What Is Diminished Value?
Diminished value (DV) is the difference between the fair market value of a vehicle before and after it was involved in an accident. Even if your car is perfectly functional, the stigma of having an accident history may reduce its resale value. Depending on the state, drivers may be able to file a diminished value claim with their or at-fault driver's insurance company to get compensated for the car's reduced resale value.
Keep reading to learn how diminished value works and whether it's worth filing a DV claim to recoup the loss in your vehicle's value post-accident.
Diminished Value Definition & Example
Diminished value, or diminution in value, measures how much the market value of a vehicle drops either immediately after a car accident or following accident-related car repairs. The drop in value can be related to multiple factors, including the severity of the collision, the functionality and cosmetics of the repairs, vehicle age and model.
Even if a car is repaired to pristine condition, it will still likely face a lower resale value. Think about it this way. If you were a car buyer and had the choice between buying two identical-looking and perfectly functioning used cars, but one of them was involved in a car accident, which would you choose?
A car without an accident history would be the most common choice. However, you might consider the car with the accident history if you receive a discount on it. The discount you accept could be considered the vehicle's diminished value.
Let's say your vehicle is worth $25,000 and you have a potential buyer. They research your vehicle's VIN and learn that it has been involved in an accident. Due to this, the potential buyer haggles the price down to $22,000, which you accept. In this case, the diminished value is $3,000 — about 10% off the vehicle's fair market value.
Will My Insurance Company Pay for Diminished Value?
Expecting a payout on a diminished value claim will depend on multiple factors, including policy language, state legislation and who was at fault for the car accident.
Each state has its own laws governing diminished value claims for when a driver sues an at-fault driver after an accident. While many states allow a claimant to be compensated for diminished value, there may be some restrictions.
In New Jersey, for example, diminished value is only recoverable if the repairs cost less than the value lost in fair market value. In Texas, the claimant must be reimbursed for diminished value regardless of the cost of repairs. In some states, there is no legislation or court decisions that as a precedent for DV claims. In these cases, you may want to consult a lawyer to explore your options.
If your insurance claim is accepted, you should be able to recover 10% to 25% of your vehicle's fair market value, according to DV Check, a nationwide provider of diminished value appraisal reports. If your vehicle has a fair market value of $25,000, for example, then a DV claim may reimburse you for $2,5000 to $6,250.
You were the at-fault driver in the car accident
After a covered accident, your insurance company will usually cover the actual cash value or repair costs of your vehicle — not the loss of its fair market value. They may argue that the diminished value of the car is an indirect loss and therefore not covered. Auto insurance policies typically cover direct losses.
If the at-fault driver is uninsured, then it may be possible to claim diminished value with your uninsured motorist coverage.
The other party was the at-fault driver in the car accident
If the other driver is responsible for the car accident, you may file a DV claim against the at-fault driver's insurance company. The damages would be covered by the liability portion of the at-fault driver's insurance policy.
If you decide to sue the at-fault driver for the car's diminished value, consult your state's tort laws. The law may require an at-fault driver's insurer to cover your repair costs and the difference between your vehicle's resale value before and after the accident. In Wisconsin, for example, the Supreme Court ruled in one case that the claimant must be made whole. Because the repairs did not return the vehicle to its pre-accident value, the claimant recovered the diminished value as damages owed.
Types of Diminished Value
There are three types of diminished value: inherent, immediate and repair-related.
Inherent diminished value
Inherent diminished value measures the loss of fair market value before the accident and immediately after. It will not factor in how subsequent repairs may reduce the overall diminished value.
Immediate diminished value
Immediate diminished value — also called residual diminished value — measures the loss of fair market value before the accident and after professional repairs are completed. Although the repairs may restore the vehicle to its functionality and cosmetic condition prior to the accident, it can still suffer from "stigma damage," which is a perceived reduction in value simply because the vehicle was involved in an accident.
Since you will be required to show proof that your car's resale value dropped even after repairs, it's likely that immediate diminished value will be considered in a DV claim.
Repair-related diminished value
Repair-related diminished value measures the loss of fair market value before a car accident and after repairs that were either incomplete or poorly done. This type of diminished value may also include cosmetic damages that remain after the repairs are completed.
