Diminished value claims: How to offset loss of value after a car accident

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After an accident, the fair market value of your vehicle will decline, even if repairs have restored it to its original condition. To recover the difference between the fair market value of your vehicle before and after the accident, you must file a diminished value insurance claim.

Some diminished value claims may fall under your collision or comprehensive insurance – that is, you would file the claim with your own policy – but you can also make a claim against an at-fault party with their car insurance.

Some states require car insurance policies to cover diminished value claims, but the laws governing this vary.

What is a diminished value claim?

Diminished value is a calculation of the fair market value of a vehicle after an accident, usually after it has been repaired, compared to its value before the incident. Any car that has an accident listed in its vehicle history will resell for less than if it had not been damaged, even if it was repaired perfectly. Diminished value is not the same as depreciation, which is a decrease in market value over time.

A diminished value claim can be either first-party, such as when you hit a structure and file a claim under your policy’s collision coverage. The outcome of a first-party diminished value claim relies on the terms of your insurance policy.

A third-party diminished value claim is when another driver is at fault and you file a claim with their insurance or through your uninsured motorist coverage. Whether their car insurance is required to compensate you depends on how courts have interpreted state law.

Types of diminished value claims

How diminished value is calculated depends on what type of diminished value is used.

Inherent diminished value

Inherent diminished value is the calculation most likely to be used by an insurer to determine what it will pay out after approving a claim. It’s also the most common type of diminished value calculation. What inherent diminished value means is that the car has diminished value simply because it has been in an accident.

Immediate diminished value

Immediate diminished value is the basic calculation of the car’s fair market value before the accident versus its fair market value afterward, but before repairs are made. Because an insurer typically pays for repairs, it’s unlikely to use immediate diminished value when paying a diminished value claim. The insurer almost certainly won’t use immediate diminished value once repairs have been made and it’s no longer possible to determine the immediate loss.

Repair-related diminished value

This type of diminished value claim calculates diminution based on suboptimal or inadequate repairs made after an accident, such as using inferior parts. 

How to file a diminished value claim

You’ll file a diminished value claim along with the regular car insurance claim process.

Estimate your car’s value

Look up the fair market value of your car using a third-party source like Kelley Blue Book, Edmunds, Carfax, or NADA. Make sure to collect evidence such as photos of the damage and documents, including a police report and an appraisal (if needed) from a professional appraiser.

Calculate the cost of the damage

There are a couple of ways to estimate how much the damage impacted the value of your car.

The first is to compare the fair market values of identical cars in different conditions using the sources listed above. By comparing the value of an identical car in the condition it was in before the accident versus the value of the same car in poor condition, you can arrive at an estimate that you can send to your insurer or the insurer of the at-fault driver.

The other way to estimate diminished value is to do some more math. This will require you to have some information on hand, such as mileage, as well as a solid estimate of how much damage the car incurred. The equation follows a ruling known as the 17(c) formula, created by the Georgia Insurance Commissioner’s office, that is used by major car insurance companies.

First, take the base loss of value, a common measurement used by insurers, which is typically around 10% of the car’s value. Then, apply a mileage and damage multiplier. 

The mileage multiplier is:

The damage multiplier is an estimate of the severity of the damage that increases from 0 to 1 in one-quarter increments, with 0 representing no structural damage and 1 representing the severest structural damage.

Next, multiply these numbers: 10% of the car’s base value times the mileage multiplier times the damage multiplier.

Thus, a car valued at $30,000 with 20,000 miles on it that suffered moderate damage (0.50 on the damage multiplier) would have a diminished value of $1,200 ($3,000 times 0.80 times 0.50).

File your claim

If you’re filing a first-party claim, you should let your car insurance company know that you intend to file a diminished value claim. If they’ve already paid for repairs to the car and the repairs are sufficient, they’ll likely reject the claim.

For a third-party claim, you’ll need to reach out to the other party’s insurance. Diminished value isn’t usually specific coverage in a policy, so the success of the claim will rely on state law or established legal precedent in the at-fault driver’s state. 

If the at-fault driver doesn’t have insurance, you may need to file through your insurance’s uninsured motorist coverage, if you have it.

Which states require diminished value claims?

As mentioned above, whether or not an insurer will pay out a diminished value claim is dependent on the insurer’s legal responsibility as adjudicated in a court of law. Not every state court has ruled on a diminished value claim, and not every state requires insurers to allow first-party or third-party claims.

It’s not as straightforward as each state following a clear-cut rule. Someone filing a diminished value claim has to prove their case in court. While state laws and past rulings can play a role, they don’t guarantee an outcome—precedent can always change.

Final thoughts on diminished value claims

After an accident, you may be tempted to file a diminished value claim. However, in most jurisdictions, if the insurer has held up their end of the bargain by repairing or replacing your car, it’s likely that your diminished value claim will be rejected.

Zack Sigel

 

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Zack Sigel is a writer and editor based in New York City. He has been managing editor at Policygenius and M1 Finance, where he led teams specialized in writing about business and finance, and he has also written about music and culture for Hyperallergic, VH1, Complex, and the Los Angeles Review of Books. Zack has a bachelor's degree from New York University, Tisch School of the Arts.