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Diminished value claims: will your auto insurance pay?

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If your car is in an accident, its value goes down regardless of how well you are able to repair it. This is called diminished value. When this happens, you’ll want to file a diminished value claim with your insurance provider to keep from losing any more money.

Is it easy filing a diminished value claim, and will you recover all of your money? Find out more.

What is a diminished value claim?

The purpose of a diminished value claim is to recoup any money (or value) your car has lost as a result of being in an accident. 

Every car depreciates with time. In fact, it depreciates the moment you drive off the parking lot. Diminished value is different. In many ways it can be thought of as forced depreciation (as opposed to forced appreciation, where you increase the value of a property). 

For example, say you’ve just bought a new car valued at $35,000. A week after you’ve bought it, you’re in an accident that damages the front passenger door. You’re able to get it repaired at a professional body shop, but now the car’s inherent value has dropped $7,000 simply because it was in an accident. Were you to sell the car after half a year, that’s $7,000 you’ll never see again. 

How does a car get diminished value?

There are three scenarios where a car loses some of its value post-accident. They are:

  1. Immediate diminished value: This type of diminished value occurs immediately after an accident and before any repairs have been made on it. Because insurance companies provide damage repairs after an accident, it’s rare that this type of diminished value is used.
  2. Inherent diminished value: Inherent diminished value is the most common form of diminished value, and it happens when a car loses value because it has a damage history. With this type, it is assumed that any needed repairs were made by a licensed, highly trained mechanic and that the car is performing and driving as it should.
  3. Repair-related diminished value: With repair-related diminished value, a car’s value depreciates because low-level repairs were made to it following an accident. A common type of repair-related diminished value is when a car has lost a portion of its paint job and the owner, instead of taking it to a professional paint shop, tries to match the color with store-bought paint. It’s technically the same color, but it doesn’t blend in well with the rest of the car. With RRDV, it is assumed that the car is unable to be restored to its original condition post-accident. 

Why does a car have diminished value after an accident?

When a car is in an accident, it is considered less valuable than another car that hasn’t been in an accident. Therefore, it has automatically lost some of its inherent value. If you are the owner of the car, and the accident was caused by someone else, this means you will make less money should you ever decide to sell— regardless of how well the car is restored to its original condition. With a diminished value claim, that money is returned to you. 

Will the insurance company pay for diminished value?

Yes, it’s possible to receive compensation for diminished value. However, it depends on which state you live and the specific circumstances that resulted in your car’s diminished value. 

A successful diminished value claim depends on the following factors:

  • What state you live in
  • Who was at fault in the accident
  • Whether the at-fault driver has insurance
  • Whether you carry underinsured/uninsured motorist coverage

If you are denied a diminished value claim you do have options, but they cost money, which will negate the reason for filing a diminished value claim.

Option one is to hire a lawyer. Your lawyer will challenge your denial on your behalf. Depending on the size of the claim, it may be worth your time and effort to do this.

Option two is to hire a professional appraiser. This is a solid way to go about debating your claim with your insurance company because your argument will be based on calculated facts and figures to support your claim.

Diminished value after a non-responsible accident

When you are clearly not at fault, your insurance provider will be much more likely to approve a diminished value claim. If the at-fault driver has liability, they are legally responsible to pay for diminished value. 

Diminished value after a responsible accident

If you are deemed to be the one who caused an accident, you are going to have a much harder time successfully filing a diminished value claim. You could speak with a lawyer prior to filing the claim, but it’s likely that even your lawyer would advise you against it. 

Diminished value and uninsured motorists

If you are in an accident with an uninsured driver, you’re also going to have a hard time successfully filing a diminished value claim. However, if you have uninsured motorist coverage, you may be able to do so. It’s not a guarantee, but it is possible. 

How to check what the diminished value is on your car

You’re probably wondering how to file a diminished value claim. The first thing you’ll want to do is calculate how much your car is worth before you write a diminished value claim letter.

The easiest thing to do is to get a professional evaluation from a licensed appraiser. This costs money (around a few hundred bucks), but the final number will be a professional conclusion, which will help you significantly if your insurance provider pushes back on your claim.

The second option is to compare your Edmunds or Kelley Blue Book trade-in value estimates to any damage your car has sustained. Most insurance companies place a 10 percent cap on any diminished value. Therefore, if your trade in value is $30,000, the most you would receive is $3,000. 

Next, you will apply a damage multiplier. Most companies use the following for structure when calculating damage:

  • 0.00 for no structural damage
  • 0.25 for minor damage to structure or outside panels
  • 0.50 for moderate damage to the car’s structure or outside panels
  • 0.75 for major damage to the car’s structure or outside panels
  • 1.00 for severe damage to the car’s structure or outside panels

Example: Your $30,000 car sustains major damage to its structure and outside panels. Major damage equates to 0.75.

$3,000 x 0.75= $2,250.

Next you will apply a mileage multiplier. To do this, you will need to compare your car’s odometer to the following:

  • 0-19,999 miles: 1
  • 20,000-39,999 miles: 0.8
  • 40,000-59,999 miles: 0.6
  • 60,000-79,999 miles: 0.4
  • 80,000-99,999 miles: 0.2
  • 100,000 miles and greater: 0.00

Example: Your car has 21,000 miles on it, which means you will multiply the number from part 1 by 0.8.

$2,250 x 0.8= $1,800. 

The maximum you should expect to receive in this scenario for diminished value is $1,800.

If you’re wondering how to make a diminished value claim, do the math to see if it makes sense filing a claim in the first place. As you can see, if your car has over 100,000 miles on it, you wouldn’t get anything despite what type of car you may have.  

States that don’t pay diminished value claims

More states allow diminished value claims these days, especially since a class action lawsuit in 2001 (Mabry vs. State Farm) caused Georgia to change its rules. To see if your state allows diminished value claims, contact your state insurance commissioner.

The following states are known to allow drivers to file a diminished value claim with the at-fault driver’s insurance company:

  • Arizona
  • Colorado
  • Florida
  • Georgia
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Louisiana
  • Maryland
  • New Mexico
  • New York
  • Oregon
  • South Carolina
  • Virginia

The takeaway

  • Accidents cause cars to lose their value regardless of how well repaired they are.
  • If your car is damaged by an at-fault driver, you may be able to file a diminished value claim.
  • The maximum you’ll be able to get is 10 percent of the trade-in-value.
  • Depending on your insurance provider, it may not be easy to have your claim approved.

A diminished value claim lessens the amount of money you’ll lose after your car is in an accident. However, some insurance providers fight back. If your car isn’t worth a great amount, it may not be worth your time and effort.

Lauren Ward

Lauren Ward is a writer for Coverage.com. She specializes in all things personal finance, including insurance, loans, and real estate.

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