Impaired Value Claims Explained | The bank rate
After a car accident, the market value of your car decreases, even if it is restored to perfect condition. Decreased value refers to the difference in market value of your car before and after the accident. If you or the other driver in the accident have car insurance To cover your vehicle, insurance may cover the cost of restoring your car to its pre-loss condition.
However, a car involved in an accident automatically decreases in value, which means that the owner is potentially able to file a diminished value claim to recover some of the lost value. A successful diminished value claim pays the car owner the dollar amount difference between the car’s value before and after the sinking.
What is diminished value?
After an accident, the market value of your car will decrease even if it goes through all the necessary procedures to restore it to its previous condition. Decreased value is the difference between the market value of your car before and after an accident. Even if you try to resell your vehicle, the history will show that it was involved in an accident, which will reduce its value. An impaired value claim can help recover the costs of bringing your vehicle to market before an accident.
Types of diminished value
There are three types of diminished value. Each type relates to the depreciation in the cost of your vehicle after an accident.
Inherent diminished value
This is the most common and accepted form of the diminished value of car accidents. The inherent diminished value occurs when a vehicle loses value because it now has a damage history, which is shown in the car history reports. This type of diminished value assumes that the repairs to the vehicle were of the highest quality and represents the amount that the value of the vehicle will reduce based on accident history.
Immediate reduced value
This type of diminished value vehicle represents the difference in resale value immediately after an accident and before the vehicle is repaired. Because your insurance company provides most damage repairs immediately after an accident, this type of diminished value is rarely used when filing a diminished value claim.
Decrease in repair value
This is the loss of value of the vehicle due to poor quality repairs made after an accident. For example, if the paint is repaired with a color that does not exactly match or if spare parts are used in the repair, the quality of the repair leaves a loss of vehicle value beyond the diminished value of the vehicle which now exists because of the accident. This decreased value assumes that the vehicle cannot be restored to its original condition.
Calculation of the diminished value
Most insurance companies in the United States use a calculation called the 17c Decreased value formula to determine the new value of a vehicle after an accident. This formula originated in a Georgia claims case involving State Farm, where it appeared in paragraph 17, section c, from which it takes its name. Below are the steps used to calculate the decreased value according to this formula.
Step 1: Determine the value of your car.
You can do this by using the NADA or Kelley Blue Book websites. Both offer a calculator where you can enter some information about your vehicle. You will want to know the year, make, model, mileage, and extent of damage to your car.
Step 2: Apply a cap of 10% to this value.
Insurance companies typically apply a 10% cap, known as basic impairment, to the sale value of your vehicle as estimated by NADA or Kelley Blue Book. This limit is the maximum amount that your insurance company will pay on the claim.
Step 3: Apply a damage multiplier.
Insurance companies use a damage multiplier to adjust the value of the vehicle described in step two. The value of the 10% cap is multiplied by a number ranging from zero to one depending on the structural damage to your car after an accident. The zero multiplier represents no structural damage or replaced panels, while the single multiplier represents vehicles with severe structural damage.
|1.00||Serious 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|
Step 4: Apply a mileage multiplier.
While NADA and Kelley Blue Book take your car’s mileage into consideration when determining value, insurance companies calculate their own mileage deduction. The value adjusted in step 3 is multiplied by one of these mileage multipliers to calculate the final decreased value of your vehicle.
|0.80||20,000 to 29,999 miles|
|0.40||60,000 to 79,999 miles|
|0.20||80,000 to 9,999 miles|
|0.00||Over 100,000 miles|
According to formula 17c, to calculate the decreased value of your car, you would take the value of your vehicle and multiply it by a cap of 10%. You would then apply a damage multiplier based on the damage to your car and a mileage multiplier based on your mileage.
For example, if the market value of your car is $ 15,000 with moderate structural and panel damage and 20,000 miles, your formula for calculating the diminished value would be:
$ 15,000 x 0.10 = $ 1,500, which would be the maximum you would receive for diminished value from an auto insurer.
$ 1,500 x 0.50 = $ 750 which would be the adjusted value for moderate damage.
$ 750 x 0.80 = $ 600 which would be the adjusted value for the 20,000 miles.
How to file a diminished value claim
Filing a diminished value claim can be more complex than filing a claim for other issues, as the onus of proving the diminished value of the car is usually your responsibility.
If you are responsible for the accident, your diminished value claim will likely be denied. If the other driver is at fault, you should contact their insurance provider to discuss their diminished value claim process.
The first step is to check the insurer’s rules on filing a diminished value claim. If the other driver is uninsured, you may need uninsured motorist coverage to successfully file a claim.
You will also need to document the value of the car with an approved source, such as Kelley Blue Book. Other routine documents required in the claims process may include photos at the scene of the accident and documentation of repairs made to the car after the accident. Read all the requirements carefully in preparation for filing the claim.
Then you will have to prove the diminished value of your car. To do this, you will likely need to have the car professionally appraised. Finding a reliable and certified appraiser is the key to the success of a diminished value claim.
When filing the claim with the insurance company, make sure you meet all the conditions of the claim. This will ensure you have the best chance of receiving compensation for your loss.
It is important to note that state laws also affect how impaired value claims are handled. Since each state has different insurance laws, researching state laws will help you better understand your rights regarding the diminished value of your vehicle.
Considerations When Filing an Impaired Value Claim
Filing a diminished value claim is not the right option for everyone. You may or may not receive payment when filing a diminished value claim. Some points to consider are:
- The value of your car before the accident: If you drive an older car that has a lot of mileage or structural damage, you cannot receive payment for the diminished value.
- If you were at fault: If you caused the accident, your insurance company is unlikely to pay a diminished value claim.
- If you are involved in an accident with an uninsured driver: If you have uninsured auto insurance with your insurer, you must file a diminished value claim.
- What state you live in: Each state has different laws on diminished value claims.
Since each state has different laws for diminished value payments, it’s important to research the laws in your state. All states except Michigan allow the filing of a certain level of diminished value claim if the other party is at fault.
When to file a diminished claim
If you are involved in an accident where the other party is at fault, it may be better to file a diminished value claim so that you can recover the difference in value of your vehicle. In most cases, you can’t file a reduced claim against your insurance company, which means you should never try to file it if you’re at fault for an accident.
It is usually best to file a reduced claim with the responsible party’s insurance company as soon as possible, preferably within days of the accident. It is often easier to present your case (with supporting documents) when you file quickly. In addition, the value of your car could decrease the longer you wait to file a claim.
Frequently Asked Questions
Is a diminished value claim worth it?
Lesser value claims can be a difficult process. But if your car is worth much less after an accident, even after being restored to its original condition, then filing a claim for the diminished value of the car could compensate for the significant financial loss.
Are insurance companies required to pay a diminished value claim?
If the other driver is responsible for your accident and has insurance, then you should be entitled to a diminished value claim. However, it is first and foremost up to you to prove the diminished value of your car, and the insurance company will only pay the claim if you can do so effectively. It’s also important to note that state laws vary and each state will treat claims differently. Michigan Drivers should be aware that reduced claims laws are treated differently in their state.
How long does it take to settle a diminished value claim?
Lower value claims often take longer than standard auto claims to resolve. Due to the complexity of these types of claims, it can often take weeks or even months to finalize. In some cases, you may even need to hire an attorney as an intermediary with the insurance company to get the best results, which can make the process even longer.