A diminished value claim, if successful, allows you to get compensation for the difference in the value of your vehicle before versus after the accident.
Five key things to know about diminished value claims are:
- what they recover,
- a car’s value can diminish in 3 different ways,
- who was at fault for the accident matters,
- insurance companies will determine the diminished value, and
- proving diminished value can be difficult.
1. Diminished value claims compensate you for the reduction in your car’s value
If you are in a car accident that was caused by someone else, you deserve compensation. The lion’s share of your compensation will cover your
- medical bills,
- pain and suffering, and
- lost wages.
These are all losses from your personal injuries. However, you are also entitled to compensation for your car repair expenses. An often overlooked aspect of these property damages is the reduction in the value of a vehicle that was caused by the accident.
A diminished value claim aims to recover compensation for that lost value from the at-fault driver’s insurance company.
For example: Dave is involved in a car accident. Before the accident, his vehicle was worth $30,000. Post-accident, it is only worth $26,000. He files a diminished value claim with the at-driver’s insurer for the lost $4,000.
2. There are 3 types of diminished value claims
Motor vehicles can lose value after a car accident in 3 ways:
- the stigma of the vehicle’s new accident history makes its resale value diminish,
- the immediate diminished value after the accident and before any repairs are made, and
- the repairs themselves diminish the value of the vehicle.
Depending on the stage of your case, one or more of these options may be available to you.
Value diminished by stigma
The most common type of diminished value claim is to recover value lost because of the stigma of the crash. When selling or trading in the vehicle, your prospective buyer is likely to research the vehicle’s crash history. They are likely to find information about:
- the severity of the accident,
- any structural damage done to the vehicle,
- where the damage occurred, and
- what repairs were made.
When potential buyers find that the vehicle has been involved in an auto accident, they are likely to reduce their offer for it. They reduce the offer because there is a stigma against vehicles that were involved in a crash. They may worry that repairs were not done well. They may also be concerned about latent problems from the accident.
The resulting reduction in value stems from the car accident. When that accident was not your fault, you deserve compensation for it.
These types of diminished value claims are also known as:
- inherent diminished value,
- stigma damage, or
- residual diminished value.
This is different from depreciation. Depreciation is the diminished value of your car that is due to normal wear and tear. Diminished value is for value lost due to a car accident.
Immediate diminished value
A rare type of diminished value claim to file is for your vehicle’s immediate diminished value. This is the reduction in value caused by the accident before repairs have been made.
When made, these types of claims demand more compensation than the others.
However, they are rare because your auto insurance company typically pays the cost of repairs. Once those repairs have been made, these types of diminished value claims cannot be filed.
Value diminished by repairs
You can also demand compensation for vehicle value that was diminished by repairs. Many repair shops, especially those used by inexpensive car insurance companies, do not make the highest quality repairs. They may:
- use aftermarket or used auto parts,
- employ corner-cutting techniques, or
- paint the affected car part a slightly different color than the rest of the vehicle.
These repairs may be good enough to make the car reliable and safe. However, they can nevertheless reduce the vehicle’s value. Because you suffered these repair-related losses from the accident, you are entitled to compensation for them.
3. If you were at fault for the car accident, you may not recover compensation
Many car insurance policies exclude coverage for the diminished value of the policyholder’s vehicle, if the policyholder was at fault for the damage. Not all do, though. You should review your car insurance policy before filing one of these claims against your own insurance company.
For example: Kandace bumps into the wall of a building while parking her car. The impact cracks the paint on her fender. The repairs mismatch the color of her new fender with the rest of the vehicle. This reduces the value of the car. However, because Kandace was responsible for the accident, she might not be able to recover the diminished value of the vehicle.
A couple of state laws, however, require insurance providers to pay diminished value claims, regardless of who was the at-fault party.1
4. Insurance companies calculate diminished value
You file diminished value claims with an insurance company. That insurance company will determine how much value the vehicle lost in the crash. Most insurance companies and their adjusters use the 17c Formula to calculate diminished value.
This diminished value formula begins with the appraisal value of your vehicle. This is the pre-accident value of your car, in its original condition. It often comes from the National Automobile Dealers Association (NADA) or Kelley Blue Book.
The appraisal value is then multiplied by 0.1. This represents the maximum diminished value that a vehicle can suffer from a crash. The number is often referred to as the base loss of value.
The base loss of value is then altered by a damage multiplier. The damage multiplier ranges from 0 to 1. Higher numbers are for more severe damage from the wreck:
- 0 – there was no structural damage or replaced panels,
- 0.25 – minor damage to panels or the vehicle’s structure,
- 0.5 – moderate damage to panels or structure,
- 0.75 – major panel and structural damage, and
- 1.0 – severe damage to the vehicle’s structure.
The resulting number is then subjected to a mileage multiplier. Older vehicles that have been driven more lose their value less than new ones do. The results of the damage multiplier are themselves multiplied by:
- 0 – for vehicles with 100,000 miles or more,
- 0.2 – vehicles with 80,000 to 99,999 miles,
- 0.4 – 60,000 to 79,999 miles,
- 0.6 – 40,000 to 59,999 miles,
- 0.8 – 20,000 to 39,999 miles, and
- 1 – for vehicles with less than 20,000 miles.
For example: Melanie’s 2018 Honda Accord is damaged in a car crash. She files a diminished value claim against the at-fault driver’s insurance company. The insurance company uses the 17c Formula as a diminished value calculator. The vehicle is appraised by NADA at $21,600, so its base loss of value is $2,160 ($21,600 times 0.1). Because there was moderate damage, the base value is multiplied by 0.5 down to $1,080 ($2,160 times 0.5). Because Melanie’s car had 57,000 miles on it at the time of the accident, the mileage multiplier is 0.6. This puts her diminished value claim at $648 ($1,080 times 0.6).
However, the 17c Formula is controversial. It often seems to undervalue a vehicle’s diminished value. If you are unsatisfied with the payout that is offered, you may want to get the legal advice of a car accident lawyer from a reputable law firm.
5. Proving your case can be tricky
Some insurance companies will demand additional evidence before paying a diminished value claim. This is especially common when your diminished value claim is high. There are several ways that you can prove the extent of the diminished value. You can:
- hire an independent appraiser to value your vehicle,
- get a sales manager at a local auto dealership to make a written estimate of what would have been offered for your vehicle, had it not been in the accident, or
- sell the vehicle or offer it as a trade-in.
You can then compare the sales or appraisal price of your particular vehicle against other vehicles of the same make, model, and mileage. If yours is lower than the normal market value, the difference would be the diminished value of your vehicle from the accident. This number can support your insurance claim.
- See, e.g., State Farm v. Mabry, 556 S.E.2d 114 (2011) (Georgia).