DIMINISHED VALUE LAW 101
May 5, 2018
Diminished value occurs when a vehicle is involved in an auto accident and, as a result, incurs physical damage either structural, cosmetic or both. Even if the vehicle is repaired, it is still worth less money than it was worth before the auto accident occurred. Depending on particular state laws, individuals may be required to disclose any and all accidents that their vehicle has been involved in when selling it. Thus, most buyers would favor a vehicle with a clean record over a vehicle that has been involved in a prior accident, which means that individuals end up receiving less money for their vehicle than if their vehicle were not involved in an accident in the first place.
THREE MAIN TYPES OF DIMINISHED VALUE
Three main types of diminished value exist when assessing the amount of a vehicle’s diminished value. However, not all three types of diminished value are used when legally compensating individuals for the diminished value of their vehicles.
- Immediate diminished value is the difference in resale value of the vehicle as a result of an auto accident. It is calculated by subtracting the vehicle’s resale value immediately following damage from the vehicle’s resale value immediately before damage. Generally, courts use a vehicle’s immediate diminished value as the primary measure of damage when seeking reimbursement for damage in courts. Outside of court, however, immediate diminished value is rarely used to resolve diminished value claims.
- Inherent diminished value is the loss of market value due to the fact that a vehicle has been involved in an accident. Inherent diminished value is the most widely recognized and accepted form of diminished value, and is also the most common basis upon which any supplemental forms of diminished value would be added.
- Repair related diminished value is the depreciated amount of a vehicle as a result of improper or incomplete repairs, poor quality repairs or unrepaired items. Generally, the amount of repair related diminished value is determined by the overall quality of the repairs. Repair related diminished value is a supplemental form of diminished value that may be added onto a vehicle’s inherent diminished value.
FACTORS AFFECTING DIMINISHED VALUE
Several factors may affect the measurement of a vehicle’s diminished value, including:
- Age of the vehicle
- The vehicle’s condition before the accident
- Prior accidents
- Extent of damage
- Marketplace demand
- Value of the vehicle undamaged
Because every vehicle is different, the amount of diminished value varies accordingly, and therefore cannot be systematically calculated. Thus, a diminished claims expert who has full understanding of the marketplace is needed in order to accurately calculate a vehicle’s diminished value following an accident.
DIMINISHED VALUE CLAIMS
Nearly every state allows individuals to file a claim for diminished value if their vehicle has been involved in an accident that is not their fault. Even if the other party does not have insurance, individuals who carry uninsured motorist coverage on their policy may be able to file a diminished claim under their own policy. Furthermore, if an individual’s vehicle is newer than the 2002 model year, the damage estimate is at least $2,000, and their car was not deemed a total loss, then they should consider hiring a professional in order to write an official diminished value report. Individuals should bear in mind that they only have a limited time to file a diminished value claim after an accident depending on the laws of their state.
Two different types of diminished value insurance claims exist – first party insurance claims and third party insurance claims. First party insurance claims are when an individual damages their own car and their own insurance company is paying the claim. Third party insurance claims are when a negligent driver damages an individual’s car and the negligent driver’s insurance company is paying the claim. With first party insurance claims, individuals may still recover the lost value of their vehicle as long as their insurance company does not specifically exclude coverage for diminished value. With third party insurance claims, generally all state courts support claims for diminished value as long as the loss can be proven.
Individuals can pursue a diminished value claim on their own by requesting that their insurance adjuster address the diminished value of their vehicle. Most insurance adjusters will request that individuals make a formal demand to the insurance company, which essentially equates to writing a letter asking the insurance company to pay a certain amount of money for the diminished value of their vehicle. However, unless individuals are trained to handle diminished value claims, their requests will be generally unsubstantiated, and therefore may be turned down by the insurance company.
Instead of dealing with insurance adjusters directly, individuals should consider hiring a diminished value attorney if the benefits of the claim outweigh the cost of litigation. Given that many insurance companies often refuse to pay a fair amount for diminished value, an attorney who handles diminished value claims will be able to utilize expert appraisers in order to accurately calculate the amount of diminished value. Diminished value attorneys are also able to gather strong evidence so that individuals will be able to receive full compensation for the diminished value of their vehicle.
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