DIMINISHED VALUE CLAIMS IN ARIZONA
by Michael L. York II
Property damage claims in Arizona fall into three categories: 1) cost of repair, 2) diminution in value, and 3) loss of use and/or rental.
Coordinating the evaluation, negotiating a total loss of a vehicle, and obtaining a rental are some of the many headaches that come with being involved in an automobile accident. But what about the situation where your vehicle has sustained property damage that was repairable, but it is now worth less money than it was prior to the accident. This is known as inherent diminished value, or “DV.”
In Arizona, one can maintain a claim for diminished value against a third party who caused the accident. The responsible third partyâ€™s insurance company (referred to as the “third party carrier”) has an obligation to pay for diminished value under Arizona law. In the unfortunate situation where you were injured by a third party who was uninsured, your own auto insurer (the “first party carrier”) has no obligation to pay DV under Arizona law. First party carriers have an obligation to repair your vehicle or pay for the total loss, but unfortunately, our Courts have declined to extend an obligation on the part of your own insurer to pay DV.
The following guide will assist you in determining whether your vehicle has sustained a loss in value following collision repairs, and what to do in order to prove your claim.
Step 1: Consider the Factors that Will Determine Whether My Vehicle Has Lost Value?
â€“ What is the year, make and model of my vehicle? Generally, the newer the vehicle, or the higher demand for that vehicle in the market, the more likely it has lost value. At the other end of the spectrum, an older car with high mileage can suffer more damage and still not lose much value because the vehicle had already naturally depreciated over time even before your accident. An exception to this rule would be the older collector car which may lose significant value because it is rare, or because collectors desire “mint” condition as opposed to damaged goods.
â€“ What was the condition and mileage of my vehicle prior to the accident? Generally, the higher the mileage, the less diminished value. The lower the mileage, the more loss in value the accident will have caused.
â€“ What type of damage did my vehicle sustain? Generally, cosmetic repairs like dents, paint, etc., are not going to result in a tremendous amount of diminished value. Structural damage is the largest contributor to a loss in value. Even though the vehicle has been repaired to industry standard (in other words, it is the “best the shop could do” to replicate the original condition with whatever technology is available), there is some residual or “inherent” loss in value that remains.
â€“ Was my vehicle repaired to “industry standard?” Did the repair facility do the best job possible given the type of repairs needed? Did they use the latest technology to return the vehicle as close to its pre-accident condition as possible? Did they use original (OEM) parts? If the diminished value on the vehicle is due to poor repairs, the vehicle needs to be properly repaired before the inherent diminished value can be established.
-Was my vehicle involved in any other accidents? If your vehicle was involved in an accident prior to the one you are now seeking payment for diminished value on, you will have some difficulty in establishing that the loss in value is due to this particular loss rather than the prior one. This is not a complete bar to a diminished value claim, but again, it can make it more difficult. Many companies like CarFax exist that will report your damage. Insurance companies also share information with one another. They will run your VIN number and communicate with one another. Prior damage will be an issue.
â€“ What was my vehicle worth before the accident? This can be established by looking at auto guides, newspaper ads, or by expert appraisal. Be careful not to put too much weight on what somebody might be asking for a similar vehicle. What they are asking is very different from what the similar vehicle will actually sell for. The selling price is what establishes the “fair market value” of your vehicle.
â€“ Have you been unable to sell or trade your vehicle since it was repaired? There is no obligation to sell or trade your vehicle. However, many people wish to simply rid themselves of a vehicle that is no longer the same as it was pre-accident. Whether it is the stigma attached to it, or it is a real concern over safety, some simply no longer want it. The opposite is also true, however. The potential buyer of that “tainted” vehicle is concerned about those very same things. This is the very reason they will only buy the vehicle, or accept it in trade, on the condition that they pay less than they would for a similar undamaged vehicle.
â€“ What have potential buyers or car dealers offered me for my repaired vehicle? Whether these are actual offers, or “deals” proposed by a car salesman, these can be important in establishing an actual loss in value. Again, you are not obligated to actually sell your vehicle to establish the actual loss. (But you will need expert assistance as discussed below).
