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How to make a diminished value claim

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Used car for saleThe point of car insurance is to make you whole again after an accident.

But no matter how expertly repaired, a car with an accident history will likely be worth less than one without -- even if the car looks as good as new and runs better than it ever has.

A car that has never been in a crash may be worth $15,000 at resale but thousands less if it has been in an accident and repaired. There's a way to make up the difference: a diminished value claim.

Diminished value insurance claims allow car owners to recover the difference between a car's pre-accident value and its value after repairs.

Don't expect the insurance company to help.

Some car owners file on their own, but others hire a private company to document the lower value. If the insurance company resists, owners may have to take them to court.

"It's definitely a challenge," says Shane Fisher, an attorney in Winter Park, Fla. "You have to put up a fight."

Before and after

If the accident was your fault, don't expect to be able to claim diminished value against your own collision coverage. Few states -- and few insurance contracts -- allow it. The same applies to cars that are flooded but not totaled out; you typically can't file for diminished value against your own coverage.

But if someone hits your car, nearly every state allows diminished value claims from an at-fault party's insurance company. Even if the person who hit you is uninsured, about half of the states allow diminished-value collection on your own uninsured motorist property damage coverage.

Even so, "just because state law allows a diminished value claim doesn't mean insurers are required to pay it," says CarInsurance.com consumer analyst Penny Gusner. "Don't expect the process to be easy."

For a successful claim, you'll need an appraisal of the car's value both before the accident and after the repairs have been done.

"In the majority of cases it's considered the vehicle owner's responsibility to prove their loss," says Richard Hixenbaugh, owner of Collision Claim Associates, a company that charges $300 to $400 to document a loss of value.

Making a diminished value insurance claim

An appraisal is the first step to a successful claim, even if you don't plan to sell the car, Hixenbaugh says. The diminished value is based on how much less money the car would be worth if you were to sell it.

That loss in value can come because repairs did not restore the car adequately -- mismatched paint, for example -- or simply because the car's history is now tainted. About 70 percent of used cars are sold to dealers, Hixenbaugh says, who will look up the history of a car to see if it has been in an accident. So, too, will many private buyers.

"No one is going to offer you more money because your car was in a major accident," Gusner says.

You can get a pre-accident private party value from online resources such as Edmunds.com or Kelley Blue Book. Then you must document what your car is worth after the repairs have been done.

Fisher, the attorney, recommends getting a trade-in value letter from a car dealer stating that the lower value is due to previous damage done to the car, even though it has been repaired.

Now for the hard part

You will have to ask the other party's insurance company to be compensated for the diminished value. You may have to ask more than once.

It's a negotiation, Hixenbaugh says. Some insurers may maintain that there is no such thing as diminished value, or offer a token amount calculated by an industry formula.

Companies like Collision Claim Associates inspect cars, review repair documents, offer sample letters that drivers can submit to insurers, and advise owners on what to say to an insurer. About 75 percent of his company's customers are successful in getting paid for their diminished value claim, though not always for the amount they're seeking, he says.

Those unable to find satisfaction on their own or using an appraisal company may have to turn to the courts. Many claims may fall underneath your state's small-claims threshold, allowing you to present your own case.

But for most people, the cost of an attorney doesn't make sense, Fisher says, either because they're driving older cars that are "rolling total losses" and aren't worth much, or the claim is so small that it will get lost in legal fees. A car worth less than $10,000 isn't worth filing a claim on or hiring a lawyer for, he estimates.

An expensive or almost-new car, though, may be worth the effort.

Calculating diminished value

Insurance companies use a formula called "17c" – derived from its citation in a court case – to figure out the monetary value of your car after a crash. Critics call it arbitrary and claim it undervalues cars. You’ll benefit more from a higher diminished value, so it’s wise to know how the insurer will arrive at its number, and how that compares to your own calculation of the value of the car if you were to sell it after a collision. If there’s a big gap between the numbers, you may be able to negotiate a better deal.

To calculate diminished value using 17c formula

1. Look up the market value of your car at the NADA or Kelley Blue Book websites. You need the mileage, make, model and details about the damage to do this.

2. Apply a 10 percent cap to the value by multiplying the market value by .10. There is no documentation for why insurers apply this limit, which is why the 17c formula is controversial. At any rate, it sets the maximum amount your insurer will pay for your diminished value claim.

