of policy language. These courts interpret policy language to
mean that the insurer is obligated to make the claimant whole, which requires
compensating the claimant for his or her auto's diminished value in addition to paying to
have the auto repaired.
✔✔Ambiguity in policy language should favor the insured - ✔✔Some courts cite that
there is ambiguity in policy language that favors insureds. This ambiguity often centers
on definitions or plain and ordinary meanings of terms such as loss, repair, and
damage. Some courts stipulate that the ordinary meanings of these terms, when
combined in an insurance contract, favor providing coverage for diminished value
claims. For example, a court may rule that, because loss is ordinarily defined as "a
financial detriment that a party suffers when its property is damaged," repair therefore
must mean restoration from such loss.
✔✔State Farm Mutual Automotive Insurance Company v. Mabry - ✔✔The most notable
case favoring an insurer's payment of a diminished value claim, State Farm Mutual
Automotive Insurance Company v. Mabry, set precedent for all Georgia first-party auto
damage claims. The case clarified that the physical damage coverage of auto policies
written according to Georgia state law requires insurers to make insureds whole, stating
that "both utility and value" are lost when property is physically damaged by a covered
event.1
✔✔Automotive repair and appraisal professionals can speak their own language. These
are some of the most important and frequently used terms that claims reps should
know: - ✔✔Remove and install (R&I)
Remove and replace (R&R)
Overhaul (OH)
Included operation
Assembly
✔✔Remove and install (R&I) - ✔✔The process of removing a part and reinstalling the
same part after repairs are completed.
✔✔Remove and replace - ✔✔The process of removing a part and replacing it with a
new or replacement part.
✔✔Overhaul (OH) - ✔✔A repair term for completely disassembling and reassembling a
group of related parts, replacing the damaged parts in the process.
✔✔Included operation - ✔✔Any labor operation completed in its entirety while another,
concurrent operation is performed.
✔✔Assembly - ✔✔A portion of a vehicle that is made up of several parts that, when
combined, form a unit.
A+
✔✔Policy definition of "repair or replace" - ✔✔Some policies define "repair or replace"
to mean restoring the auto to its pre-accident mechanical function and condition. Other
policies define it as returning the auto to substantially the same pre-accident physical,
operating, and mechanical condition. According to some courts, both definitions
preclude any interpretation that the value of the auto will be restored to its pre-accident
value.
✔✔Language stating the insurer will not pay more than the cost to repair or replace the
auto - ✔✔Some policies further indicate that the insurer will not pay more than the cost
to repair or replace the auto, which preserves the insurer's option to limit payment under
the policy.
✔✔Violation of fundamental rule of contract construction - ✔✔In a few cases, courts
ruled that obligating an insurer to pay an insured for a loss that could not be reasonably
repaired or replaced, as is the case with diminished value, violates a fundamental rule
of contract construction.
✔✔Potential negative effect on society - ✔✔To some, allowing diminished value claims
payments could negatively affect society. The thinking is that if insurers are consistently
required to pay diminished value claims, more damaged autos would be designated as
constructive total losses, and auto owners would be more likely to minimally repair their
autos, increasing the number of damaged autos being used on roadways and creating
potential hazards for the public. In addition, premiums may increase if insurers had to
pay for more constructive total losses—which, in turn, would constitute a disservice to
society.
✔✔These are some common reasons courts rule that diminished value claims should
be paid: - ✔✔Economic interpretation of policy language
Ambiguity in policy language should favor the insured
State Farm Mutual Automotive Insurance Company v. Mabry
, ✔✔Economic interpretation of policy language - ✔✔In some cases, state courts use an
economic interpretation of policy language. These courts interpret policy language to
mean that the insurer is obligated to make the claimant whole, which requires
compensating the claimant for his or her auto's diminished value in addition to paying to
have the auto repaired.
✔✔Ambiguity in policy language should favor the insured - ✔✔Some courts cite that
there is ambiguity in policy language that favors insureds. This ambiguity often centers
on definitions or plain and ordinary meanings of terms such as loss, repair, and
damage. Some courts stipulate that the ordinary meanings of these terms, when
combined in an insurance contract, favor providing coverage for diminished value
claims. For example, a court may rule that, because loss is ordinarily defined as "a
financial detriment that a party suffers when its property is damaged," repair therefore
must mean restoration from such loss.
✔✔State Farm Mutual Automotive Insurance Company v. Mabry - ✔✔The most notable
case favoring an insurer's payment of a diminished value claim, State Farm Mutual
Automotive Insurance Company v. Mabry, set precedent for all Georgia first-party auto
damage claims. The case clarified that the physical damage coverage of auto policies
written according to Georgia state law requires insurers to make insureds whole, stating
that "both utility and value" are lost when property is physically damaged by a covered
event.1
✔✔Automotive repair and appraisal professionals can speak their own language. These
are some of the most important and frequently used terms that claims reps should
know: - ✔✔Remove and install (R&I)
Remove and replace (R&R)
Overhaul (OH)
Included operation
Assembly
✔✔Remove and install (R&I) - ✔✔The process of removing a part and reinstalling the
same part after repairs are completed.
✔✔Remove and replace - ✔✔The process of removing a part and replacing it with a
new or replacement part.
✔✔Overhaul (OH) - ✔✔A repair term for completely disassembling and reassembling a
group of related parts, replacing the damaged parts in the process.
✔✔Included operation - ✔✔Any labor operation completed in its entirety while another,
concurrent operation is performed.
✔✔Assembly - ✔✔A portion of a vehicle that is made up of several parts that, when
combined, form a unit.
