Diminished Value Claim: Will Your Car Insurance Pay?

Why Your Car Is Worth So Much Less After a Car Accident?

Image by Melissa Ling © The Balance 2019 

A diminished value claim compensates a driver for the drop in a vehicle's resale value after an accident.

The loss in value is based on the fact that the vehicle has a damage history or is considered a vehicle that has been in an accident , making its resale value lower in the eyes of prospective buyers. The diminished value is the amount your car has depreciated in market value because of the fact that it has been in an accident.

Some people think that the reason for the diminished value of a car after an accident is due to repairs with aftermarket parts, but this is not the only reason. The reason for diminished value is related largely to the fact that the car was in an accident. Even cars repaired at a dealership with authorized original parts will have a diminished value once fully repaired when compared to an identical car that was never involved in an accident.

How a Car Gets "Diminished Value"

The diminished value refers to the resale value of a car. There are three ways that a car may sustain diminished value following a car accident (or when you file a claim).

3 Types of Diminished Value: Definitions

  • Immediate diminished value: The immediate diminished value is the difference in the resale or trade-in value of the car from before the accident to after the accident when repairs have been done.
  • Inherent diminished value: Inherent diminished value assumes the vehicle has been repaired following an accident to its original condition, with the exception of the fact that it is now considered as a vehicle that has been in an accident. This perception reduces the value a person may get for the vehicle when they try and sell it or trade it in, compared to what they would have gotten before, as in the example above.
  • Repair-related diminished value: Repair related diminished value is the lost value that is resulting specifically from the quality of repairs, for example, if the paint color is not a perfect match or if generic parts were used in the repairs or aftermarket parts, then the quality of the repair left a definite loss in value on the vehicle following the accident, beyond the simple inherent diminished value that already exists from an accident alone.

Why Does a Car Have Diminished Value After an Accident?

The reason for a car's diminished value is purely because it has been in an accident. Once your car is listed for sale following an accident, you're facing a diminished value. Repairing the car won't recover this lost value.

Having been involved in an accident that requires repair has created a diminished resale or trade value compared to other cars of the same kind that were never involved in an accident at all.

Example of Diminished Value After a Car Accident 

Consider this example: You have a brand new car, after an accident, your insurance company fixes your car, and it is back to its original condition. You then go to sell your car. When the new buyer checks out the car's history report using the VIN, they will find out it was in an accident. Once they see your car has been involved in an accident, they will not pay the same market value. In a worst-case scenario, some buyers won't consider buying your car at all once it has been in an accident.

In a case like this, your vehicle has incurred more than just physical damage, it has incurred a loss of value as well.

Diminished value can affect your car value on several levels after a claim.

Once you understand all the ways that your vehicle value can get impacted in different circumstances, you may consider trying to get compensated for the overall diminished value following your car accident by making a diminished value insurance claim.

What Is a Diminished Value Insurance Claim?

A Diminished Value Insurance Claim is when you request an amount of money from your car insurance company to compensate you for the difference between your car's value before the repairs (prior to the accident) and its current value now that it has been repaired. This value can easily amount to a few thousand dollars for newer vehicles.

Will the Insurance Company Pay for Diminished Value in My Claim?

You may be able to get compensated for the diminished value following a claim, depending on the circumstances, and which state you are living in. Each state and insurance company has different policies. Insurance companies don't always pay for a vehicle's diminished value, yet many consumers feel that it is the insurance company's responsibility to pay for a diminished value claim. Insurance companies in most states will consider who is responsible for the accident to decide if they will pay a diminished value. In other states, they may not pay at all.

In most states, the wording of a car insurance contract excludes coverage for diminished value if you are at fault. You can check with your state insurance commissioner's office to find out about the laws in your state.

Diminished Value After a Non-Responsible Accident

If you had a non-responsible accident, the insurance company is more likely to cover a diminished value claim.

