The point of car insurance is to make you whole again after an accident. But a car with an accident history will likely be worth less than one that has never been in a wreck — even if the car has been expertly repaired, looks as good as new and runs better than ever.
A diminished value claim can help you recoup some of that drop in value after an accident. We’ll cover everything you need to know about diminished value and how to make a diminished value claim.
- Diminished value claims allow car owners to recover some of the difference between a vehicle’s pre-accident worth and its value after repairs.
- If you are at fault in a car accident, it is unlikely for any diminished value to be awarded against your own collision coverage.
- If you’ve been in an accident and the other driver is at fault, file a claim with their insurance company before filing for a diminished value claim.
- Just because state law allows a claim for diminished value doesn’t mean an insurance company has to pay it.
What is diminished value?
Think of diminished value as the difference between the fair market value of the vehicle before the accident and after the accident.
A car that has never been in a crash may be worth $15,000, but that same car with an accident history will typically be worth significantly less. There’s a way to make up the difference: a diminished value claim.
Diminished value insurance claims allow car owners to recover some of the difference between a car’s pre-accident value and its value after repairs.
3 types of diminished value claims
There are three types of diminished value claims:
- Inherent diminished value: This most common type of diminished value claim refers to the fair market value of your vehicle after it is repaired after an accident.
- Repair-related diminished value: This diminished value claim assumes that it is impossible to repair the vehicle in a way that restores it to its original condition.
- Immediate diminished value: This type of diminished value claim only occurs if the vehicle is sold immediately after the accident and before repair.
How to file a diminished value claim
If you’re in an accident where the other driver is at fault, before filing a diminished value claim, you will file a claim with the driver’s insurance company to cover the repairs to your car.
If the accident reduces your car’s value, you can file a diminished value insurance claim with the at-fault driver’s insurer.
Here are the steps to filing a diminished value insurance claim:
- Step 1: Contact the at-fault driver’s insurance company as soon as possible
- Step 2: Document pre-accident private party value
- Step 3: Get a trade-in value letter from a car dealer
- Step 4: An appraisal will be done to calculate diminished value, but learn how to calculate it yourself, too
- Step 5: Satisfy all conditions of the claim
An appraisal is the first step to a successful claim once you’ve contacted the insurer, even if you don’t plan to sell the car, says Richard Hixenbaugh, owner of Collision Claim Associates. 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 result from repairs that did not restore the car adequately — mismatched paint, for example — or simply because the car’s history is now tainted.
About 70% of used cars are sold to dealers, Hixenbaugh says. These dealers will look up the history of a car to see if it has been in an accident. Many private buyers will too.
You can get a pre-accident private party value from online resources such as Edmunds.com or Kelley Blue Book. Then, you must document how much your car is worth after the repairs are complete.
Calculating diminished value claim
Insurance companies use a formula called “17c” to determine your car’s monetary value 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 calculation of the car’s value if you sell it after a collision. If there’s a big gap between the numbers, you may be able to negotiate a better deal.
How to calculate the diminished value using the 17c formula
Step 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.
Let’s assume your market value is $15,000.
Step 2: Apply a 10% 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.
$15,000 X .10 = $1,500 is the maximum amount the insurer will payout on a diminished value claim.
Step 3: Multiply for damage. This does not consider mechanical damage, just structural damage, which is another reason critics dislike the formula. Take the number you arrived at in step two ($1,500), and multiply it by the following number that best describes the damage to your car:
| Multiplier | Damage level |
|---|---|
| 1.00 | Severe structural damage |
| 0.75 | Major damage to structure and panels |
| 0.50 | Moderate damage to structure and panels |
| 0.25 | minor damage to structure and panels |
| 0.00 | No structural damage or replaced |
Let’s assume you had severe structural damage. $1,500 X 1 = $1,500
Step 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 ($1,500) by the appropriate number from the list below to arrive at the final diminished value of your car using the 17c formula:
| Multiplier | Mileage |
|---|---|
| 1.00 | 0 – 19,999 miles |
| 0.80 | 20,000 – 39,999 miles |
| 0.60 | 40,000 – 59,999 miles |
| 0.40 | 60,000 – 79,999 miles |
| 0.20 | 80,000 – 99.999 miles |
| 0.00 | 100,000 + miles |
Let’s assume the vehicle has 10,000 miles. $1,500 X 1 = $1,500
Which states allow diminished value claims?
