Diminished value claims explained

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After a car accident, the market value of your car decreases, even if it is restored to perfect condition. Diminished value refers to the difference in your car’s market value before and after the accident. If you or the other driver in the accident have auto insurance to cover your vehicle, then the insurance may cover the cost to restore your car back to its condition prior to loss.

However, a car involved in an accident automatically decreases in worth, which means the owner is potentially able to file a diminished value claim to recoup some of the lost value. A successful diminished value claim pays the car owner the dollar amount difference between the car’s value before and after the wreck.

What is diminished value?

After an accident, your car’s market value will decrease even if it goes through all of the necessary procedures to restore it back to its prior condition. Diminished value is the difference in your car’s market value before and after an accident. Even if you try to resell your vehicle, the history will show that it has been involved in an accident, which will bring its value down. A diminished value claim can help recover the costs to bring your vehicle back to the market price before an accident.

Types of diminished value

There are three types of diminished value. Each type relates to the depreciation in the cost of your vehicle after an accident.

Inherent Diminished Value

This is the most common and accepted form of car accident diminished value. Inherent diminished value occurs when a vehicle loses value because it now has a history of damage, which is indicated in the car’s history reports. This type of diminished value assumes that the vehicle’s repairs were of optimal quality and represents the amount the vehicle’s worth will reduce based on the accident history.

Immediate Diminished Value

This type of vehicle diminished value represents the difference in resale value immediately after an accident and before the vehicle is repaired. Because your insurance company provides most damage repairs immediately after an accident, this type of diminished value is rarely used when filing a diminished value claim.

Repair-Related Diminished Value

This refers to the loss of the vehicle’s value based on low-quality repairs performed after an accident. For example, if the paint is repaired with a color that is not an exact match or if aftermarket parts are used in the repair, the quality of the repair leaves a loss in the value of the vehicle beyond the diminished value of the vehicle that now exists because of the accident. This diminished value assumes that the vehicle is unable to be restored to its original condition.

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Calculating diminished value

Most insurance companies in the United States use a calculation called the 17c Diminished Value Formula to determine the new value of a vehicle post-accident. This formula originated in a Georgia claims case involving State Farm, where it appeared as paragraph 17, section c, which is where it got its name. Below are the steps used to calculate diminished value under this formula.

Step 1: Determine the value of your car.

You can do this using the NADA or Kelley Blue Book websites. Both offer a calculator where you can input a few pieces of information regarding your vehicle. You will want to know the year, make, model, mileage and the extent of damage done to your car.

Step 2: Apply a 10% cap to that value.

Insurance companies commonly apply a 10% cap, known as the base loss of value, to the sales value of your vehicle estimated by NADA or Kelley Blue Book. This cap is the maximum amount your insurance company will pay on the claim.

Step 3: Apply a damage multiplier.

Insurance companies use a damage multiplier to adjust the value of the vehicle described in step two. The 10% cap value is multiplied by a number ranging from zero to one according to the structural damage done to your car after an accident. The zero multiplier represents no structural damage or replaced panels, while the one multiplier represents vehicles with severe structural damage.

Multiplier Damage Level
1.00 Severe structural damage
0.75 Major damage to structure and panels
0.50 Moderate damage to structure and panels
0.25 Minor damage to structure and panels
0.00 No structural damage

Step 4: Apply a mileage multiplier.

While NADA and Kelley Blue Book take the mileage of your car into consideration when determining the value, insurance companies calculate their own mileage deduction. The adjusted value in step 3 is multiplied by one of these mileage multipliers to calculate the final diminished value of your vehicle.

Multiplier Damage Level
1.00 0-19,999 miles
0.80 20,000-29,999 miles
0.60 40,000-59,999 miles
0.40 60,000-79,999 miles
0.20 80,000-99,999 miles
0.00 100,000+ miles

Under formula 17c, to calculate the diminished value of your car, you would take your vehicle value and multiply it by a 10% cap. You would then apply a damage multiplier depending on the damage of your car and a mileage multiplier depending on your mileage.

