Understanding Diminished Value In Auto Insurance Claims

Diminished value is the difference between a car's market value before and after an accident. Even if the car is fully repaired, its resale value is likely to be lower because it now has an accident history. A diminished value claim allows the owner to recover the difference between the car's pre-accident value and its value after repairs from the insurance company of the at-fault driver.

Inherent diminished value

To prove inherent diminished value, you can hire an independent appraiser to value your vehicle, get a written estimate from a sales manager at a local dealership, or compare the sales price of your vehicle against similar vehicles with no accident history.

When filing an inherent diminished value claim, it's important to note that the accident must not have been your fault, and you must own or finance the vehicle. Leased vehicles are not eligible for diminished value claims. Additionally, the vehicle must not be totaled.

Immediate diminished value

As such, inherent diminished value claims are more common. These refer to the reduction in a vehicle's value after repairs have been made. Even if the vehicle has been fully restored, its market value will usually decrease simply because it now has a history of damage.

Repair-related diminished value

When a car is repaired with mismatched paint or aftermarket parts, it can negatively impact its resale value. The use of aftermarket or used auto parts, corner-cutting repair techniques, or imperfect paint jobs can reduce the vehicle's value, even if these repairs make the car safe and reliable to use.

In the context of auto insurance, repair-related diminished value is relevant when determining the compensation owed to the owner of a repaired vehicle. The difference in the vehicle's market value before and after the accident, including the impact of any subpar repairs, is considered in diminished value claims.

To successfully claim repair-related diminished value, vehicle owners may need to provide clear proof of the diminution in value and its dollar amount. This can be challenging, and insurance companies may dispute the assessment. Engaging a certified vehicle appraiser or recognised industry expert to evaluate the vehicle's market value and analyse the quality of repairs may be necessary to substantiate the claim.

How to prove diminished value

To prove diminished value, you must first understand what it is and how it is calculated. Diminished value is the difference in your car's market value before and after an accident. Even if your car is fully repaired, its market value will still decrease because it now has an accident history.

There are three types of diminished value:

• Immediate diminished value: The difference in market value immediately before and after an accident, before any repairs are made. This type of claim is rarely used outside of court.
• Inherent diminished value: The loss in market value due to a vehicle's accident history, even if it has been repaired. This is the most common type of claim.
• Repair-related diminished value: The loss in value due to substandard repairs, such as using aftermarket parts or low-quality paint.

Insurance companies commonly use the 17c formula to calculate diminished value:

• Calculate the value of your car before the accident using sites like NADA or Kelley Blue Book.
• Apply a 10% cap to that value, which is the maximum amount insurance companies will pay for a claim.
• Apply a damage multiplier based on the severity of structural damage to your car.
• Apply a mileage multiplier to account for the car's mileage.

To prove diminished value, you can:

• Document the car's market value before the accident using sites like Kelley Blue Book or NADA.
• Prove the car's diminished value after the accident by providing photos, documents, and an appraisal from a certified vehicle appraiser.
• Fulfill all conditions set by the insurance company to improve the chances of a successful claim.
• Research your state's specific laws and regulations regarding diminished value claims, as they vary across states.
• Consult a lawyer specializing in diminished value claims if needed.

It's important to note that a diminished value claim is more likely to be successful if the other driver was at fault, and if your car is newer, has low mileage, and no previous accident history.

When to file a diminished value claim

If you are involved in an accident where you are not at fault, you can file a diminished value claim to recover the difference in your vehicle's value. In most cases, you cannot file a diminished claim against your own insurance company, so if you are at fault for the accident, your claim will likely be denied.

You may, however, be able to file a diminished value claim with your own insurance company if the at-fault driver is an uninsured motorist or you are the victim of a hit-and-run.

It is generally best to file for a diminished claim with the at-fault party's insurance company as soon as possible, preferably in the days after the accident occurs. The value of your vehicle could decrease the longer you wait to file a claim, and each state has its own statute of limitations, requiring you to file a claim within a certain time frame. For example, in California, the statute of limitations for filing a diminished value claim is three years.

Frequently asked questions