The 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
- 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.
- Next, find similar cars with accident histories and find an average of, say, three or four. This is the post-accident value.
- Subtract the market value of the car with an accident history from the market value without any accidents to get your actual diminished value.