When someone else is responsible for your loss, you may be able to legally pursue the third party (the person responsible for the accident) or their insurer. Always ask your insurance company to pay your claim first, it could save you a lot of trouble.

Most insurance companies will apply a formula to calculate diminished value. You should ask your insurance company what the formula is. Although some people reference the17c Diminished Value Formula as the method to calculate the diminished value, this is not the guaranteed method of calculation used by all insurers. It is a commonly referenced example, but the approach may vary by insurer. Check with your insurance provider to see what their process is. If you disagree with the amount or want a second opinion, your insurance state commissioner's office can provide guidance on how diminished value works in your state.

Diminished Value Claims and Uninsured Motorists

If your accident is the fault of an uninsured motorist, ask your insurance company about a diminished value claim.

Diminished Value After a Responsible Accident

Responsible accidents are accidents that you are responsible for, so the decision as to whether an insurance company should pay for the diminished value (or not) will be different when the accident is your fault. You may have a harder time trying to collect anything from your insurance company if the claim is considered due to a responsible accident. If you have legal insurance or access to inexpensive legal counsel, then you could consult your lawyer to find out what the likelihood of getting paid would be based on your state laws. It doesn't hurt to ask what your insurance company is willing to do, but, in general, this situation is less likely to pay out on diminished value (especially if your insurance contract excludes coverage for diminished values following a responsible accident).

How to Get Paid For Diminished Value of Your Car From The Insurance Company

So, what should you do if you want to be covered for the diminished value of your vehicle? First, check with your insurance company to see if they offer diminished value coverage. Some insurance companies may already offer it in their current policies or as an added coverage. 

How to Figure Out Diminished Value After a Car Accident

If you want to make a diminished value claim, it makes sense that you'll need to figure out how much value your car has lost due to the accident. If your vehicle is older and does not have a lot of value, then a diminished value claim may not make sense for you, especially if you are considering going to court and paying legal costs to get a payment. 

Two Ways to Check What the Diminished Value Is on Your Car

  1. The easiest way to get a quick idea is to use an online site like Edmunds or Kelley Blue Book to find out what the value of your car would be under normal circumstances (a pre-accident value). Then you can ask your car dealership to give you a trade-in value on your vehicle now that you've had an accident. This should give you a ballpark idea of the diminished value to help you decide if it is worth pursuing a diminished value claim. Keep in mind that the car dealer's trade-in value may not be the best possible rate, but if they can give you a written offer showing the value of the car is less due to the fact that it has been involved in an accident, then it's good for your own understanding.
  2. The second way to verify diminished value is to get a professional evaluation from a company that specializes in diminished value insurance valuations (a quick Google search will give you a range of different options). This will be the most reliable information if you want a solid number, just make sure that your evaluator is qualified and recognized by insurers.

What States Will Pay Diminished Value Claims?

After a class action lawsuit in 2001 (Mabry v. State Farm), Georgia changed their rules to include payment for diminished value claims. Since then, many more insurers will consider a diminished value claim if supporting documents or circumstances make sense. Some states agree that insurance companies are required to pay the diminished value, so if you are in one of these states, you shouldn't have a problem. 

If you want to know if your state generally covers diminished value claims, you can contact your state insurance commissioner

How To Make a Diminished Value Claim

Always start by asking the insurance company if they will be paying for diminished value. If the insurance company will pay for diminished value, find out how much they are offering. Compare this to what you think your diminished value will be, based on research as discussed above. If you agree with their offer, then you can proceed with the claim with them.

If you do not agree with the offer of the insurance company, you will have to provide them with additional information to substantiate your claim. Ask them what the procedure is, or how to go about getting a second opinion. They will likely have a process that you will need to follow. You will need to figure out how much you are willing to accept for diminished value to present your case to the insurance company and ask for compensation.

What You Can Do If Your Insurance Will Not Pay Diminished Value After Your Car Accident

If you are trying to collect on a diminished value claim and are denied by your insurance company, go to your state insurance commissioner to find out your rights.