3. Multiply for damage. This does not take into account mechanical damage, just structural damage, which is another reason critics dislike the formula. Take the number you arrived at in step two, and multiply it by the following number that best describes the damage to your car:

  • 1: severe structural damage
  • .75: major damage to structure and panels
  • .50: moderate damage to structure and panels
  • .25: minor damage to structure and panels
  • 0: no structural damage or replaced

4. Deduct more of the value by applying mileage to the formula to get to the final 17c value. Of course mileage is already taken into account in the market value of your car, but insurers still handicap the car’s value again with another mileage demerit. Multiply the number you arrived at in step three by the appropriate number from the list below to arrive at the final diminished value of your car using the 17c formula:

  • 1: 0-19,999 miles
  • .8: 20,000-39,999 miles
  • .6: 40,000-59,999 miles
  • .4: 60,000-79,999 miles
  • .2: 80,000-99.999 miles
  • 0: 100,000+

 

Calculating your car’s actual value after a wreck

  1. To find the market value of your car after a wreck without using the insurance formula, again, start with the sales value of your car from NADA or Kelley Blue Book.
  2. Next, find similar cars with accident histories and find an average of, say, three or four. This is the post-accident value.
  3. Subtract the market value of the car with an accident history from the market value without any accidents to get your actual diminished value.

 


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9 Responses to "How to make a diminished value claim"
  1. Joe Marques

    Under the heading 'Now the Hard Part' you state, "Those unable to find satisfaction on their own or using an appraisal company may have to turn to the courts." Exactly who do you bring suit against, the vehicle's owner, or their insurance company? Thanks!

      Reply»  
  2. Kim

    My 2013 BMW X5 was T-boned causing 21k in damage including the frame. After looking on line for a depreciation calculator I found a site saying 33% of the car's value. AAA said they do not pay depreciation and I would have a hard time proving and suggested I should just contact a lawyer if I wanted but that they wouldn't get it either. From what I read it is not ridiculous to ask for it and it most certainly would show up on a Carfax that the frame had damage?

      Reply»  
  3. Lee

    Is there an app or a tool to determine your cars value after the accident? My wife's car was hit in a parking lot, a claim was filed with the other drivers insurance and the car repaired. That being said the car will now show it has been in an accident and will loose resale Value. Is the only option to hire an attorney?

      Reply»  
  4. Kathy

    I was told by Nationwide that they do not use multipliers when settling and evaluating claims. Every injury claim and every injury is different according to Nationwide. Nationwide states that they review the injuries, treatment and the damages when considering an injury claim. My question is, don't all insurance companies have to follow the rule of using multipliers to considering pain and suffering?

      Reply»  
  5. CarInsurance.com

    @Lorenda - You may not have a diminished value claim, but instead may need to request that your claim is reopened because you are not satisfied with the repair. If you can show the new, aftermarket, fender does not fit correctly and the repair shop will back you up, then the insurance company may re-open your claim to have your vehicle fixed with a different part that does satisfy you.

      Reply»  
  6. Lorenda

    I was recently in a wreck where an F150 truck hit me in the front left. My car is 2015 VW Passat with less than 8,000 miles on it. Geico insisted on an aftermarket fender and now the after the repairs the fender does not fit correctly. The person doing the repairs could not get a good fit. Do I have a claim? and If so, what do I do from here?

      Reply»  
  7. frank marinucci

    If you have to file suit against an insurance company, how can you find out exactly who to sue in small claims court?

      Reply»  
    1. AZmom October 14, 2015 at 2:14 PM

      If you are not at fault and want to go after the at-fault person, you can only sue the person that hit you. You have no contractual right to sue the person's insurer. You must sue the driver and their insurance company will generally take over the suit, through subrogation.

        Reply »  
  8. Suzanne Teague

    I was recently rearended by an Allstate insured driver. The repairs to my car were $5,400. When I requested that they reimburse me for the diminished value of the car (BMW 5 series), they said that because I hit a deer back in 2008 which caused $5,700 in damages to the right front area of the car, that Allstate owed me nothing. The Allstate rep said that because there was the first accident that caused more monetary damages than the rearend collision, my car had already suffered diminished value. Is this true that Allstate is not responsible for any diminished value?

      Reply»  
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