Diminished Value Versus Used Car Value

by Don Elliott on August 31, 2011

You are driving your late model car on a beautiful summer afternoon. BANG! Out of nowhere another driver crashes into your car. Fortunately, nobody’s hurt. However, both cars are badly damaged. Your auto insurance company has agreed to work out the claim with the other driver’s insurance company. Your car is off to the auto repair shop to be fixed according to the terms of your policy.

When you get your car back, it looks great. The collision auto repair center has done an excellent job, but there is a problem. Even though the auto repairs were well done, is your car still worth what it was before the accident?

The difference between market or used car value before a collision and the value after a collision is known as diminished car value or diminution of value. Auto insurance companies’ payment for diminution of value has been the source of much discussion and trial litigation. For the most part, the problem is determining the amount of diminution caused by the accident.

The intent of auto insurance companies is to return your car back to where it was before the accident. Unfortunately, the record of the accident will remain a part of the car’s vehicle history report forever. Regardless of the quality of the auto repair, the next owner will probably not pay as much for a vehicle that has been in an accident compared to a vehicle that has not been in an accident. Keeping a record of the car repairs, including a frame report that shows your car repaired back to manufacturer’s specifications will help mitigate any potential future loss.

Most car insurance companies have written language into their auto insurance agreements that make collection of diminished value very difficult, particularly on first party claims. A first party claim is an accident where you are at fault. Car insurance regulators, in almost every state, have approved a “diminution of car value exclusion endorsement.” This makes it very difficult to get paid on a first party diminished car value claim.

In the example above, another driver caused the accident creating a third party claim. Each case is settled on a claim-by-claim basis. In this case, your auto insurance company may be on your side to fight for your diminished car value claim.

The first step in filing a diminished car value claim, for an accident that was not your fault, is establishing proof of loss. Usually it is necessary to hire an unbiased third party to make the official appraisal determination. Next, submit your claim letter and diminished car value appraisal to the person at fault in your accident. Send the claim by certified mail with a return receipt. Typically, the at-fault driver will submit your claim to their auto insurance carrier to handle. Negotiation will likely be required. If the claim is significant and a settlement can’t be agreed upon, the final step is to go to court.

Diminished car value claims are difficult to establish and even more difficult to collect. Frivolous claims have clouded the process. Your newer and more expensive car may have suffered a significant loss of used car value, for which you may have a legitimate claim.

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