Diminshed Value of a Vehicle after an Auto Accident
Odds are pretty good that you’ve been in an automobile accident, even if it was just a small fender bender, or that you probably will be in one at some point in your life if you drive or ride in a car on a regular basis (as most of us do).
When an accident occurs we rely on our auto insurance, or the insurance of the at-fault party if it’s not us, to make us whole again. This is quite simply to say that we rely on our insurance company to step in and make sure things get fixed properly so life continues just as it had before the accident occurred, or as close to normal as possible!
Auto insurance is a great tool for spreading the risk of financial loss due to an accident over several vehicles and drivers. But auto insurance has failed to make people whole in one respect that is getting more and more attention with the rise of the Internet and programs that let you track a vehicle’s history - such as CarFax reports.
When an insurance company agrees to repair your vehicle after an accident and pay your medical bills, etc. they fail to take into account that your repaired vehicle is no longer worth as much as it was before your auto accident. Yes, your 2002 Ford Explorer with 32,000 miles was in great shape before the accident - I mean, let’s face it, if this is 2007 and your car is a 2002, 32000 miles is well below the normal amount of 12,000 to 16,000 miles per year that most cars have on them. If your car had never been in an accident it would probably fetch a premium over similar year’s vehicles of the same model or comparable vehicles. But now that your vehicle has been in an accident, there is suddenly a paper trail attached to it that says this vehicle has been wrecked and repaired. Try taking the vehicle in to a dealership to trade it in on a new car. They will run a CarFax report most likely, and they will offer you less citing the accident. Why would they offer you less given the fact that your car has been repaired? Well, any savvy buyer who walks into the dealership to look at your used car will want to see a CarFax report as well, and other people won’t know about the quality of the repair job or what a great history the car has otherwise.
What we’re discussing here is referred to as diminished value. Quite simply, a vehicle can’t be worth the same amount after an accident as it was before because if your car was sitting in a used car lot next to an identical one that had never been in a wreck, your car would sell for less than the other one. Now, you don’t often see used car lots full of all the same type of car. But with the rise of the Internet, people are able to search a large radius to find a specific type, model, color, year, etc. of car that they want.
The law varies from state to state with regard to how insurance companies settle claims on diminished value. In Ohio, where I currently live, the insurance company is not required by law to pay you for the dimished value of your vehicle after an accident. We’re speaking only of partial losses by the way, if your car is totaled you have every right to try to negotiate with the insurance company to get the fair market value of your car before the accident. But in an accident where the car is repaired and returned to you, you still suffer a loss that you are not compensated for… the difference between your vehicle’s value BEFORE and AFTER the accident is your loss.
Now, we’ll probably never see states pass legislation requiring insurance companies to pay their insureds this diminished value because not everyone carries comprehensive and collision coverages (often referred to as comp & collision) on their policies. In fact, with insurance being a contract between you, the insured, and the insurance company, if they do not offer you the coverage you cannot force them to provide it. The only coverage they will be forced to offer you if you meet their criteria is the state minimum liability requirements to drive in your state.
Although it would be nearly impossible to REQUIRE insurance companies to offer diminished value coverage to their own policyholders, which would be similar to GAP coverage you can already buy to cover the difference between what you owe and what the vehicle is worth, perhaps the states can get their acts together and require the insurance companies to offer diminished value payments to third party claimants. These third parties do not have insurance coverage through the company that is paying them so they are not bound by a specific insurance policy’s covenants - rather, they should seek payment for as much of their loss as possible.
As I mentioned before, the law varies from state to state with regard to diminished value. And because there is nothing going through a legislature (that i know of anyway) it is up to the courts to decide whether diminished value has merit in settling an insurance/auto accident claim, at least it’s up to the court until the legislature gives us a framework or body of law to draw upon in this topic.
Here are some links to some interesting articles and companies that hope to prosper from diminished value claims:
Article from Bankrate.com giving a broad overview of the topic
I-Can This is a company that handles diminished value appraisals on behalf of claimants following an auto accident. This company also offers a nice review of the topic, with their own slant of course.
Sims vs. Allstate case. This case regarding diminished value follows similar court rulings in several states including Ohio, Mississippi, Delaware, Arizona, Texas and so on. This case was considered a setback to getting diminished value recognized by the various states.
Here’s a good article that counters the above Sims vs Allstate case. This article is from the AutoMuse website. This case is Allgood vs Meridian (insurance company). In a court decision that occurred a day before the decision was rendered in the Sims vs Allstate case, an Indiana court ruled that diminished value is of significance. This is a good read after the above article about Sims vs Allstate. The author of this article does a good job expressing concern over noting where a claim occurred and which state’s body of law is applied to the case in question.
Here’s an excellent link showing body of case law on a state by state basis for this topic. Kudos to Barry Zalma in compiling this information all in one place for everyone of us to easily search and review.
Editorial from the Akron (Ohio) Beacon Journal newspaper regarding auto insurance and hitting in parts on diminished value.
As always, your feedback is welcome…