S054486, Opinion — Gonzales v. Farmers Ins. Co.

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Argued and submitted September 6, 2007, decision of Court of Appeals affirmed;
judgment of circuit court reversed, and case remanded to circuit court for further
proceedings October 23, 2008
Jose GONZALES,
Respondent on Review,
v.
FARMERS INSURANCE COMPANY OF OREGON,
an Oregon corporation;
Farmers Insurance Exchange,
a foreign corporation;
Farmers Group, Inc.,
a foreign corporation;
and Mid-Century Insurance Company,
a foreign corporation,
Petitioners on Review.
(CC 9910-11479; CA A128598; SC S054486)
196 P3d 1

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CJS, Insurance § 56.

# En Banc

On review from the Court of Appeals .*

James Westwood, of Stoel Rives LLP, Portland, argued
the cause and filed the briefs for petitioners on review.

Jeremy Brandon, of Susman Godfrey, LLP, Dallas, Texas,
argued the cause for respondent on review. Daniel J. Gatti, of
Gatti, Gatti, Maier, Krueger, Sayer & Assoc., Salem, filed the
briefs for respondent on review. With him on the briefs were
Tom D'Amore, D'Amore & Associates, Portland, James
Nelson, Nelson & MacNeil, Albany, Christopher
Hardman, Portland, and Terry Oxford, Susman Godfrey,
LLP, Dallas, Texas.

\* Multnomah County Circuit Court, Frank L. Bearden, Judge. 210 Or App 54,
150 P3d 20 (2006).

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# DURHAM, J.

The decision of the Court of Appeals is affirmed. The judg-
ment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.

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# DURHAM, J.

This is an action on an automobile insurance policy.
Plaintiff's insured vehicle suffered property damage in an
accident. Defendants1 paid for repairs to the vehicle, but the
repairs did not restore the vehicle to its preaccident condi-
tion. Defendants contended that they were responsible for
only the cost of the repairs. Plaintiff claimed that the policy
made defendants liable for plaintiff's entire "loss" and that, if
the attempted repair could not restore the vehicle to its pre-
accident condition, then defendants were responsible for the
diminution of the value of the vehicle due to the accident.

The trial court granted defendants' motion for sum-
mary judgment. The Court of Appeals reversed. Citing two
decisions from this court, the Court of Appeals determined
that an insurer in these circumstances must restore the vehi-
cle to its preloss condition or, if it could not do so, pay the
insured the difference in the repaired vehicle's fair market
value before and after the collision. Gonzales v. Farmers Ins.
Co., 210 Or App 54, 150 P3d 20 (2006), citing Dunmire Co. v.
Or. Mut. Fire Ins. Co., 166 Or 690, 114 P2d 1005 (1941), and
Rossier v. Union Automobile Ins. Co., 134 Or 211, 297 P 498
(1930). For the reasons expressed below, we affirm the deci-
sion of the Court of Appeals.

The Court of Appeals opinion sets forth the pertinent
facts:

"In January 1998, plaintiff's 1993 Ford pickup truck, which
was insured under the terms of a 'car policy Oregon' issued
by defendant[s], was damaged in a collision. As a result,
plaintiff incurred $6,993.40 in repair costs, which defen-
dant paid, minus the deductible. However, notwithstanding
those repairs, the pickup could not be completely restored
to its 'pre-accident condition.' Consequently, even after
being repaired, the vehicle's market value was diminished."

Gonzales, 210 Or App at 57. Defendants did not compensate
plaintiff for the alleged diminished value of his truck.

1 The defendants in this case are Farmers Insurance Company of Oregon,
Farmers Insurance Exchange, Farmers Group, Inc., and Mid-Century Insurance
Company (collectively, "defendants"). Additionally, the complaint brought by the
other named plaintiff, Al Bathke, was voluntarily dismissed. The trial court did not
certify a class.

