Diminished Value Claim: Will Your Car Insurance Pay?

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

An illustration of a car next to an air compressor, a tool box, and an engine pulley (presumably in a mechanic's bay), representing three types of diminished value: immediate diminished value, inherent diminished value, and repair-related diminished value

The Balance / Melissa Ling

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

If you've been in a car accident, your car is now worth less than it was before the damage. Even repaired, the car is now considered to have an accident history. This makes its resale value lower in the eyes of 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.

How Does a Car Get 'Diminished Value'?

The diminished value refers to the resale value of a car. Some people think that the reason for the lower value of a car after an accident is due to repairs with aftermarket parts. But, this is not the only reason. The main reason is simply that it was in an accident.

Even a car that has been repaired at a dealership with authorized original parts will have a diminished value compared to an identical car that was never in an accident.

3 Types of Diminished Value: Definitions

There are three ways that a car may sustain diminished value following a car accident (or when you file a claim).

1. Immediate Diminished Value

This is the difference in the value of the car after the accident, before any repairs have been made.

2. Inherent Diminished Value

This assumes the car has been repaired back to its original condition. The only reason the value is lower is that the car has been in an accident. The value is lower because buyers think it is lower. This means that you'd get less for the car if you tried to sell it or trade it in.

3. Repair-Related Diminished Value

This is the lost value that is resulting from the quality of repairs. Let's say that the paint color is not a perfect match. Or maybe aftermarket parts were used in the repairs. In these cases, the repair left a loss in value beyond the fact of the accident alone.

Why Does a Car Have Diminished Value?

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 lower value. Repairing the car won't recover this lost value.

Having been involved in an accident that requires repair has created a lower resale or trade value. Other cars that were never in an accident will sell for more compared to your car.

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. It is now 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 this, they will not pay the same market value. In a worst-case scenario, some buyers won't buy your car at all.

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

This can affect your car value on several levels after a claim. Once you learn all the ways that this can affect your car's value, you may try to get paid for the loss. The way to do this is by making a diminished value insurance claim.

What Is a Diminished Value Insurance Claim?

A diminished value insurance claim is when you request money from your car insurance company to pay the difference between your car's value before the accident and its current value now that it has been repaired. This value can amount to a few thousand dollars for newer vehicles.

Will the Insurance Company Pay My Claim?

You may be able to get compensated for the diminished value following a claim. This depends in part on which state you are living in. Each state and insurance company has different policies. In most states, your insurance 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.

What if You Are Not Responsible?

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

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

Most insurers will apply a formula to calculate diminished value. You should ask your insurance company what the formula is. Check with your insurer to see what their process is. If you want a second opinion, your insurance state commissioner's office can tell you how things work in your state.

What About Uninsured Motorists?

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

What if You Are at Fault?

You may have a harder time trying to collect anything from your insurance if you are at fault.

If you have legal insurance or access to legal counsel, then you could consult your lawyer. They will be able to tell you if you are likely to get paid based on your state laws. It doesn't hurt to ask what your insurer is willing to do. But, most of the time, this case is less likely to pay out. Your insurance contract may also exclude coverage for diminished values following a responsible accident.

How to Get Paid by 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 insurer to see if they offer this coverage. Some companies may already offer it in their current policies or as an added coverage. 

How to Figure Out Diminished Value

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

2 Ways to Check the Diminished Value of Your Car

There are two ways to figure out the diminished value of your car. One is quicker, but less precise. The other takes longer, but is more exact.

1. Look It up Online

The easiest way to get a quick idea is to use an online site like Edmunds or Kelley Blue Book. These sites can tell you what the value of your car would be under normal circumstances.

Then you can ask your car dealer to give you a trade-in value on your car 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 filing a claim.

Keep in mind that the car dealer's trade-in value may not be the best rate. But, it's useful to have their written offer for your information.

2. Get a Professional Evaluation

Consult with a company that specializes in diminished value insurance valuations. (A quick Google search will give you a range of options.) This will be the most reliable source 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 these claims. Since then, many more insurers will consider a claim if circumstances make sense. Some states agree that insurers must 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 covers these claims, you can contact your state insurance commissioner. 

How Do You Make a Diminished Value Claim?

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

If you do not agree with the offer, you will have to provide them with more info to substantiate your claim. Ask them how to proceed, or how to go about getting a second opinion. They will likely have a process that you will have to follow. You will need to figure out how much you are willing to accept.

What if Your Insurance Will Not Pay?

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

Frequently Asked Questions (FAQs)

How long do you have to file a diminished car value claim?

Since a diminished car value claim is a type of property damage insurance claim, you have until the end of the statute of limitations that applies to the state where you reside. This can range from two years to 10 years. The party responsible must look at the kind of property damage insurance coverage they have to know the minimum amount they will be responsible for paying.

Can insurance companies deny diminished value claims?

Insurance companies can deny diminished value claims if the paperwork isn't filed correctly, information is missing, or if it is not done in a timely manner. If you are denied or have questions about the settlement, contact the insurer or a lawyer to discuss your options.

Article Sources

  1. Matthiesen, Wickert & Lehrer, S.C. "Diminution in Value Cases in All 50 States."

  2. National Automobile Dealers Association. "Are There Any Values That Reflect a Car's Worth After Being Repaired From an Accident?"

  3. Carfax. "Vehicle History Reports."

  4. VINCheck Pro. "Vehicle History."

  5. Insurance Information Institute. "What Is Diminished Value?"

  6. Insurance Information Institute. "Protect Yourself Against Uninsured Motorists."

  7. Court of Appeals of the State of Georgia. "Frank Mabry, Sr v. State Farm Mutual Automobile Insurance Company."

  8. Maryland Insurance Administration. "A Consumer Guide to Auto Insurance."