What is Diminished Value and is it Covered?

Has your care ever been in an accident and you were told that your vehicle has diminished value (DV)? This refers to an autos automatic decrease in resale value after it has been damaged in an accident.  There are several different types of DV claims:

Inherent DV: This describes a wrecked vehicle which is then repaired and is less valuable than an undamaged vehicle.  The repaired vehicle becomes reduced simply because the vehicle has a significant damage history and any significant damage reduces a vehicle’s worth.

Example: Will has a ’07 model car that has never failed him, however he’s ready for a change. Will finds his dream car at the dealer and wants to trade it in. The sales rep and Will look over his ’07 and agrees on a $5,950 trade-in. While discussing the loan papers, the rep asks if the ’07 has ever been in an accident. Will remembers an incident, slaps his forehead and says “Oops, I was rear-ended three years ago. My insurer paid about $3,000 in repairs.” The sales rep then picks up the finance paperwork and says that Will has to come back after he has re-figured the agreement. When he comes back, he is told that the dealer can only offer him $4,400 on the trade-in. Will tries to explain that he’s never had any problems with the car and that it ran even better after repairs. The sales rep will not accept the lower trade-in offer.

Claim Related DV: This refers to any circumstance in which an insurer’s action results in an inferior inadequate vehicle repair. What are the actions caused by an insurer that could trigger claims-related DV?

  • persistence on the use of selected auto repair shops
  • requirement that a repair facility use unoriginal equipment and manufacturer parts
  • refusal to pay for additional repairs identified by a repair shop

Repair Related DV: This refers to any circumstance in which a repair shop’s work and actions result in an inferior vehicle repair. What kind of circumstance can a repair shop create?

  • completed work which includes inadequate labor or improper procedures
  • completed repairs where unoriginal parts were used when an insurer approved standard parts
  • incomplete repairs when an insurer authorized that all needed repairs be performed.

Is Diminished Value Covered?  The issue of DV is still a matter of debate among insurance companies, lawyers, state courts, consumers, auto parts manufacturers, and auto repair shops.. Supporters of the DV theory say that these losses are real and should be reimbursed under an insurance policy whenever there is accidental damage to an insured car. Others say that such losses were never intended to be covered.

Court Views: Over the years and nationwide, there has been a number of cases have been decided by courts. Most of the cases have resulted in the courts dismissing DV as a legitimate area of coverage.  Although, there has been notable exceptions.  For instance in November, 2001, Georgia’s Supreme Court ruled that DV should be considered whenever a loss occurs to a vehicle. Insurers and other jurisdictions must take legitimate DV claims into consideration.

What should you do?  Depending upon the age and value of your cars, You may have a concern over the issue of DV, depending upon the value of your car and how long it has been running. It would be best to discuss your situation with an insurance professional and find out what other coverage options may be available or to gain a better understanding of your existing coverage.

If you have any questions about your existing policy, are inquiring information about a possible future policy or need further information, please call us at (631) 738-7300 or get a quick quote at www.vrpinsurance.com

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January 15th, 2013 by VRP Insurance Agency