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Understanding Diminished Value



If you have an auto accident and the insurance company repairs your vehicle back to original condition, to everyone's satisfaction, consumer advocates contend the car is still worth less money than before the accident. This is diminished value, which is also sometimes referred to as loss of value, diminution in value of just by the initials DV.

Therefore, if after the accident you sell the car or trade it in, generally speaking, it will not be worth as much as it would have been before the accident, no matter what the condition at that time. Consumer advocates want the insurance companies to make up the difference in diminished value due to their contention that physical damage policies, known as Comprehensive & Collision coverage are "supposed" to cover this loss of value.

Part of the problem would be determining a value on the vehicle prior to the accident, but the main issue, as contended by insurance companies, is that it would simply be far to expensive to expand the original intent and purpose of the auto policy. That would be to repair (only) the vehicle back to its original condition before the accident.

One situation where the consumer could lose quite a lot of value in their automobile would be if the car were involved in a flood situation. Many times the electrical systems of vehicles are quite damaged if a car is in floodwaters, but the insurance claims adjuster might not total the car. If the car was taken to a dealer to be fixed, the repair information would be entered into a national auto dealers' network database and the vehicle would now be branded in it as a flood damaged car. A car marked by dealers as a flood-damaged car could then make that vehicle's trade-in value virtually worthless. Consumers generally try to stay away from flood cars since water damage to the various systems of the car can be had to detect and pop up later causing problems.

In the great majority of cases, the courts have sided with the insurance companies whose contention is that attempting to cover a diminished value for all physical damage policies would raise policy rates to a much higher rate.

In the circumstance where a driver was in a "not-at-fault accident" and the claim was against the at-fault driver's insurance company, then a diminished value claim could be valid as a third party claim. While insurance companies would exclude any diminished value on a first-party claim, they could be obligated to cover a liability claim for a third party not-at-fault.

Most states regulatory agencies have now allowed insurance companies to exclude diminished value claims, but Georgia, Hawaii, Kansas, and Maryland have not yet approved such exclusion within a policy so if you live in those states your claim could be valid. The Georgia Supreme court has already ruled in favor of the consumer, so that issue for the moment is settled.

If you have questions about your policy coverage, call your insurance company or agent to seek clarification. If there is not a law on the books in your state then likely there have been court cases already that have set a precedent and your insurance carrier should be aware this information and can share it with you. It is much better to get informed on the subject of diminished value before you need to make an accident claim so you will know what your state regulatory agency allows and what your policy actually covers.

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