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Plaintiff, along with another individual, brought a
class action against defendants. Plaintiff alleged that his
automobile insurance policy required defendants, when they
elected to repair a vehicle that had suffered property damage,
to restore the vehicle to its preloss condition. Additionally,
plaintiff alleged that that obligation required defendants to
pay for the amount of loss of value to the vehicle if the vehicle
could not be restored to its preloss condition, called "dimin-
ished value." Based on those allegations, plaintiff asserted
claims for breach of contract, breach of the implied duty of
good faith and fair dealing, and unjust enrichment.

Defendants moved for summary judgment, arguing
that the policy did not cover diminished value. Instead,
defendants argued, the policy obligated defendants to repair
plaintiff's vehicle. Defendants contended that the plain and
ordinary meaning of the word "repair" in the policy did not
incorporate a duty to pay diminished value. Plaintiff
responded that the plain meaning of "repair" encompassed
restoration of the vehicles preloss physical condition and, if
that were not possible, payment for diminished value. The
trial court agreed with defendants and granted defendants'
motion. Plaintiff appealed and argued that Oregon precedent
required an automobile insurer to fully repair the damaged
vehicle and to pay for any remaining diminished value,
unless the insurance policy expressly excluded such cover-
age. Plaintiff relied on two cases decided by this court more
than 60 years ago: Rossier and Dunmire. Defendants
asserted that more recent decisions issued by this court had
superseded those cases and, in any event, that the cases were
distinguishable or should be overruled. Defendants further
argued that the policys plain wording did not require pay-
ment for diminished value.

The Court of Appeals agreed with plaintiff and
reversed the trial courts decision. Gonzales, 210 Or App at
65. After reviewing Rossier and Dunmire, the Court of
Appeals rejected defendants' argument that subsequent deci-
sions issued by this court had superseded those cases. Id. at
60-63, 65. Instead, the Court of Appeals concluded that
Rossier and Dunmire mandated the result that plaintiff
sought. Id. at 65. Defendants sought review.

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Before we turn to our analysis, we set forth the rele-
vant wording from the insurance policy in some detail. The
policy provides that defendants "will pay for loss to [the]
insured car caused by collision less any applicable deducti-
bles." The policy defines "loss" as "direct and accidental loss
of or damage to [the] insured car, including its equipment."
Defendants' liability for that loss is limited by the following
provision:

## "Limits of Liability

"Our limits of liability for loss shall not exceed:

"1. The amount which it would cost to repair or replace
damaged or stolen property with other of like kind and
quality; or with new property less an adjustment for physi-
cal deterioration and/or depreciation."

The policy also describes how loss will be paid by defendants:
"We will pay the loss in money or repair or replace damaged
or stolen property." Finally, the policy outlines the rights and
responsibilities of the insurer and the insured, and provides,
in part:

# "RIGHTS AND RESPONSIBILITIES

"The insured has the right to payment for the loss in money
or repair or replacement of the damaged or stolen property,
at the option of the [insurer]."

(Boldface and capitalization in original; emphasis added.)
The policy includes no definition of "repair." Neither does it
expressly include or exclude coverage for diminished value in
those terms.

We begin our analysis by noting that this case calls
for the interpretation of the terms of the automobile insur-
ance policy that defendants issued. This case does not call on
the court to decide the principles applicable generally to
diminished value claims in property damage disputes of all
kinds.

In interpreting an insurance policy, we seek to ascer-
tain the intent of the parties. Hoffman Construction Co. v.
Fred S. James & Co., 313 Or 464, 469, 836 P2d 703 (1992).

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We determine the parties' intent by examining the terms of
the insurance policy. Id. If the policy expressly defines the
term in question, we apply that definition. Holloway v.
Republic Indemnity Co. of America, 341 Or 642, 650, 147 P3d
329 (2006). If the policy does not define the term, we first look
to the ordinary meaning of the term. Id. We also consider "the
particular context in which that term is used in the policy
and the broader context of the policy as a whole." Hoffman
Construction Co., 313 Or at 470. If the term has only one
plausible interpretation, we apply that interpretation and con-
duct no further analysis. Id. If, after those steps, the term
remains susceptible to two or more reasonable interpretations,
we resolve any doubt as to the meaning of that term against the
insurer. Holloway, 341 Or at 650 (citations omitted). With that
analytical framework in mind, we turn to the policy at issue.

