After a car accident, the market value of your car decreases, even if it’s 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 will cover the cost to restore your car back to its condition prior to loss.
However, a car involved in a wreck 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.
Types of diminished value
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 title. This type of diminished value assumes that optimal repair quality has been completed on the vehicle 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 loss is rarely used.
Repair-Related Diminished Value
This refers to the loss of the vehicle’s value based on low-quality repairs performed post-accident. For example, if the paint was repaired with a color that wasn’t an exact match or if aftermarket parts were 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.
How diminished value is calculated
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. 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 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 post-accident. The zero multiplier represents no structural damage or replaced panels, while the one multiplier represents vehicles with severe structural damage.
- 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.
- 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
How to file a diminished value claim
Before filling for a diminished value claim, check with your car insurance provider to see if you qualify for accident forgiveness, provided the other party was at fault so that your insurance costs don’t go up while you’re working through the process.
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’ll 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.
It’s important to note that state laws also affect how diminished value claims are handled. If the accident was not your fault, then you should be entitled to compensation for a diminished value claim in all states except Michigan.
Next, you’ll need to prove your car’s diminished value. To do this, you’ll 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.
When to file a diminished claim
Always file a diminished claim if you’re involved in an accident where the other party is at fault so you can recover the difference in value. In most cases, you can’t file a diminished claim against your insurance company, which means you should never attempt to file it if you’re at fault in an accident.
Always 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’s 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’s 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. 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.