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Q

Does Texas allow for a diminished value claim? Is there a percentage insurance companies use in determining if a car is totaled?


A

Diminished value, also known as loss of value or diminution in value (DV), is the difference in the fair market value of a vehicle without a crash history and the fair market value of the same vehicle with an accident/crash history. Typically, if a car has previously been in a severe accident it lowers or depreciates the value of the vehicle. Loss of value or diminished value is basically the difference of what your car was worth pre-crash and then post-crash.

Your policy's "limits of liability" section likely states that your insurance provider's liability is limited to the damaged vehicle's actual cash value (ACV) or the amount needed to repair or replace the vehicle (whichever is less). Your policy may include a liability level that's an agreed upon amount (normally for specialty or classic cars).

The Texas Department of Insurance (TDI) says that an insurer is not obligated to pay you for diminished value when the vehicle in question is completely repaired to its pre-damage condition. Texas car insurance policies do not require payment for diminished value.

The TDI's position on diminished value should not be used as a measure to settle other disputes with your car insurance company. For instance, if your vehicle was repaired properly by a body shop but your car still does not function as it did before the accident, you and your car insurance company may agree to use loss of the vehicle's market value as a way to measure the damages and to settle the dispute.

If you are making a claim for your vehicle with the car insurance company of an at-fault driver, a third-party claim, you may be able to ask for diminished value in Texas. The TDI say that you do not have an insurance contract with this insurance provider so it doesn't preclude you from making this type of claim. As a third-party claimant against a car insurance company you may find that the car insurance company you are working with may be obligated to pay you for any loss of market value of your car, regardless of the completeness of the repair.

If you are trying to make a third-party claim for diminished value to your vehicle, you can contact the TDI for more information about what your consumer rights are.

As for the percentage at which a car is determined to be totaled, it varies from insurance company to insurance company. The TDI states that a vehicle can be totaled if the cost of repair exceeds the vehicle's actual cash value (ACV), or exceeds the insurance company's measure to declare a total loss.

Each insurance company in Texas is permitted to establish a percentage of damage in comparison to the ACV of a vehicle. If the measurable damage, from hail damage or an accident, for example, meets or exceeds the set percentage, the company will automatically declare a total loss.

Texas law defines a vehicle to be salvaged at the point when the damages exceed the ACV of the vehicle, however the state does allow car insurance companies to total out a car before the costs of repairs exceeds the value of the vehicle. This means it is left up to the discretion of car insurance companies to determine when a car is a total loss. Typically, insurance companies will total out a car when it costs anywhere between 50 percent and 100 percent of the car's value to repair it. The cost of repairs is not the only thing taken into consideration -- insurers will also review the cost of storage, rental car costs and so on. If these costs make it uneconomical for the car insurance company to repair the car, they will find it to be a total loss.

Sometimes the insurance company may want to total your car, but you would prefer to have it repaired instead. You usually can keep your car if you are willing to subtract its salvage value from the insurance settlement. The TDI warns consumers to make sure the cost to repair the car will not exceed the car's actual cash value since you are now responsible for the repairs to the car and paying more for these than the car is worth may be a losing proposition for you. To find out the salvage value, contact local salvage yards for estimates.

If you want to know more about Texas laws related to insurance claims and the totaling out of a vehicle, contact the consumer division of the TDI. If you want to find out how your specific insurance provider calculates a car to be a total loss (what its percentage of damage is in relation to the car's ACV) contact your insurance agent. If you vehicle was damaged by another driver and his insurer is declaring it a total loss, ask the insurance adjuster on your claim how they determine a car to be totaled out.


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