The policy contains an unambiguous promise by
defendants to pay plaintiff "for loss to your insured car
caused by collision * * * " and defines "loss" to mean "direct
and accidental loss of or damage to your insured car, includ-
ing its equipment." (Boldface omitted.) The policy also enti-
tles plaintiff "to payment for the loss in money or repair or
replacement of the damaged or stolen property," at defen-
dants' option.

The parties' central dispute turns on the meaning of
the word "repair" in the policy. Specifically, plaintiff argues
that "repair" includes restoration of the preloss condition and
value of the insured property, while defendants argue that
"repair" refers to only the restoration of the function and
appearance of the insured property. Not surprisingly, the
parties offer different definitions of "repair." Defendants
offer the following definition from Webster's Third New
Int'l Dictionary: "1 a : to restore by replacing a part or putting
together what is torn or broken * * *. b : to restore to a sound
or healthy state." Webster's Third New Int'l Dictionary 1923
(unabridged ed 2002).

Plaintiff, on the other hand, contends that defen-
dants definition is incomplete and cites other definitions from
Webster's: "2 : to make good : REMEDY * * *. 3 : to make up for:
compensate for." Id. at 1923. Plaintiff also faults defendants
for failing to include a definition of "restore," because it is

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part of the definition of "repair." "Restore" means "to bring
back to or put back into a former or original state" Id. at 1936.
Based on those definitions, plaintiff asserts that "repair"
includes the duty to restore the vehicles value.

Despite their differences, the definitions of "repair"
cited by both plaintiff and defendants focus on the restoration
of property, either to its former state or to a healthy state.
Another source, Black's Law Dictionary, defines "repair" as
"[t]o mend, remedy, restore, renovate[;] [t]o restore to a sound
or good state after decay, injury, dilapidation or partial
destruction." Blacks Law Dictionary 1298 (6th ed 1990). Like
the definition from Webster's, that definition focuses on the
restoration of property to a former state.

An interpretation of the same or similar policy terms
in this court's prior case law can supply helpful contextual
evidence of the intent that underlies the use of those terms in
the policy in question here. The parties acknowledge that two
prior decisions by this court are pertinent to that inquiry,
although, as noted, they disagree about the legal effect of
those cases. We turn next to a consideration of that contex-
tual evidence.

This court's two previous decisions addressed
whether similar automobile insurance policies required pay-
ment for diminished value when the insurer had not restored
or could not restore the vehicle to its preloss condition. The
first case, Rossier, 134 Or 211, addressed the issue of the
proper measure of property damages under an automobile
insurance policy. The policy contained a general provision
indemnifying the insured against loss or damage by reason of
accidental collision. The policy also provided that the
insurer's liability was limited to " 'the actual cost of replace-
ment of the property damaged or destroyed, and in no event,
to exceed the true cash value of the automobile current at
time loss or damage occurs.'" Id. at 213 (quoting the policy at
issue). The court determined that that provision contem-
plated "that the insurer had the right to replace or repair bro-
ken or damaged parts in an effort to put the automobile in
substantially the same condition as it was prior to the colli-
sion." Id. at 214.

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The court addressed the question of the proper
measure of the insurer's monetary liability as a matter of
contract interpretation:

"Unquestionably the primary object or purpose of the
plaintiff was to be indemnified against loss or damage to his
automobile resulting from accidental collision. It is common
knowledge that the nature and extent of damage to a car
may be such that replacement or repair of broken parts will
not compensate the insured for his loss. In the instant case
plaintiff had a new car. It had been driven only 140 miles. A
mechanic called as an expert witness, speaking of the dam-
age to the automobile, said, 'It was a wrecked car, you abso-
lutely can't put a wrecked car back in the condition it was
before the wreck.' The frame was sprung; rear axles bent;
upholstery seared with acid; doors battered; rear wheel bro-
ken; windows shattered and otherwise injured. To award
him damages for the actual cost of replacement of broken or
damaged parts would, indeed, be inadequate relief. That
there would be diminution of value as the result of collision
as here shown seems obvious. In many instances the injury
to the automobile may be of such nature and extent that,
after repairs have been made, there will be no diminution of
value. Under such circumstances cost of repairs would be
equivalent to the difference between the value of the auto-
mobile before and after collision."