How To Calculate Diminished Value
Many insurance companies calculate diminished value using the "17c formula," which was the formula used in Mabry v. State Farm, a landmark court case in the State of Georgia. This formula uses a damage and mileage multiplier to gauge the fair market value of a vehicle after an accident.
Step one: Determine the value of your car
Use a third-party source, like the National Automobile Dealers Association (NADA) or a local professional appraiser, to gauge your vehicle's fair market value.
Step two: Apply a 10% cap
After obtaining your vehicle's fair market value, multiply it by 0.10 to determine the maximum you can claim as diminished value. In other words, you can only claim 10% of your vehicle's current market value under the 17c formula.
Step three: Apply a damage modifier
The damage modifier is multiplied by the cap calculated in the last step. The modifier can range from 0.00 to 1.0 and is determined by the severity of the damages incurred by the collision.
Severe damage and structural damage
Major damage and structural damage
Moderate damage and structural damage
Minor damage and structural damage
Minor damage, no structural damage
Step four: Apply a mileage modifier
Next, multiply your calculations in the last step by the mileage modifier. Similar to the damage modifier, a mileage modifier will range from 0.00 to 1.0 depending on your vehicle's mileage.
100,000 miles or more
The figure calculated after completing this step is the diminished value of your vehicle, which you may claim if your DV claim is approved.
17c formula example
To demonstrate diminished value using the 17c formula, let's use the following stats:
Vehicle fair market value: $25,000
Damage: Major damage and structural damage
Mileage: 50,000 miles
Calculate the 10% cap: $25,000 x 10% = $2,500
Apply the damage modifier: $2,500 x 0.75 = $1,875
Apply the mileage modifier: $1,875 x 0.50 = $937.50
Final diminished value: $937.50
Criticisms of the 17c formula
Although many insurance companies use the 17c formula to calculate diminished value, many argue that it is not accurate. Particularly, there are three points of criticism:
10% is an arbitrary number: Capping the maximum amount claimable at 10% is an arbitrary number established in one Supreme Court case but now serves as a baseline for many insurance companies nationwide.
Damage modifier may not be accurate: Some damages may warrant diminished value that exceeds the range of 0 to 1.00. Again, this is an arbitrary range.
Double penalty for mileage: Mileage is already a factor when considering a vehicle's fair market value. Using it as a metric in the 17c formula places a double penalty on mileage.
How To File a Diminished Value Claim
If you are not responsible for causing a car accident, you can file a DV claim against the at-fault driver's insurance company in some states. You will want to begin the claims process after your vehicle is repaired by submitting your demand letter and supporting documents to the at-fault insurance company. In the letter, specify the amount you intend to claim and the deadline to respond.
Even if the other driver is at fault, it is still your responsibility to show proof of diminished value. You must prove that your vehicle has a lower fair market value even after repairs as a result of the accident. Generally, this means providing a professional appraisal of your vehicle that proves your vehicle's post-accident worth is below fair market value. Only then will you have a case.
Disputing a denied diminished value claim
If you file a car insurance claim with the at-fault driver's insurance company and they deny your DV claim, there are generally two options you may explore:
Haggle and negotiate a lower settlement price.
Take legal action and allow a judge to make a final decision based on the facts presented.
Diminished Value FAQs
What is the meaning of diminished value?
Diminished value refers to the reduction in the fair market value of a vehicle after it has been involved in a car accident. Even if the vehicle undergoes repairs, future potential buyers will still perceive it as having a lower value compared to an identical vehicle without an accident history.
How long do you have to claim diminished value?
The deadline to file a diminished value claim is subject to each state's statute of limitations. Typically, it is two years but can be fewer or more depending on your state.
How much does a car devalue after an accident?
If using the 17c formula, the maximum amount that can be claimed for diminished value is 10% of the vehicle's current fair market value. For example, the maximum diminished value that can be claimed on a $20,000 vehicle would be $2,000.
What's the difference between diminished value and depreciation?
Diminished value measures the loss in fair market value caused directly by the car being involved in an accident. Depreciation is the natural loss in value of your vehicle over time and repeated use.
Shopping for Car Insurance Made Easy
Diminished value is not always compensated when filing a first-party claim. However, damages and liability claims are covered in most standard car insurance policies. You'll want to choose an insurance company that provides the coverage you need and the price you want.
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