For example, if the market value of your car is $15,000 with moderate damage to structure and panels and 20,000 miles, your formula to calculate diminished value would be:

$15,000 x .10 = $1,500 which would be the maximum you would receive for a diminished value from a car insurer.

$1,500 x .50 = $750 which would be the value adjusted for moderate damages.

$750 x .80 = $600 which would be the value adjusted for the 20,000 miles.

How to file a diminished value claim

Filing a diminished value claim can be more involved than filing a claim for other issues because the burden of proving the car’s diminished value is generally your responsibility.

If you are at fault in the accident, your diminished value claim will likely be denied. If the other driver is at fault, then you should contact their insurance provider to discuss its diminished value claim process.

The first step is to check the insurer’s rules on filing a diminished value claim. If the other driver is uninsured, you may need uninsured motorist coverage to file a successful claim.

You will also need to document the car’s value from an approved source, such as Kelley Blue Book. Other common documents that are required in the claim process can include photos at the accident scene and documentation of the repairs made to the car following the accident. Read all of the requirements closely in preparation for filing the claim.

Next, you will need to prove your car’s diminished value. To do this, you will likely need to get the car appraised by a professional. Finding a reliable, certified appraiser is the key in filing a successful diminished value claim.

When filing the claim with the insurance company, make sure you satisfy all of the conditions for the claim. This will ensure you have the best chance of receiving compensation for your loss.

It is important to note that state laws also affect how diminished value claims are handled. Since every state has different laws regarding insurance, researching state laws will better help you understand your rights regarding the diminished value of your vehicle.

Considerations when filing a diminished value claim

Filing a diminished value claim is not the right option for everyone. You may or may not receive a payout when filing a diminished value claim. A few things to consider are:

  • Your car’s value before the accident: If you drive an older car that has a lot of mileage or structural damages, you may not receive a payout for diminished value.
  • Whether you were at fault: If you caused the accident, then your insurance company most likely will not pay a diminished value claim.
  • If you are involved in an accident with an uninsured driver: If you have uninsured motorist coverage with your insurer, you should file a diminished value claim.
  • What state you live in: Every state has different laws around diminished value claims.

Since each state goes by different laws for diminished value payouts, it is important to research the laws in your state. All states except Michigan allow for some level of diminished value claim to be filed if the other party is at-fault.

When to file a diminished claim

If you are involved in an accident where the other party is at fault, it may be best to file a diminished value claim so you can recover the difference in your vehicle’s value. In most cases, you cannot file a diminished claim against your insurance company, which means you should never attempt to file it if you are at fault in an accident.

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. It is often easier to present your case (with supporting documentation) when you file quickly. Also, the value of your car could decrease the longer you wait to file a claim.

Frequently asked questions

Is a diminished value claim worth it?

Diminished value claims can be a difficult process. But if your car is worth significantly less after an accident, even after it has been restored to original condition, then filing a claim for the car’s diminished value could compensate for the significant financial loss in value.

Are insurance companies required to pay a diminished value claim?

If the other driver is at fault in your accident and has insurance, then you should be entitled to a diminished value claim. However, it is primarily up to you to prove your car’s diminished value, and the insurance company will only pay the claim if you can do so effectively. It is also important to note that state laws vary and each state will handle claims differently. Michigan drivers should be aware that diminished claims laws are handled differently in their state.

How long does it take to settle a diminished value claim?

Diminished value claims often take longer than standard auto claims to resolve. Due to the complexity of these kinds of claims, they can often take weeks or even months to finalize. In select cases, you may even need to hire a lawyer as an intermediary with the insurance company to get the best results, which can extend the process further.

Written by
Julian Dossett
Insurance Contributor
Julian has three years of experience writing for insurance domains including Bankrate, NextAdvisor with TIME, The Simple Dollar, Reviews.com, and Coverage.com. He writes about auto, home, and life insurance.
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