Picture this: you’re trading in your car for a bigger and better vehicle. However, you were involved in a major car accident six months earlier that resulted in thousands of dollars in repairs. Regardless of the fact that the repair shop restored your car to near-perfect condition, the car’s value has gone down. How do you recoup the pre-accident value of your car?
The difference between what the car was worth pre-accident and the market value of the post-repair car is known as diminished value or loss of value claim. If you successfully file a diminished value claim, the car insurance provider will pay you to make up for the loss in value of the car. However, there are some restrictions.
Successfully filing a diminished value claim isn’t always easy, so it’s important to know when and how to appropriately file a claim to recoup what you’re owed.
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 damage history. 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
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.
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 your diminished value claim
You need to have the car repaired before you file so the insurance provider can calculate the diminished value. Also, go to NADA or Kelley Blue Book in advance to obtain the market value of your car before the accident. You can also get information about the current value through the above calculation or taking your car to a dealer and asking them to calculate your car’s value or talk to an appraiser to back up your claim of diminished value.
After you’ve done these steps for preparation, you should ask your insurance provider for specifics about how to make a diminished value claim with them. Every state has different limitations around filing for diminished value, so talking with your provider will give you the details you need to make your claim.