Diminished Value Claims--Case Law
 

Lately, there has been an increased interest in learning about diminished value claims, and the ability to make such a claim against an adverse carrier or one's own carrier.

Because this is an area of insurance claims that are on the increase, I have researched some of the class action rulings that have been in place , but are not well known.

Please review this information in the event you some day ( heavens forbid ) suffer an accident which causes damages to your car. Understand that your claim for diminished value may be viable in both a first party as well as a third party claim.

Also note that as insurance companies have noted this growing trend for insureds and claimants to look in to diminished value, and some companies are excluding such claims in their policies.

That being said, the following is an interesting article on Diminished Value.

In the case of State Farm Mutual Automobile Insurance Co. v. Mabry,(2002) the Supreme Court of Georgia ruled that “the fact of physical damage resulting from an event covered by the policy can reduce the value of a vehicle, even if repairs return it to pre-loss condition in terms of appearance and function; the policies issued by State Farm obligate it to compensate its policyholders for that loss of value, notwithstanding repairs that return the vehicle to pre-loss condition in terms of appearance and function, if the repairs do not return the vehicle to its pre-loss value; and State Farm is obligated to that element of loss along with the elements of physical damage when a policyholder makes a general claim of loss.”

The insurance commissioner responded with the following new directive to insurers in Georgia:

“You are hereby directed to review this case and adjust claims accordingly, including assessment and payment of diminution of value relative to physical damage. Policyholders should be reimbursed consistent with the court's holdings and applicable language contained in the relevant policies issued by your company.”

Repairers should take note of the following key points in the case:

* State Farm contended the case infringed on the expertise of the insurance commissioner, that the insurance commissioner has exclusive jurisdiction over these issues, and the courts should defer to the commissioner. The court did not agree.
* The basic conflict in the case concerns the scope of State Farm's contractual promise to compensate its policyholders for their losses. The physical damage coverage in its policies provides that State Farm will “pay for loss to your car,” minus any deductible. The policy contains a provision limiting State Farm's liability to the lower of the actual cash value of the vehicle or the cost of repair or replacement, and a provision giving State Farm the right to settle a loss by paying up to the actual cash value of the car or paying “to repair or replace the property or part with like kind and quality.”

The plaintiff asserted that in almost every case, a vehicle that has been damaged in a covered event will suffer some diminution in value, regardless of the efficacy of the repairs undertaken, and that State Farm is liable to the policyholder for the amount of that diminution of value.

State Farm asserts that “questions of value arise only when the vehicle is assessed as a total loss or when repairs cannot return the vehicle to its pre-loss condition in terms of appearance and function. When the vehicle has been properly repaired, there is no objectively discernable diminution in value, and if there is such a loss, it would not be realized until the vehicle is sold.” State Farm also denied any “duty to assess vehicles for diminution of value unless the insured specifically makes a claim, separate from the original claim of loss, that the vehicle has lost value even though the physical damage to it was repaired.”

Questions for the Court:

a. Whether the fact of physical damage resulting from an event covered by the policy reduces the value of a vehicle, even if repairs return it to pre-loss condition in terms of appearance and function?

b. Whether the policies issued by State Farm obligate it to compensate its policyholders for that loss of value or permit it to discharge its responsibility under the policy by making repairs that return the vehicle to pre-loss condition in terms of appearance and function?

c. Is State Farm obligated to pay its policyholders for diminution of value?

d. Is State Farm required to assess that element of loss along with the elements of physical damage when a policyholder makes a general claim of loss?

The court held that there is a potential for a diminution of value loss in every event of loss and that diminution of value can occur even when a vehicle is repaired properly.

The court held that liability limitations affording the insurer an option to repair does not eliminate the insurer's liability for the difference between pre-loss value and post-loss value.

The court held that the “insurance policy,” drafted by the insurer, promises to pay for the insured's loss; what is lost when physical damage occurs is both utility and value; therefore, the insurer's obligation to pay for the loss includes paying for any lost value.

Finally, the policy does not include a requirement for a separate claim for diminution of value.

The last highlight has to do with insurers having a structure for determining diminished value. The court ordered State Farm to develop an “appropriate methodology” for making such evaluations; to collect, catalog and maintain any information necessary to determine the amount of any diminution in value; and to report to the court the manner in which it was complying with the injunction. Requiring the development of an appropriate methodology was necessary since the undisputed evidence shows State Farm had no such methodology in use.

The Automotive Service Association's leaders are reviewing the case and other supporting materials to determine the best policy for collision repairers relative to diminished value.

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Diminished Value claims work on a mathematical calculations, along with modifiers based on severity, age of vehicle etc.

The basic formula establishes the diminished value of a vehicle is based on the Actual Cash Value of the vehicle at the time of the loss less 10% or, 25% of the repair costs to the vehicle-- which ever is less. To this figure, a modifier is used based on severity and mileage of the vehicle.

