Car insurers use diminished value to determine the amount for claims settlement when a car is damaged in an accident. Diminished Value is the difference in the market value of a vehicle before it met with an accident and the market value of the same vehicle after the accident. Diminished Value is the term given to the loss in market value as the vehicle suffers as a result of an auto accident and repair. In general the diminishing value is 18% between the pre-crash and post-crash estimate. The difference is officially termed as diminished value in the auto insurance industry. It depends on the state laws, whether or not your auto insurance company will cover the difference of the diminished value payments. In many states, the insurance coverage will guarantee that a car will be repaired to pre-accident condition. Though the car may be restored to a roadworthy condition, the car still will not have the value it was worth before the accident.
Causes for Diminishing Value
Many studies have proven that there are many factors that cause repaired cars to become less desirable to buyers and lose market value. The factors are as follows:
- The poor quality workmanship
- Usage of inferior spare parts made by the sources other than the vehicle’s original manufacture
- Loss of factory transferable Warranty coverage
- Damaged and repaired parts
- Increased title and disclosure obligations
- Loss of eligibility for inclusion in the manufacturer’s pre-owned certification program.
Types of diminished value
I. Inherent Diminished Value: This is an automatic and unavoidable loss of market value of the car simply due to the fact than a motor vehicle has been involved in an accident. It many cases it is made as mandatory that the previous damage is made known to a prospective buyer.
II. Insurance Related Diminished Value: This is because of the oversights or omissions by the insurance company on their appraisal and also, because of the use of the spurious replacement parts from sources other than the original manufacturer.
III. Repair Related Diminished Value: This value is the amount in which the motor vehicle was depreciated due to improper or incomplete repairs, poor quality repairs, or un-repaired items that were compensated for within the scope of insurance appraisal.
Getting paid for Diminished Value
Three misconceptions continue to remain in the auto insurance market in getting paid for diminished value.
1. Most of them believe that a claim for diminished value is a claim that is distinct from the one compensating for actual physical damages like bent fenders and doors. The diminished value is an element of recoverable damage in the same claim that occurred at the same time, during the same event. An insurer who accepts liability pays for any damage, based on actual proof and pay for all the losses, except those items that have been excluded for payment in the policy.
2. Many people go by the assumption that one must sell his/her car to collect a diminished value claim from an insurer. Insurers are using this to buy timed and stall the claims payouts for as long as possible, knowing the car owner might lose interest in pursuing the recovery due to many limitations. You should remember that diminished value, like other elements of loss, becomes payable as of the date of the accident and not at a future date.
3. Some believe that courts all over the country have banned diminished value claims, terming them as bogus. This is a technique used by the insurers who try to evade paying these claims. While it is true that some diminished value claims cases got tossed from courts by judges in the past, due to the lawyers being unable to show sufficient common grounds to sustain a class of members. It was not because diminished value claims have no merit.
Finally, to collect the diminished value the burden of proof is on the policy holder himself. It is also true that in most cases of diminished value there is an underlying threat of the litigation process.