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Your vehicle’s market value is at its highest when it’s brand new. Once you drive it off the lot, it can lose value. The older your car gets and the more miles it has, the lower its value can become. After a car accident, your car’s value can lower even more. This is called diminished value, which is the difference in your car’s market value before and after the accident. Depending on the circumstances of the accident, a car insurance company might pay for the diminished value of your vehicle after a covered loss. Understanding diminished value could give you the tools to successfully file a claim if an accident damages your vehicle’s value.
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, Carfax and similar reports will show that it has been involved in an accident, which will reduce its market value. A diminished value claim — or diminution in value claim — can help recover the loss in value you may take when you go to sell your car or trade it in for a different vehicle.
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 auto 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 decrease 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. Although this is the type of diminished value that court systems use, it is rarely used when filing a diminished value claim with an insurance company, since the company covers the cost of repairs immediately after a covered accident.
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 place of original equipment manufacturers (OEM) parts, the quality of the repair leaves a loss in the value 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 condition prior to the accident.
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 determine the sales, or market, value of your vehicle 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 need to include 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 0.00 to 1.00 according to the structural damage done to your car after an accident. The 0.00 multiplier represents no structural damage or replaced panels, while the 1.00 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 three is multiplied by one of these mileage multipliers to calculate the final diminished value of your vehicle.
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 based on the damage to your car and a mileage multiplier based on your mileage.
For example, if the market value of your vehicle 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 an auto 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 vehicles with 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 auto insurer to discuss its diminished value claim process.
Here are the steps to take to file a diminished value claim:
- Check the insurance company’s process for filing a diminished value claim.
- Document the car’s market value using Kelley Blue Book or NADA calculator tools.
- Prove your car’s diminished value. Having photos and documents of the accident scene and damage to your vehicle can help your case. You may need to get an appraisal from a certified vehicle appraiser as part of the claims process.
- Satisfy all the insurance company’s conditions for diminished value. This gives you the best chance of having your diminished value claim approved.
It is important to note that state regulations also affect how diminished value claims are handled. Since every state has different statutes 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 vehicle’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 have a slightly better chance of receiving compensation from a diminished value claim.
- What state you live in: Every state has different regulations around diminished value claims.
Since each state goes by different statutes for diminished value payouts, it is important to research the regulations 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 make sense 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 own insurance company, which means attempting to file it if you are at fault in an accident will most likely be denied. You can file a diminished value claim with your own insurance company if the at-fault driver is an uninsured motorist or you are the victim of a hit-and-run.
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 vehicle could decrease the longer you wait to file a claim. Each state can have its own statute of limitations which require you to file a claim within a certain time frame from the accident.
Frequently asked questions
Filing a diminished value claim can be a difficult process. But if your vehicle 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 auto 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 insurer will only pay the claim if you can do so effectively. It is also important to note that state regulations vary and each state will handle claims differently. Michigan drivers should be aware that diminished claims laws are handled differently in their state compared to every other state.
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 further extend the process.
Because every claim situation is unique, the time to settle each claim will vary. Claims involving injuries or multiple parties may take longer to settle than more straightforward scenarios. As a baseline, insurance companies generally try to resolve claims within about a month of filing. Depending on the specifics of your claim, your settlement may be reached more quickly or could take longer.
There is no one best car insurance company, since every person has different needs and goals for their coverage. Determining the coverage types you need and your budget can help you when comparing quotes from different carriers to find the best one. You can also determine what you want most out of a company, such as its financial strength, online or mobile capabilities, coverage preferences, discounts or 24/7 availability to file and track claims.