When you’ve been in a car accident, it is the job of the insurance company to ensure that you are made “whole” after the fact. Generally, this includes repairing your car. However, if the other driver is at fault, you may not only deserve to have your car repaired, but also to be paid the “diminished value” of your car. This is often something that the at-fault party’s insurance company won’t tell you about, as well as something that your insurance company probably won’t assist you in pursuing.

What is Diminished Value?

Diminished value can refer to any property, but usually, this term is used in relation to automobiles that have been in an accident. 

Here’s the way that it’s calculated:

Value of original car – value of repaired car = diminished value

Additionally, there are three types of diminished value:

  • Inherent Diminished Value:  The damaged car has been repaired but is worth less because there is now an accident that had to be reported on the title.
  • Immediate Diminished Value:  The car is worth less because it has been in a wreck. This is before repairs and is unlikely to come up, as insurance companies generally cover repairs.
  • Repair-Related Diminished Value:  The car is worth less because the post-accident repairs are poor. This could occur when the wrong color of paint was applied, old parts were used for the repair, etc.

You are most likely to encounter inherent diminished value. If an accident wasn’t your fault, the other party’s insurer should be paying you this money. They will almost never do so automatically. You will have to start the process of filing a claim with the other driver’s insurance.

If your insurance company says that they can handle it for you, it is unlikely that they will be put in the effort required to get you the full compensation you deserve, and they may stop pursuing these damages if your claim is rejected initially.

Your Car is Still Diminished in Value Even After Repairs

This is the main thing that insurers don’t want you to investigate. While your car might look as good as new, your car is no longer worth as much as it was before the accident. 

If you try to resell your car, you’ll likely have to drop the price at which you could have sold it by thousands of dollars in order to get a buyer (a result of diminished value). Why is this? Any car buyer today can look up the Carfax. When they do, they’ll see your car labeled as “unsafe.”

Even if you’ve had a beautiful repair job done, modern car bodies are welded in a very specific way. When parts must be re-welded, the metal is weakened, making it more vulnerable for the next accident. Even if you received all new paneling, other pieces of the vehicle could be damaged in that repair process, leaving you with diminished value.

Here’s the point in a nutshell:  Your car has been physically changed, so no one will pay the amount it was worth before the accident, even if your car has been “restored.”

How Diminished Value is Calculated

Step One: Determine the value of your car using a resource like NADA or Kelley Blue Book.

Step Two: Apply a 10% cap to this number, also known as the base loss of value. This is the most that insurance will pay.

Step Three: Multiply that price by the number that applies to your car post-accident:

  • 1.00:  Severe structural damages
  • 0.75:  Major damage to structure and panels
  • 0.50:  Moderate damage to structure and panels
  • 0.25:  Minor damage to structure and panels
  • 0.00:  No structural damage

The more significant the damage, the higher the multiplier.

Step Four: While NADA and Kelley Blue Book include this step in their calculation, insurance companies will look into mileage separately. Multiply your number from Step 3 by the mileage that applies to your car:

  • 1.00:  0 – 19,999 miles
  • 0.80:  20,000 – 39,999 miles
  • 0.60:  40,000 – 59,999 miles
  • 0.40:  60,000 – 79,999 miles
  • 0.20:  80,000 – 99,999 miles
  • 0.00:  100,000+ miles

The number you end up is the diminished value. It is an approximation of the number you’ll be looking to receive after filing a diminished value claim.

The insurance will pay to make up that diminished value if you can prove it is necessary.

What You Need to Know: The Steps

Filing Your Claim

An expert can help you to file these claims successfully, ensuring that the correct diminished value is reported and that paperwork is provided to back up your claim. This will form a package that you’ll send to the other driver’s insurance company.

Receiving the Form Letter

This is the letter you’ll receive back. There might be claims that they were “unable to make contact with you” or that your documentation doesn’t show that the value of the vehicle has been reduced post-repair.

Settlement Attempt

Now, you’ll want to ask for more information about the form letter. They might offer part of what you are owed. 

Ask the following:  What method did you use to come up with that diminished value? 

They will likely admit that the amount offered is not the diminished value or that the company doesn’t recognize diminished value. You can reject this offer.

Small Claims Court

Sue the defendant, not the insurance company, for the cost of the diminished value, the cost of expert help, and any postage or other related costs.

Pre-Trial Conference

The insurance attorney will try to negotiate. They often don’t have the authority to offer you the full amount you deserve. You’ll need to be able to prove two things at this point: (1) liability, or that the other person is at fault, and (2) the amount of damages you are owed.

Joint Stipulation

The opposing attorney might agree to joint stipulations, which sets out the facts of the case that both parties agree on. For example, perhaps you agree that the other driver was liable. Be careful here, as the attorney might try to say something like, “We agree on this. We are not discussing liability in court.” Instead, the statement should be this: “We agree on this. But we can still discuss liability in court.” 

Settlement

If you have proven your case correctly, you should either win your case or the insurance company will pay you the full amount before the court date. If this happens, you can dismiss the case!