The Hidden Cost Of Auto Accidents: Does Insurance Cover Diminished Value?

Diminished value refers to the loss in market value that occurs when a vehicle is wrecked and repaired. Even if the repairs are done well, the vehicle will still lose value because a reasonable consumer will not pay the same price for a vehicle with an accident history. In the US, whether or not insurance covers diminished value depends on a number of factors, including who was at fault for the accident, the state in which the accident took place, and the type of insurance coverage.

Inherent diminished value

Vehicle value x 10% cap x damage multiplier x mileage multiplier = Diminished value

For example, if a vehicle is worth $15,000, has moderate damage to its structure and panels, and has 20,000 miles on the clock, the calculation would be:

$15,000 x .10 = $1,500

$1,500 x .50 = $750

$750 x .80 = $600

So, in this case, the insurance company would pay out a maximum of $1,500 for the inherent diminished value of the vehicle, but based on the damage and mileage, the final payout would be $600.

Immediate diminished value

An immediate diminished value claim refers to the loss in resale value of a car before it is repaired. This type of claim is typically only used in court and is rarely used elsewhere. It is calculated as the difference in the resale value of a car before and after damage has occurred.

For example, if a car is valued at $10,000 and, after an accident, is valued at $7,000 before repairs are made, the immediate diminished value is $3,000.

It is important to note that the rules for diminished value claims vary by state, and some states may not allow immediate diminished value claims. Additionally, insurance companies typically will not pay a diminished value claim on your vehicle if you are at fault for the accident.

Repair-related diminished value

For example, if the paint is repaired with a colour that is not an exact match or if aftermarket parts are used instead of original equipment manufacturer (OEM) parts, the quality of the repair will result in a loss of value beyond the diminished value caused by the accident itself.

In the case of repair-related diminished value, the vehicle's value is further reduced because it cannot be returned to its pre-accident state, even with repairs. This type of diminished value is recognised in Texas, where it is one of two types of diminished value claims that can be made, the other being inherent diminished value.

To prove repair-related diminished value, a vehicle owner may need to obtain an appraisal from a certified vehicle appraiser. This appraisal will assess the vehicle's value after repairs and determine if the quality of the repairs or parts has impacted its value.

First-party insurance claim

A first-party insurance claim is a claim made by a vehicle owner for the reduced market value of their vehicle after it has been damaged in a car accident, regardless of the repairs made to restore it to its original condition. The rationale behind this claim is that potential future buyers are likely to offer a lower price for a vehicle with a history of damage, even if it has been fully repaired.

A diminished value claim is a compensation claim made by a vehicle owner for the reduced market value of their vehicle after it has been damaged in a car accident. This type of claim seeks to compensate the owner for the potential loss in the vehicle's resale value.

When to File a Diminished Value Claim

If you are involved in an accident where the other party is at fault, you may be able to file a diminished value claim to recover the difference in your vehicle's value. It is generally best to file this type of claim as soon as possible, preferably in the days following the accident. Filing promptly makes it easier to present your case and supporting documentation, and the value of your vehicle could decrease the longer you wait to file a claim.

How to File a Diminished Value Claim

Filing a diminished value claim can be more complex and time-consuming than filing a standard auto claim. The burden of proving the car's diminished value typically falls on the customer. Here are the steps you may need to take to file a diminished value claim:

• Check the insurance company's process for filing a diminished value claim.
• Document the car's market value using a trusted source such as Kelley Blue Book or the National Automobile Dealers Association (NADA) calculator tools.
• Prove your car's diminished value. Having photos and documents of the accident scene and damage to your vehicle may help your case. You may also need to get an appraisal from a certified vehicle appraiser as part of the claims process.
• Satisfy all the insurance company's conditions for diminished value and file your claim.

Factors Affecting Diminished Value Claims

Several factors can affect the success of a diminished value claim:

• Your vehicle's value before the accident: Older cars with high mileage or structural damage may not be eligible for a diminished value payout.
• Fault in the accident: If you were at fault for the accident, your insurance company will likely deny your diminished value claim.
• Uninsured drivers: If the at-fault driver is uninsured, you will need uninsured motorist coverage on your policy for a diminished value claim to be processed.
• State regulations: Each state has different laws and statutes regarding diminished value claims, so it is important to research your state's specific regulations.

Third-party insurance claim

A third-party insurance claim is made by the owner of a vehicle against a third-party tortfeasor (a person other than the insured and insurer) for negligently causing damage to the owner's vehicle. This type of claim is governed by tort law.

In the context of diminished value claims, a third-party claim can be made against the insurer of the at-fault driver. This type of claim allows you to recover the difference between your car's pre-accident value and its value after repairs from the insurance company of the at-fault driver.

To file a third-party diminished value claim, you will typically need to:

• Ensure you qualify for a claim. Most states require that the other driver is at fault, but some states, like Georgia, allow diminished value claims regardless of fault. Other common requirements include owning the car, having a high-value or newer vehicle, and meeting title requirements (not having a rebuilt or salvage title).
• Obtain a professional appraisal of your vehicle's diminished value. This appraisal should be conducted by an experienced appraiser who can provide a comprehensive report detailing the diminished value.
• Submit a formal claim letter to the at-fault party's insurance company. Attach the appraisal report and any other relevant documentation, such as repair bills and photographs of the vehicle.
• Provide evidence to support your claim. Documentation of the value of your vehicle from a trusted source, such as Kelley Blue Book, may be required. You may also need to provide photos of the accident and records of repairs made.
• Prove your car's diminished value. You can use calculations from a recognised formula, such as the 17c formula, or get your vehicle appraised by a professional.
• Be aware of state-specific laws and regulations regarding diminished value claims. For example, Texas has a statute of limitations of two years from the date of the accident to file a claim.

Frequently asked questions