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What Does "Diminished Value" Mean?
Diminished value is a term that is used to express the loss of a vehicle's market value after it has been in an accident and then repaired. It can also be applied to other property such as real estate or collectibles, but generally, the term applies to vehicles. Once the vehicle has been damaged and repaired, the value of the vehicle is never the same, no matter how well the repairs were made. If you're asking the question, "what does diminished value mean," you've probably been in an accident recently and are looking to recoup all that you can from this unfortunate event.
It's important to make a distinction between diminished value and depreciation. Depreciation is the reduction of the value of a car that happens over time due, in particular, to normal wear and tear. Diminished value happens suddenly and unexpectedly from a car accident. Let's take a deep dive and cover all the aspects of the question, what does diminished value mean?
What is a diminished value claim?
When you are in a car accident, the purpose of a diminished value claim is to recover the value of your property that was lost due to the accident. Even after repairs, your car has lost some of its value simply because it's now identified as being in an accident. When you go to sell or trade-in your vehicle, the history of the accident will be recorded and available on websites that supply vehicle history reports to individuals and businesses like Carfax or AutoCheck, for example.
People inherently will view the car as less valuable than a car that has not been in an accident, even if it looks great and drives perfectly. This kind of bias will cause you to lose money in the future, even after the insurance company has paid for all your repairs.
Here is an example scenario: You buy a new luxury car like a BMW or a Lexus for $45,000, and a few months later, someone rear-ends your vehicle. The at-fault driver's insurance pays for the damage to be repaired at a quality body shop. Still, now your car's value has dropped by thousands of dollars simply because of the accident. Later, when you're ready to buy another new car, you find out that buyers are using the fact that the car was in an accident as a bargaining chip to pay less than Blue Book value, even though the car is in near immaculate condition. That's thousands of dollars you'll never see again through no fault of your own.
A diminished value claim is processed through the insurance companies. It is totally separate from a liability claim to repair your vehicle or to recoup medical bills from any injuries sustained in the accident.
What are the types of diminished value for a car?
There are actually three different types of diminished value which are as follows.
Immediate diminished value: This kind of diminished value happens directly after your accident before any repairs are made. Insurance policies are designed to pay for this kind of damage, so this type of diminished value is rarely used for compensation.
Inherent diminished value: Inherent diminished value is commonly used, and it occurs because your vehicle now has a history of damage. With this type of diminished value, the assumption is the car has been repaired professionally, and it has been restored to the condition it was in pre-accident. It's important to note here that even though the car has been restored, its value has not.
Repair-related diminished value: Repair-related diminished value occurs when the value of the car drops because substandard repairs were made or cheap materials were used. For example, suppose your mechanic replaced your Volkswagen engine with a cheaper version made in China and pockets the difference. In that case, you have repair-related diminished value. In this scenario, the issue is likely between yourself and the mechanic.
Are insurance companies required to pay diminished value?
Diminished value claims are a possible way to recoup the loss of your car's value after an accident in many states. It all depends on a few factors, which are:
- The state you live in
- Who was at fault for the accident
- Whether the at-fault driver has insurance
- Whether you have underinsured/uninsured motorists protection on your insurance policy
Establishing who was at fault in the accident is critical in almost every diminished value claim. Most insurers will not pay out if you were the one who caused the accident.
Which states allow drivers to file a diminished value claim?
Currently, these states listed below support filing a diminished value claim with the at-fault driver's insurance company. However, it's important to seek legal advice if your state does not support it because landmark class action lawsuits have been behind some states changing their laws.
- New Mexico
- New York
- South Carolina
How is fault determined after a car accident?
It is the insurance companies job to assign fault after a car accident. In some instances, it's easy because of the type of crash, like a rear-end accident. Each party involved needs to provide relevant information pertaining to the accident, like what led up to the accident. Police reports and eyewitness accounts are, of course, invaluable evidence, as well as any dashcam or CCTV footage from nearby businesses or residences.
If the fault is unclear, eyewitnesses that can agree on what they saw can be the tiebreaker. That's why it is so important to collect information after any car accident. Furthermore, acquiring a police report after an accident is crucial because it carries a lot of weight when determining who was at fault. Physical evidence like skid marks, paint on a vehicle, and the type of injuries drivers and passengers have can also be used to conclude who caused the accident. The process is further complicated if it was a multi-vehicle accident.
What if the at-fault driver did not have insurance?
Suppose the at-fault driver is negligent enough not to carry insurance or had a lapse in coverage due to non-payment. In that case, you're going to have a harder time. On the bright side, if your own insurance policy has uninsured motorists coverage, you may be able to file a diminished value claim with your own insurance company.
Is a diminished value claim worth it?
To determine if filing a diminished value claim is worth your time and effort, there are few things to consider.
The age of your vehicle - Older cars are typically not as valuable as newer cars, with the exception of luxury or rare classic cars. In fact, many insurance companies will fight to pay out diminished value on cars that are over seven years old. Fighting a case at trial for a car that was valued at $5000 pre-accident won't make much sense since the money recouped would be very little.
The vehicle's mileage - Mileage impacts the value of a car, whether it was in an accident or not. High-mileage vehicles are worth less than low-mileage cars, even if it's a newer model. The only exceptions are cars that are known to stand the test of time, like the Honda Civic or Chevy Silverado's.
The vehicle's make and model - Obviously, the make and model of a vehicle will impact the value. Luxury cars are more valuable than economy cars like the Chevy Spark or the Mitsubishi Mirage. That's not to say you shouldn't file a claim on an economy car, just take into consideration the age and mileage before doing so.
The vehicle's accident history - If this is the second accident your car's been in, it's already lost value from the first. However, the first accident may not have consumed the total value of the drop. Suppose the first was relatively minor, and the second was also minor. In that case, you could still have some wiggle room for another depreciated value claim.
When to seek legal help for a diminished value claim
For the most part, insurance adjusters try to have scruples when it comes to doing their job. However, either by inexperience or downright unethical practices, you may be denied a legitimate claim. Here are some common arguments that could signal the need for expert legal representation.
We aren't liable for that- The concept of diminished value is becoming increasingly popular. However, an inexperienced adjuster may still try to use this excuse. A lawyer can write a demand letter which can result in one of three things.
- The diminished value claim being paid
- A counter-offer is made
- The demand is refused
In the last scenario, the next step is to take them to court.
Your vehicle was already repaired, so no diminished value is owed - As discussed earlier, no matter how good the repair job was, your vehicle now has a history that can bias future buyers of the car. Even a dealership will depreciate your car's worth in a trade-in because of damage history, however minor.
The vehicle already has an accident history - Again, the prior accident may not have been severe, so the value drop may not have been consumed from the first accident. You could still be owed the difference left from the most recent accident.
The diminished value can't be determined until you sell the vehicle - This argument is perhaps the worst since there are statutes of limitations in every state to pursue legal action for loss. It makes no sense to assume that a vehicle owner must sell their vehicle within the statute of limitations to recoup its diminished value.
Hopefully, we've helped to answer the question, "what does diminished value mean" in this article. If you've been in an accident and are having difficulties with the insurance companies, you've come to the right place. Morgan & Morgan is one of the largest and most successful law firms in the country. Because of that, we are well known to the insurance companies. We have a solid reputation for fighting when justice is at stake. Reach out to us for a free, no-risk case evaluation today.