Id. at 215.

The court also determined that the policy term
"replacement" embraced the repair or replacement of dam-
aged property:

" 'Replacement' as thus used means, in our opinion, the
restoration of the property to its condition prior to the
injury. Such restoration may or may not be accomplished by
repair or replacement of broken or damaged parts. It cannot
be said that there has been a complete restoration of the
property unless it can be said that there has been no dimi-
nution of value after repair of the car."

Id. at 215-16.

The court also relied on and quoted a court decision
from Texas that had construed a similar limitation of liability
clause:

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" "The injury being one for which the appellant was lia-
ble under the terms of the policy, the appellee had the right
to claim full compensation for his loss. That loss was the dif-
ference between the value of the car before and after the
injury. Appellant had, in effect, contracted to do all that
reasonably could be done to restore the car to its original
condition in the way of making repairs and replacements,
or to pay the full amount of damages sustained. The testi-
mony indicates that the principal damage was to the body of
the car. Witnesses testified that this could not be restored
to its original condition by merely being repaired. It was
damaged to the extent that this was impossible, they
stated. Appellant contends that it was only required to pay
the cost of restoring the car to substantially the same con-
dition it was in before the injury. That is true, if the words
"substantially the same" mean a condition which made the
car equal in value to what it was before the injury. Any-
thing less than that would not be adequate compensation
for the loss sustained.'"

Id. at 216 (quoting Standard Accident Ins. Co. of Detroit v.
Richmond, 297 SW 879, 880 (Tex Cir App 1927)). On the
basis of the foregoing reasoning, the court in Rossier con-
cluded that the trial court had applied the correct measure of
damages:

"The conclusion reached in the instant case that the
proper measure of damages is the difference between the
fair cash value of the car before and after the injury is sup-
ported by the weight of authority[.]"

Id. (citations omitted).

Rossier is helpful in resolving the present dispute,
even though the court in that case did not separately define
the term "repair." The court rejected the contention that an
insurer can satisfy its obligation to restore a vehicle to its pre-
accident condition without diminished value solely by paying
for the cost of repairs. According to Rossier, if repairs to a
vehicle do not restore the vehicle to its preaccident condition,
then the correct measure of damages is "the difference
between the fair cash value of the automobile before and
after the collision." Id. at 212.

In Dunmire, 166 Or 690, the second case relied upon
by plaintiff and the Court of Appeals, this court addressed a

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slightly different provision than that at issue in Rossier. In
Dunmire, the policy limited the insurers liability to " 'what it
would then cost to repair or replace the automobile, or parts
thereof, with other of like kind and quality.' " Id. at 699 (quot-
ing policy). The trial court had awarded to the plaintiff in
that case the difference between the value of the car before
the accident and after the accident, minus the deductible. Id.
This court relied on Rossier as well as a decision from
Tennessee, Stoops v. First Am. Fire Ins. Co., 160 Tenn 239, 22
SW2d 1038 (1930), which involved the same policy wording
that was before this court in Dunmire. 166 Or at 700. In
Stoops, the Tennessee Supreme Court had concluded that
that policy wording was ambiguous and held that the plain-
tiff's recovery was not limited to the cost of repair unless
repair had restored the automobile to its condition prior to
the accident. Dunmire, 166 Or at 700 (discussing Stoops).2 On
the basis of Rossier and Stoops, this court concluded that the
trial court did not err in refusing to limit plaintiffs recovery to
the cost of repairing the damaged automobile. Id.

