What Is a Diminished Value Claim?
Vehicle Resale Value Drops After a Car Accident
Once you crash your car, its resale value automatically diminishes. Regardless of how well you have repaired it, how good it looks and how well it runs, it will still be worth less than it was before the accident. Potential buyers will not be willing the pay the same price for a car with an accident history. But there is a way you can recover the difference in value. It is called a diminished value claim.
The meaning of diminished value
The diminished value of a motor vehicle is the difference between its pre- and post-accident values. In insurance terms, it is the value that has not been restored even after repairs. There are three types of diminished values:
- Immediate diminished value: This is the difference between the resale value of a car before and immediately after it was damaged, i.e., before the vehicle is repaired. Most courts use this as a primary measure of damage. But in practice it is rarely used because most claims are settled out of court and also because most damaged cars are repaired before they are put on sale.
- Inherent diminished value: This is the difference in the resale value of a car before it was damaged and after it has been restored to its previous condition. The car looks the same as before and runs the same as before, but it has lost some of its value due to its accident history. This definition has the most common application.
- Repair-related diminished value: This is the additional decrease in the resale value of a damaged car resulting from less than optimal repair.
In conclusion, diminished value insurance allows car owners to recover the difference in the pre-accident resale value and the post-accident value of their car.
How to make a diminished value claim
For a successful claim, you will need an appraisal of the value of the car before the accident and after the repairs are done. The diminished value is based on how much less money you would get if you were to sell it. In addition to accident history, the loss in value can come from a less-than-perfect repair job, such as mismatched paint.
Your insurance company may not show enthusiasm in processing your claim. They may offer you a token amount calculated using an industry formula. In the worst case, they may argue that no such thing as a diminished value claim exists.
How insurance companies calculate diminished value
Insurance companies calculate the diminished value of a car using a formula called 17c – derived from its citation in a court case. Here is how it works:
- Look up the market value of the car in websites like NADA and Kelley Blue Book. You will need to enter the make, model, mileage and details about the damage.
- Multiply the market value by 0.10.
- Multiply for damage using the following options: 1 for severe structural damage, 0.75 for major damage to structure and panels, 0.50 for moderate damage to structure and panel, 0.25 for minor damage to structure and panel and 0 for no structural damage or replaced.
- Multiply for mileage using the following options: 1 for 0-19,999 miles, 0.80 for 20,000-39,999 miles, 0.60 for 40,000-59,999 miles, 0.40 for 60,000-79,999 miles, 0.20 for 80,000-99,999 miles and 0 for 100,000+.
The fact that the formula does not take into account mechanical damage, does not provide any explanation why the market value should be multiplied by 0.10 makes 17c, and does not explain why mileage is taken in account when it has already been factored in the marked price makes this formula very controversial.
How to calculate the diminished value of your car
It’s not necessary that you accept the amount offered by your insurance company. You should present them with your own value. Here’s how:
- Find the market value of the car in websites like NADA and Kelley Blue Book.
- Find similar cars with accident history and find the average post-accident value of three or four such cars.
- Subtract the market value of the car with an accident history from the market value of a similar car without an accident history. You will get the actual diminished value of your car.
In case you are facing stiff resistance from your car insurance company, it may be a good idea to retain a car accident lawyer to help pursue your diminished value claim, but only if your car is worth more than $10,000. Older and cheaper cars generally do not merit this type of claim.