What Is Diminished Value?

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Most vehicle owners know that a brand new car starts losing value as soon as a driver takes it off the lot but there are many other factors that may influence the value of a vehicle. A driver who has a serious accident may mistakenly assume that his or her insurance policy covers more than it actually does. One term that may come up during an insurance negotiation is “diminished value,” the value of a vehicle after an accident. For more information regarding diminished values, speak with a knowledgeable car accident lawyer in Long Beach.

How to Calculate Diminished Value

If a driver purchases a $20,000 vehicle, that same vehicle will not be worth $20,000 after a year of ownership. Wear and tear on the vehicle, mileage, manufacturer warranty conditions, and cosmetic damage all reduce the value of a vehicle over time. If a vehicle has been in an accident, it will also diminish the vehicle’s value.

Imagine a person visits a used car lot to purchase a vehicle and sees two vehicles of the same make and model year. If one had previously been in an accident and the other had not, the buyer would almost certainly choose the vehicle with no accident record. No matter how good the repairs were, a vehicle that has already been in an accident inherently gives many buyers pause.

Even if the car received expert repairs and it appears just like new, it’s possible for a previous accident to degrade other areas of the vehicle that the repair technician may have missed. Additionally, it’s simply human nature for a buyer to opt for a vehicle that has not been in an accident over a wrecked-and-repaired vehicle.

The difference between a vehicle’s value before an accident and the market value of the same vehicle after a major repair is the diminished value. It is vital for all vehicles owners to understand this concept and how it relates to auto insurance and state law. Some states have specific laws in place for diminished value claims and a private auto insurance carrier may or may not offer diminished value coverage. An insurance policy may offer diminished value coverage, but only if the policyholder did not cause the accident. Generally, an at-fault driver should not expect diminished value coverage at all after an accident he or she causes.

Proving Damages and Diminished Value

When a negligent driver causes an accident, the at-fault driver is liable for diminished value in every state except Michigan. A negligent defendant has a duty to make the plaintiff “whole” again after an accident and this includes compensating diminished value of the plaintiff’s vehicle.

For example, the plaintiff in a personal injury lawsuit for a car accident had a vehicle initially worth $30,000. It was only one year old and in very good condition prior to the accident, so the current market value at the time of the accident was about $25,000. The defendant caused damages requiring $4,000 worth of repairs. The plaintiff could not only claim compensation for the costs of those repairs but also the difference between the car’s $25,000 value at the time of the accident and the car’s post-repair value. If the car only had a market value of $16,000 after the repairs due to the extent of the damage, the plaintiff could claim the difference of $9,000 in diminished value.

Filing a Claim or Lawsuit

If an at-fault driver does not have insurance coverage or the assets to pay for the diminished value of a plaintiff’s vehicle, the plaintiff may need to file a claim against his or her underinsured or uninsured motorist coverage. Roughly half of all U.S. insurers offer diminished value coverage with uninsured or underinsured protection.

When a driver needs to prove that a vehicle has diminished value after an accident, he or she has the burden of proving the difference between the vehicle’s value before the accident and the post-repair value. In either an insurance claim or personal injury lawsuit, the claimant’s or plaintiff’s level of liability may lead to reduced compensation.