Defendants contend that Rossier and Dunmire are
distinguishable and, if they are not distinguishable, that
those cases should be overruled. In Rossier, this court inter-
preted the policy term "replacement" to embrace replacement
or repair of broken parts. The policy clause at issue in Rossier

2 In Stoops, the Tennessee Supreme Court held that the insurer in that case
was liable to the insured for the depreciation in the value of his automobile result-
ing from the accident, where repairs and replacement would not restore the auto-
mobile to its original value. 22 SW2d at 1040. The policy included, as one of its
"general conditions," a provision that the liability of the insurer "shall in no event
exceed the limit of liability, if any, stated in Paragraph C (actual cash value, less
$50.00), nor what it would then cost to repair or replace the automobile or parts
thereof with other of like kind and quality." Id. at 1038 (emphasis in original; inter-
nal quotation marks omitted). In analyzing that policy wording, the court reviewed
the other parts of the policy. Id. at 1039. The policy's first clause provided that the
defendant insured the plaintiff for a term specified, "to an amount not exceeding
the actual cash value of the property at the time any loss or damage occurs, nor, in
any event, the limits of liability, if any[.]" Id. (internal quotation marks omitted).
The limitation of liability, contained in the "general conditions" section and quoted
above, created a "double alternative," according to the court, but did not clarify
what measure of liability applied to a particular circumstance. Id. In light of that
"alternative and ambiguous limitation of liability," the court concluded that the
alternative limitations should be applied to "afford the insured the full protection
contemplated." Id.

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did not contain the word "repair." Here, however, the limita-
tion of liability clause provides for either repair or replace-
ment, at defendants' option. Thus, although the reasoning in
Rossier is helpful and persuasive in addressing the instant
case, the specific term construed in Rossier is not precisely
the same as that at issue in this case.

We disagree, however, that Dunmire is distinguish-
able. The phrase containing the word "repair" in the policy in
Dunmire was virtually identical to the policy wording at
issue here. As we noted, the policy in Dunmire limited the
insurer's liability to "what it would then cost to repair or
replace the automobile, or parts thereof, with other of like
kind and quality." 166 Or at 699 (quoting policy). Defendants
point out that Dunmire does not state whether the policy at
issue gave the insurer the option, as the policy at issue here
does, to pay the cost of repair or to pay the cost of replace-
ment. That is an important distinction, defendants contend,
because, in the absence of the provision expressly giving the
insurer such a choice, the court in Dunmire would have con-
strued the policy in a way that would have afforded the
insured more protection.

We disagree with defendants' reading of Dunmire.
The policy in that case phrased the insurer's obligation in the
disjunctive: "repair or replace." Thus, the policy did afford the
insurer the opportunity to satisfy its liability by choosing
either to repair or replace the damaged vehicle. The policy
under consideration here afforded defendants the same sub-
stantive choice. Defendants' contention provides no basis for
distinguishing Dunmire.

We conclude that Dunmire's interpretation of
"repair" applies to the provision at issue here. Under
Dunmire, "repair" encompasses the restoration of the vehicle
to its condition prior to the collision. Dunmire, 160 Or at 699-
700. We see no reason to overrule that well-established legal
interpretation. Therefore, under the policy at issue, if an
attempted "repair" does not or cannot result in a complete
restoration of the vehicles preloss condition, the vehicle is not
"repair[ed]," and the resulting diminution of value of the

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vehicle remains a "loss to [the] insured car caused by colli-
sion" for which defendants are liable under their policy.3

The particular context of the word "repair" in the
instant policy also demonstrates that defendants' obligation
includes payment for diminished value where repair cannot
restore a vehicle to its preloss condition. See Hoffman
Construction Co., 313 Or at 470 (explaining that policy inter-
pretation requires us to examine the "particular context in
which that term is used in the policy and the broader context
of the policy as a whole").

