Texas policyholders have raised questions about an insurer’s obligations under the standard Texas personal auto policy when the insurer pays a claim to restore a damaged automobile to its pre-accident condition. Some insureds have questioned whether an insurance company has a right to take “betterment deductions” from its property damage claims payments. Other insureds have questioned the insurer’s refusal to pay a claim for “diminution in value” of the vehicle when it has been repaired at the insurance company’s cost.
“Betterment” occurs when reasonable and necessary repairs to a damaged vehicle have the effect of not merely restoring the automobile to its pre-loss condition but of actually enhancing its value. An example of betterment is an older car’s original, but damaged engine being replaced with a rebuilt or new engine having an expected useful life much longer than that of the original engine at the time it was damaged. In justification of a deduction for betterment, carriers contend that the insured would receive a windfall unless the carrier is allowed to deduct, from the claims payment, the depreciation incurred by the original, replaced engine prior to the accident. Betterment deductions have been criticized because they reduce claim payments, possibly leaving a policyholder with insufficient money to return a vehicle to as serviceable a condition as before the accident.
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