Auto Depreciation: Can You Sue Your Insurer?

If your car has been damaged in an accident, its market value typically drops—even after repairs are made to restore it to its original condition. This means your car is worth less than an identical vehicle that has not been in an accident. In some cases, you may be able to file a diminished value claim to recoup the loss in your vehicle's value due to the accident.

A diminished value claim allows you to recover the difference between your car's pre-accident value and its value after repairs from the car insurance company of the at-fault driver. However, most insurance carriers do not automatically compensate for automobile depreciation, so it is important to understand the conditions guiding an insurance policy before signing an agreement.

Immediate diminished value

An immediate diminished value claim refers to the loss in resale value that occurs immediately after a vehicle has been involved in an accident but before it is repaired. This type of claim is uncommon and is primarily used in court cases.

The problem with immediate diminished value claims is that, since the vehicle owner will most likely get the damage repaired, this kind of claim is rarely used. However, it is still an option.

To calculate the immediate diminished value of a vehicle, you can use the following formula:

It's important to note that insurance companies typically do not automatically compensate for automobile depreciation. Therefore, it is crucial to understand the conditions of an insurance policy before signing an agreement.

When filing an immediate diminished value claim, it is necessary to provide supporting information to back up your claims. This includes researching the value of your vehicle before the accident and comparing it to the depreciated value afterward, which may be lower than the first-year auto depreciation.

Additionally, most states rely on immediate diminished value to measure automobile depreciation. In such cases, the insurance company of the at-fault driver may be responsible for providing compensation.

Inherent diminished value

After an accident, vehicles are perceived as more dangerous, which hurts their resale value. Inherent diminished value claims allow owners to recoup the difference between their car's current value and what it would have sold for without the accident. This type of claim is based on the difference between the car's market value after it has been repaired and its market value before the accident.

To file an inherent diminished value claim, you will need to prove your car's diminished value. You can do this by providing photos and documents of the accident scene and damage to your vehicle, as well as getting an appraisal from a certified vehicle appraiser. You may also need to research the value of your vehicle before the accident and compare it to its value after repairs. Online tools like the National Automobile Dealers Association (NADA) and Kelley Blue Book (KBB) websites can help you determine your vehicle's value.

Repair-related diminished value

For instance, if the paintwork is repaired with a mismatched colour or if aftermarket parts are used instead of original equipment manufacturer (OEM) parts, the quality of the repair work can further depreciate the value of the vehicle. In such cases, a claim for repair-related diminished value can be initiated to compensate for the loss in value caused by substandard repairs.

It is important to note that repair-related diminished value assumes that the vehicle cannot be returned to its original condition due to the inadequate repairs. This type of claim acknowledges that even with repairs, the vehicle's value has diminished beyond what would be expected from the accident alone.

When filing a repair-related diminished value claim, it is essential to provide clear proof of the diminution in value and its monetary impact. This may involve engaging a certified vehicle appraiser or industry expert to assess the vehicle's value before and after the repairs. The burden of proving the diminished value typically falls on the claimant, and it can be challenging to get the insurance company to accept this assessment.

To support your claim, it is recommended to gather evidence such as photos and documents from the accident scene and details of the repairs conducted. Additionally, obtaining an appraisal from a certified vehicle appraiser may be necessary as part of the claims process.

First-party vs. third-party diminished value claims

First-party diminished value claims are filed by the insured through their insurance provider. Examples of when a first-party claim may be filed include hitting an animal in an unavoidable accident. Around half of first-party claimants may receive a settlement, depending on the policy and the state in which they live.

Third-party diminished value claims are considered more straightforward, with an estimated 99% of claimants having the right to recover diminished value. Tort law allows for the innocent party to be entitled to monetary compensation, meaning that as the decrease in the claimant's vehicle's value is part of the damage caused by the insured, the claimant is entitled to monetary funds for diminished value.

In first-party claims, the insured has a direct contract with an insurance company. For example, if the insured accidentally hit a deer, they would file a diminished value claim with their insurance company.

In third-party claims, roughly 99% of claimants are successful and can recover diminished value based on tort law. No-fault individuals are entitled to receive compensation for vehicle damage, which is known legally as being "made whole". The insured party is at fault and is therefore liable for the diminished value of the damaged vehicle.

Conditions for a diminished value claim

Diminished value claims allow car owners to recover the difference between a vehicle's pre-accident worth and its value after repairs. However, certain conditions must be met to file a successful claim.

Firstly, the other party must be at fault. If you caused the accident, you generally can't file a diminished value claim against your own insurance policy. If the other party was at fault, you may be able to file a claim with their insurer and recover the difference in the value of your vehicle.

Secondly, you must own the car. You typically can't file a diminished value claim on a leased vehicle.

Thirdly, your car must be a high-value vehicle. If your vehicle is newer (less than 10 years old) and did not have a history of accidents prior to the current incident, you may qualify to file this type of claim.

Additionally, you must meet title requirements. If your car has a rebuilt or salvage title, you won't be able to file a diminished value claim.

Furthermore, if the other party was uninsured, you may be able to file a diminished value claim with your insurer against your own uninsured motorist property damage coverage, if you have it.

Finally, you must live in a state that allows diminished value claims. The rules vary by state, but most states require the other driver to be at fault for you to file a claim. However, in Georgia, you can file a diminished value claim regardless of who was at fault for the accident.

It's important to note that even if you meet all the conditions for a diminished value claim, the insurance company may not be required to pay. For example, in Texas, the insurer is not obligated to pay for diminished value when a car is completely repaired to its pre-accident condition.

Frequently asked questions