The policy requires defendants to pay for "loss to
[the] insured car caused by collision less any applicable
deductibles." The policy defines loss broadly: "direct and acci-
dental loss of or damage to [the] insured car." Defendants do
not dispute that the policy definition of loss is broad enough
to include diminished value. "Repair," therefore, when
viewed in the context of this policy, which contains a broad
definition of loss, incorporates the concept of restoration of a
vehicle's preloss condition or, if the insurer cannot or will not
restore the vehicle to that condition, payment for diminished
value.

In the "limits of liability" provision, the word
"repair" appears in the same sentence as the phrase "of like
kind and quality." Plaintiff contends that that phrase modi-
fies both the word "repair" and the word "replace." Because
the word "quality" in that phrase signifies value, plaintiff
argues, "repair" must restore the automobile to the same
quality or condition that existed before the accident. Signifi-
cantly, the provision at issue in Dunmire contained the same
phrase. On the basis of Dunmire, we agree that the phrase "of
like kind and quality" is another factor supporting our con-
clusion that defendants are obligated to restore the damaged
vehicle or, if the vehicle cannot be restored, to compensate
plaintiff accordingly.

3 We note that Dunmire was decided in 1941. Thus, the definition of repair
adopted in Dunmire has been part of the legal landscape for well over 60 years.
Nothing in Dunmire or this case, however, prevents insurers from including a def-
inition of repair in automobile policies that excludes diminished value from cover-
age. According to plaintiffs, many insurance policies do exclude such coverage.

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We hold that "repair," as used in the policy at issue
in this case, requires defendants to restore plaintiffs vehicle
to its preloss physical condition. If defendants do not or can-
not so restore plaintiffs vehicle, defendants must compensate
plaintiff for the diminished value of the vehicle.

Defendants assert that plaintiff's claim, when
reduced to its essence, would lead to an absurd result: if an
insurer has restored a vehicle to its preloss condition, an
insurer nevertheless is obligated to pay for diminished value
that results from only stigma attached to that vehicle
because the vehicle has been involved in a collision. Defen-
dants argue that the supposed negative perception of pro-
spective buyers regarding a repaired car's worth following a
collision is not included in the policy's definition of "repair."

In this case, plaintiff does not claim damages for
stigma, as defendants describe that concept above. Plaintiff
submitted an affidavit in opposition to defendants' summary
judgment motion that stated that he was "not satisfied that
[his] vehicle had been repaired with like kind and quality
parts, and was not restored to its preloss condition. The vehi-
cle had a number of problems that did not exist before."
Plaintiff also submitted two expert affidavits describing the
inability of body shops to restore preloss physical condition in
certain circumstances. Because this case involved a genuine
dispute about whether defendants had restored the vehicle to
its preloss condition, we need not decide whether the policy
requires payment for a claim based solely on "stigma."

The trial court granted summary judgment to defen-
dants because it concluded that a vehicle is "repaired," within
the meaning of the policy, when the insurer restores it to a
sound condition after damage. That premise permitted the
trial court to disregard plaintiff's factual contentions that,
despite defendants' repair efforts, the vehicle still was dam-
aged and had not been restored to its preloss condition. How-
ever, that approach alters the interpretation of the policy
term "repair" that this court has followed consistently since
Dunmire.

The trial court erred by granting summary judg-
ment to defendants. Summary judgment is appropriate only
when there is no genuine issue of material fact and when the

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moving party is entitled to judgment as a matter of law.
ORCP 47 C. Based on the affidavits submitted by plaintiff, a
genuine issue of material fact exists as to whether defen-
dants' attempt to repair plaintiff's vehicle restored the vehi-
cle to its preloss condition. If it did not, then defendants'
selection of the repair option under the policy has not com-
pensated plaintiff for the loss to his insured vehicle, and he
remains entitled to either a genuine repair of the vehicle, as
we have discussed, or compensation for the diminished value
of the unrepaired vehicle. Summary judgment was therefore
inappropriate.

The decision of the Court of Appeals is affirmed. The
judgment of the circuit is reversed, and the case is remanded
to the circuit court for further proceedings.