If the accident was your fault, don’t expect to get coverage for diminished value. Very few states will allow this, according to the Insurance Information Institute.
Most insurance policies have language in their collision section that clearly states the insurer will not cover diminished value when you are at fault.
The situation is different if another driver is at fault, however. In that case, all states except Michigan allow for compensation of diminished value, according to III.
Laws generally state that a third party in an accident must make the accident victim “whole” following a wreck. That includes restoring the car to its fair market value before the accident.
Typically, it is the driver’s liability insurance that will cover the claim.
In some cases, drivers do not carry car insurance, even though they are legally obligated to do so. One of these uninsured drivers may be at fault in an accident that damages your vehicle.
In such instances, about half of U.S. states allow the accident victim to recover diminished value under uninsured motorist coverage. However, not all drivers carry this insurance, so you won’t be able to recover diminished value if you do not have the coverage.
“In the majority of cases it’s considered the vehicle owner’s responsibility to prove their loss,” Hixenbaugh says.
FAQs
When should you file a diminished value claim?
The simple answer to this question is, file your claim as soon as possible. By doing so, you’ll be able to recoup the costs sooner and you’ll have all the necessary information on hand for the damage done to the car and the accident report.
The more technical answer is that it varies from state-to-state. Most have a two-year time frame to file a diminished value claim, but not all. In North Carolina, for example, the statute of limitations is 3 years, while in Missouri it’s 5 years.
If for some reason you can’t file a diminished value claim immediately, it’s best to determine how much time your state gives you to file a claim.
How do you negotiate a diminished value claim?
Negotiating a diminished value claim will be a bit more complicated than filing a straight-forward accident claim. You might also need to be prepared to fight for what you believe is fair compensation.
Also, keep in mind that if the accident was your fault, your claim is likely to be denied.
Here are the steps to follow:
- Get in touch with the at-fault driver’s insurance company to find out what their process is for filing a diminished value chain.
- Do your homework to determine the car’s pre-accident worth and its likely worth following the accident. The Kelly Blue Book and NADA are good resources for this task.
- Gather your case for proving your car’s diminished value. Have photos from the accident and damage incurred, along with the accident report. You may want to take your vehicle to a dealer to get them to assess the vehicle’s resale value post accident or use a certified auto appraiser.
- Present the insurance company with your claim and supporting documentation.
- If the insurance company denies your claim after its review, you may want to seek out legal advice. Keep in mind, this will then become a judgement call against the cost of the legal advice and the claim you are seeking.
Do all auto insurance companies allow diminished value claims?
In all states except Michigan, if an accident is the fault of the other driver, then the insurance company should consider a claim for diminished value. The insurance company might deny your claim and you may have to fight to receive what you deem is fair.
In the end it may come down to a time/cost analysis on your part.
Final thoughts
Diminished value claims are not always easy. You may have to attempt the claim more than once. Depending on what it’s worth to you, you may even have to recruit the help of an attorney.
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.
Those unable to find satisfaction on their own or using an appraisal company may have to turn to the courts.
For many people, the cost of an attorney won’t make sense, either because they’re driving older cars that aren’t worth much, or the claim is so small that it will get lost in legal fees.
For an expensive or almost-new car, though, filing a diminished value claim may be worth the effort.
Resources and Methodology
Sources
- Insurance Information Institute. “What is diminished value?” Accessed March 2024.
- Time. “Diminished Value Claims: How You Might Be Able to Recoup Some Losses After a Car Accident.” Accessed March 2024.
- Collision Claims. “Collision claim Associates.” Accessed March 2024.
- Kelley Blue Book. “New and Used Car Price Values, Expert Car Reviews.” Accessed March 2024.
- National Automobile Dealers Association. “Consumer Vehicle Values.” Accessed March 2024.
– Mel Duvall contributed to this story.
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