If you’ve purchased a new car, it’s reasonable (and expected) that you might consider how much it will be worth when the time comes to sell it or trade it in. Some people make purchasing decisions on this basis because some makes and models of cars are known to have a high trade-in value.
We know that there’s always the possibility of getting into a car accident — it’s a risk inherent in driving a car. But we also know that statistically, the average person is in a car accident once every 18 or so years. Therefore, you’re likely to be able to sell or trade-in a vehicle with its only depreciation being normal wear and tear.
But what if you were in an accident?
Every vehicle has a history, and this history can be public information.
For instance, you might be familiar with Carfax, a catalog that tracks every repair made to every vehicle, sorted by Vehicle Identification Number (VIN). If you’re going to purchase a pre-owned vehicle, you can check its Carfax report for a variety of issues including accident history, damage severity, records of damage repair, airbag deployment, and structural damage.
The question, then, is how this damage affects the compensation you receive from a collision where the other driver was at fault. “Damages” is the legal term for the amount of money a plaintiff (the injured person) can receive from a defendant (the person who caused the accident or injury).
After a car accident, the plaintiff can usually make a claim on the defendant’s insurance policy for:
If there are additional losses like pain and suffering, or if the costs for medical treatment and other expenses are higher than the value of the defendant’s insurance policy, then you could file a personal injury lawsuit in order to receive full compensation.
You might be able to include a demand for the diminished value of your vehicle in your lawsuit or insurance claim.
Diminished value is when a vehicle is in an accident and the damage history lowers its resale value. The actual diminished condition of the car is arguably more a perception than a reality, but the value is based on perception.
Generally, there are 3 types of diminished value claims:
|Type||Immediate diminished value||Inherent diminished value||Repair-related diminished value|
|Definition||The difference in value if the accident hadn’t happened versus after repairs are made.||When the car was restored to pre-accident condition as much as possible or expected but is now a vehicle that’s been in an accident.||The value was lost after the accident because the repairs did not restore the car to the condition it was in before the accident.|
|When to file a claim||A claim can be filed immediately after the accident and before your car is repaired. For example, if you have a brand-new car that’s damaged in an accident, its market value instantly decreases, so you can pursue a diminished value claim.||You can file a claim after your car has been repaired. This is for what is sometimes called “stigma damage,” which suggests that the car is less appealing compared to an identical car that hadn’t been in an accident.||If the repair shop fails to completely repair the car or does a poor job in restoring it to the condition it was in before the accident, then you can file this type of claim—for example, if a fender was replaced that doesn’t exactly match the color of the rest of the car, if there are paint bubbles, etc.|
First-party claim: When the insurance company doesn’t completely cover the difference between the car’s pre-collision value and the post-repair value, the claim for diminished value is filed against the insurance company. The deciding factor is whether the insurance policy covers diminished value. Before you purchase an insurance policy, this is a good question to ask.
Third-party claim: This is the type of claim involved in a repair-related loss. The claim would still be made to the insurance company for this type of diminished value.
There are 3 circumstances when you can claim diminished value:
When you file a personal injury lawsuit or an insurance claim, the first item you need to set forth is how much you’re claiming in damages—and for what.
You might hear on the news or in advertisements about multi-million-dollar verdicts for serious accidents. Sometimes, it can be hard to comprehend how the court reached that amount for a person’s injuries.
The plaintiff’s lawyer would have taken a complete accounting of their losses, and would likely have consulted actuaries, accountants, and other financial and medical professionals in order to determine the costs to an injured person over the course of their lifetime.
The basis for any personal injury lawsuit is that the defendant’s negligence cost you money.
Once you’ve proven that the defendant is liable for the accident, the question becomes how much money you’re owed. After the traditional damages are assessed, you can also prove diminished value with these 3 questions:
There could be complicating factors related to a diminished value lawsuit.
For instance, some states require an expert appraiser to determine the value lost. In other states, the owner must first sell the car in order to have an actual loss before claiming diminished value. In other words, you can’t assume that your car has lost resale value unless you already had to sell it at a lower amount than you would have sold it for had it not been in an accident.
The diminished value claim will be separate from other claims.
Every state except Michigan allows for some diminished value claims if another driver is at fault.
In addition, these 15 states allow a driver to obtain diminished value damages from the at-fault driver’s insurance company:
A Georgia case (State Farm Mutual Automobile Insurance Co. v. Mabry) established Formula 17c.
An insurer will likely apply 17c to give you an estimate for the diminished value of your vehicle. The insurer will follow these steps:
However, you might not want to rely on the insurance company’s formula. Instead, you can calculate your own estimate this way:
The aspects to a property damage claim that aren’t clearly cut-and-dried can make or break a damage award. In other words, it might be easy to demonstrate how much you paid in medical bills and how much you paid for car repairs, but proving diminished value is more subjective.