I hope this information is of some help to those with questions on Diminished Value , in the event of a claim for your vehicle.
Katy

Diminished Value Claims--Case Law
 

Hi Katy,

I am no lawyer ( but my son is ) so take this as my opinions & what I have 'heard.'

I understand that there have been a number of successful lawsuits for that; almost all against State Farm ( my insurer since '71 ). State Farm has always lost.

Back in Dec '10, I pranged my '03 Toyota pickup. I use ( what I consider a very good autobody shop ) & asked them about the use of 3rd party parts. The manager informed me that State Farm no longer will argue for 3rd party parts and is OK with using mfr's parts.

I do expect that some clauses in the policy(s) will occur or that costs of the policies will increase. Someone will pay for these rulings; and I really do not think it will come out the pockets of State Farm.

Personally, if my policy went up slightly and I could benefit from these rulings, I am all for it; especially with a luxury car.

Just my thoughts; they are worth what you have paid for them,

Jerry Baumchen

I think the insurance industry woke up to this one pretty quick and now most policies exclude first party diminished value claims. Meaning that you simply aren't insured (covered) against the diminished value of your vehicle resulting from an accident.

An insurance policy is nothing more than a contract and can include or exclude whatever the parties want. For example, if your house burns down, some homeowners pay extra for "replacement value" coverage while others save money and just get "market value" coverage. Exact same event, just two ways to cover it, and two very different checks from the insurance company.

Now if you were not at fault in your car crash, you can always file a lawsuit against the person that caused the accident. Your damages at trial would absolutely include diminution in value.

But proving the amount of diminution is not like checking the parts manual and finding the cost of a new bumper. Reasonable people could disagree on the amount of diminution -- it's an opinion. To prove opinion in court, you need to present an expert witness who is familiar with the resale market and can testify regarding his/her opinion as to how much less your car is worth because of the accident. Expert witnesses are usually hugely expensive compared to the amount you MAY recover from diminution in value.

If you are suing, definitely throw in a diminution in value claim and pick some percentage you think is reasonable. You probably won't get anything, but it will let the judge throw the other side a bone by ruling against you, while giving you your OEM parts claim when the insurance company argues that a used part or third-party part would have been just fine. It never hurts to give the judge a way to "split the baby."

Katy, since you're in the industry, how's it done in Arizona?

Interesting....we meet with a lawyer on Friday. There insurer finally attempted contact.

Diminished value claims are of particular interest to me, because , in part, of these special expensive cars that we own.

In Arizona, I have had both insured's and claimants make claim for DV. I myself have personally paid for such claim, as I believe that a car's value does suffer in an accident. As California law goes, so follows Arizona law.

The growing trend is to honor these claims, especially for the claimant..

What I have done is talk to a DV expert, and then also go to different dealerships to get a written letter on their thoughts on the decreased value of one car which has been in an accident, v. a car ,identical, which has not. Just posing the question.. how much less would you offer a seller to but the car, over one that has not been damaged.

As you may guess.. the numbers are revealing..depending on the car of course.. $5000 , or more less is offered.

Who really is happy about buying a car that has been in an accident? That is an easy question to answer.

Personally, I found out that I had purchased a Honda Odyssey that had been in an accident.. from a Honda dealership.. and I made them " unwind" the deal.

Most people who know me on the forum know the story of my first SC..and what I went through to get that undone.

So yes.. in AZ this is a viable claim, and we d recognize DV.. I will tell you
this.. I do NOT work for one of the big 3 insurors..

Katy

In law school I had a photo reprint From 1890 that listed the amount each body part was worth, for liability. It was $10 for one eye, $500 for two. The only thing we have to compensate loss is money, and there is plenty of data available to show fair market value of any item, new, used, or damaged. Further, any Insurance liability, other than those mandated by law, can be excluded by contract. A Caddy owned by Elvis is a lot more valuable than one owned by JonnyCake, even if Jonny's is in better condition. Both sides present evidence of value, and the fact finder determines compensatable damages. Insurance contracts don't determine what you get, they only determine what the insurance company is liable to pay. Law of trespass to chattels in theory should make the injured party whole. It is the injured parties responsibility to prove damages claimed. Unfortunately, hiring an actuary is not feasible. In law practice I subscribed to a service that would break down verdicts to give me expected monatary awards. I have not seen that service for property.