â€“ How do I prove my diminished value given all of the factors above? This is where it gets tricky. Although an owner of a vehicle in Arizona is permitted to testify as to the market value of the vehicle before and after a collision, third party insurance carriers will not accept this as evidence. They will not pay the difference between pre and post-loss value simply because you believe that a particular number is appropriate. You will typically need to retain an expert appraiser to determine the pre-loss value of your vehicle and the post-loss value of your vehicle. That expert will typically write a report expressing their opinion as to the diminished value (see discussion of experts below).
In the event, you actually do sell your vehicle, make sure you have obtained the most you can get. Selling your vehicle to an unfamiliar private party after lengthy negotiations will be more persuasive than selling your vehicle to a friend or a family member at what will be perceived to be a discounted price. If you decide to trade it in rather than sell it outright, make sure that your salesman documents that the trade was discounted due to pre-existing damage. Remember, car dealers will make their profit on the sale of the new vehicle so what they give you in trade will not necessarily reflect the market value of your trade. For example, a dealer may be able to give you an extraordinary amount for your trade because you are willing to pay a higher price for the new vehicle. A savvy insurance adjuster, or insurance expert, will use that high trade value to establish that you didnâ€™t lose any money. This is one reason you should consult with an experienced diminished value attorney before you do anything (see discussion below).
Step 2: Choose the Right Expert
Beware of those claiming to be “experts” in the field of diminished value. There are many so-called experts who will gladly take your money in exchange for an opinion that is not worth the paper it is written on. Most knowledgeable experts will gather documentation such as repair estimates, photographs of the damage, maintenance records, etc., and use that information to familiarize themselves with the vehicle. A good expert will be able to consider all of the factors discussed above and render an opinion that he/she can support with actual market data, as well as their own experience in the auto appraisal industry.
If you retain a local expert they will do an inspection if there is some question as to whether the repair quality was up to industry standard. Though inspection is not necessary if the repairs are up to standard, it is wise to retain somebody who will be willing to do that if the need arises.
A qualified expert can also be key to recovering diminished value when there has been a prior loss. For example, a car that had a minor accident months before where the damage was cosmetic can help explain how there was no diminished value as a result of that prior loss. The expert will help establish that the current loss in value is due to the later accident, where, for example, the frame was damaged.
Furthermore, before retaining an expert, ask how many times they have given a deposition, or called to testify in Court regarding their opinions. The insurance industry has answers to all of these questions, and rest assured that they will hire a polished expert to counter anything and everything your expert has to say.
Step 3: Seek the Advice of an Experienced Diminished Value Attorney
Although diminished value is real, the insurance industry, in general, despises these claims. They will argue that the loss is speculative, or has not been realized. Never try to negotiate your own claim, or retain an expert, without at least consulting a diminished value attorney first. Consulting one doesnâ€™t necessarily mean you have to hire them. Many attorneys offer free consultations. If they donâ€™t think you need a lawyer they will tell you so.
Hiring the wrong expert can hurt your chances of recovery. An experienced attorney will know who to retain, and who to stay away from. An experienced attorney will also be familiar with the experts hired by the insurance industry and know how to counter their arguments.
Many attorneys are not experienced in handling these types of claims, and very few actually file a lawsuit to recover the damage if necessary. Do your homework. If the attorney you are seeking to hire has not handled diminished value claims or has never arbitrated or tried one in Court, you should look elsewhere. Most diminished value attorneys work on a contingency basis so you are going to pay the same contingency percentage for the best diminished value lawyer out there that you would pay for one who is inexperienced.
Finally, if you also have an injury claim, be sure to hire an attorney who will handle all of your claims. Some attorneys will simply refer you out to another attorney to handle your property damage claims. This is both inefficient and can result in mistakes by having you sign general releases for claims that they are not handling. Every experienced diminished value attorney I know is also an experienced personal injury attorney. That is typically how they became familiar with property damage claims as the two typically go hand in hand.