Diminished value is a complex area and not recognized in all states. It is in Connecticut, where my car was recently hit. I've found helpful information on the subject at http://matthewforrestlaw.com/diminished-value/

In Texas you are out of luck trying to claim diminished value. We have the best regulators that money can buy : )

I am an attorney, so let me add my quick reactions to this discussion, based solely on my experience.
First, diminished value for a harm is not new as a standard of establishing value; it has been a big part of real estate valuation cases for hundreds of years. For example, in an eminent domain case where the state takes a part of your property (for a road or a sidewalk or sewer easement), you are entitled to recover the value of your property before the taking minus the value of your property after the taking. Real Estate Appraisers do this all the time. In theory, at the end you suffer no financial loss.
The same can be applied to automobiles, but the small amount of the diminution has usually not been factored in due to the cost of proving it, plus the fact that auto appraisers do not have the track record and the judicially approved methods (3) of determining value, but mostly because the value of a car is not great enough to justify the time and expense of the valuation exercise. However, with a car whose value might exceed $100,000.00, in certain cases this could be worthwhile, which is surely why we are seeing this issue arise now with autos.
On the other issue, quite a while ago the insurance companies used to have body shops replace parts with aftermarket parts, not parts made by the manufacturer. These two different problems are related, as a vehicle with a sub-par body panel has a residual value less than one with a "Lexus" or "Toyota" body panel. (I handled a claim for a lady friend when the insurer of the other driver wanted to replace a Celica trunk and fender assembly with non-Toyota parts. We argued about residual value and the company caved, eventually.) I understand that this is not tried as much today, but my guess is that the carrier might well try, unless called on it, so be sure to ask the body shop about which parts are being used.
That's about all I know on this, and, as usual, my long and rambling story does not have a point to it.

I think the court's ruling is ridiculous. Legal technicalities aside, it's only common sense (not so common today) that you insure your car to return it to pre-loss condition and function after an accident. Proving an accurate diminished value is spurious at best. This is another case of the government telling private enterprise how to conduct business. This is why premium's go up. I would never ask my insurance company to reimburse me for diminished value.

Trying to sell a car that's been in a significant accident is a much more difficult endeavor and will produce less cash than the exact same car that has not been in an accident. There is nothing spurious about that - its a fact.

You appear to be saying that you would take the financial loss if you had to sell the car (which is going to sell for less $ since its been in an accident) because you feel the insurance company (or the person at fault, if they had no insurance) is somehow not responsible for making you financially whole after a car accident. I don't understand that thinking at all but everyone has a right to their opinion and perspective, absolutely not saying you are wrong, but I am puzzled by what seems to be such a diametrically opposed perspective. Different opinions are part of what makes these forums so useful.

We now live in a society that attempts to legislate away all risk in life. So we insist that every company supplying a good or service covers every possible eventuality. This is killing our economy. I'm not against insurance companies OFFERING DV coverage, for a fee. If we want to protect ourselves against the risk of loss of the value of our vehicle, we should be willing to pay for it. I do this by purchasing personal liability insurance. The insurance company is obligated to give this to me (yet). I have to pay for it. This is what free enterprise is about. If insurance companies want to start offering this free of charge as a way to differentiate themselves in the marketplace, that's great. I'm against an activist court telling the insurance companies what they must do.

By the way, it's not always true, or can be proven, that your vehicle will be diminished in value after an accident. I know this is anecdotal, but I had a Nissan Maxima that was in a serious accident. It was repaired very well. When I sold it a year later, I did not take a hit on the value. So, we shouldn't assume that DV will occur simply because the car has been repaired.

The "activist court" is not telling the insurance companies what they must do, it is interpreting the contract that the company and the individual signed. Determining the amount of the diminished value of a vehicle after the repairs are done is not "spurious" (which means false); it can be difficult, but training and experience takes out the speculative nature of the exercise; real estate appraisers (trained appraisers, not simple relators) do it all the time, but the value of a parcel of real estate is much greater, usually, than the value of a car, so the appraisal is worthwhile (usually $500 to $1,500.00 or more), and the magnitude of any error decreases as the value of the appraised item grows.
Any individual can waive a claim, and the carrier will be glad to hear that no claim for diminished value is being made, but if the applicable policy says that the company will restore you to pre-accident conditions, and the car is an expensive one, then an experienced auto appraiser will be able to provide a professional opinion, admissible in court (if he has all the right credenzas, as we say), as to the value of the car before the accident and the value of the car after the repairs. If those values are equal, and they often (almost always) are equal or almost equal, especially with a modestly priced car, then there is no other compensation needed. But if your '57 Corvette or your 2012 MB SL or BMW 6 Series Convertible needs substantial repairs, my guess is that it would fetch the same price on the market after the repairs, and that is a loss caused by the accident, and you should be compensated for that amount also, unless you don't want that amount, in which case the insurance company will probably send you some flowers. But don't expect your premiums to go down.

This is very helpful, my SC just had an accident and am still waiting for the settlement offer. I elected so far not to employ an attorney. Any suggestions?

Thank you for your excellent explanation. I understand what you're saying. But isn't the court's "interpretation", just that, an interpretation? Is it clear in the insurance agreement that DV is covered? I am concerned that the court has liberally included DV as their opinion. If so, isn't this akin to the Supreme Court interpreting the constitution (wrongly, in my opinion) that there is a "right to privacy"? Thanks for you informed opinion. I look forward to your reply.