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FAQ: Diminished Value Insurance Claims Explained in Answers by Doctor Settlement, J.D.-Auto Accident Insurance Claim Expert

1. "Dr. Settlement, my two year old Cadillac XLR Roadster was damaged in an accident, involving over $19,000 in repairs. It looks fine to me, and nobody who has seen it can tell that it was in an accident. Plus it runs fine, and all parts were OEM. Still, I wonder whether or not someone would devalue my car if they knew the extent of the damage. Should I make a diminished value claim?"

Dr. Settlement's answer:

Yes, we think you should make a diminished value insurance claim for this reason: with a newer high value car, there is such a high price that there is the expectation of high quality, of undamaged goods at that price, and room for potential buyers to punish you just for having gone through such a serious accident. They will pay less because it is "damaged goods", even if your collision repair owner showed them all was repaired in accordance with factory specifications.

Even now, at two years off the production line, your car should be selling at a little less than $60,000. People expect a good product for that kind of money, and buyers would be kind of worried in a general sense that an auto body repair job might not have fixed all defects, or that the work was not performed to manufacturer's standards. That is the kind of INHERENT DIMINISHED VALUE that we talk about on SettlementCentral.Com: there is no basis in fact to lower the value of the wrecked car once it is fixed-it looks fine and operations are fine-but all of us would refuse to pay anywhere near the same price as asked for a car that had not been in an accident. That is just human nature.

Why don't you call two or three of the diminished value expert sites on the Internet and discuss it with them? They will give you the background for their findings in the past, and for a fee they will pump out a market analysis showing how much your car will lose in value just for having gone through the accident.

We would expect a pretty large number, something around 15% of the market value of unblemished cars. That is the effect a big impact auto accident can have on a high end vehicle: folks just do not want to trust that $19,000 in repairs has left your car in a fully restored condition. There are too many close tolerances and too many opportunities for even good repair technicians to miss out on the fittings as they were before the accident.

But since it will be hard to try to wrestle something along the lines of $9,000 cash away from the insurer, we recommend that you hire a local professional in addition to go over your repair work and to examine your car.

It has been our experience that a professional can spot a number of faults with auto body repairs that appear perfectly fine to the untrained eye. For example, in your repair work, there may be welds that were not properly centered, overspray of paint, out-of-tolerance alignments of parts, etc. An Internet expert cannot address those issues: you need someone who will make BOTH a personal inspection of your car AND a diminished value report for you. It is well worth the investment.

2. What about my seven year old car worth $8,000 before the accident? They repaired it with NON-OEM parts. Both the insurance adjuster and the collision repair guy stated that this restored my car as it was before the accident. I think that they should pay because I have read that those parts were not as good as ones that came with my car. They should have used only the OEM parts. What do you think?

Dr. Settlement's answer:

Before we get too much further, let's explain exactly what those initials mean. OEM stands for Original Manufacturer's Equipment. And thus, when referring to NON-OEM parts, one is referring to copycat parts, usually made overseas, without the permission or instruction of the original manufacturer.

First, it is hard to tell without knowing the mileage on your vehicle, what kind of wear your existing parts had, and also what kind of parts the shop replaced. In an eight year old car, it is common that many parts have not yet failed, but they are nearing their useful life. Plus, with a vehicle of that age, you cannot argue that the use of NON-OEM parts will void the manufacturer's warranty (as WOULD BE THE CASE with a newer car still under warranty).

So you may not have begun the repair process with a vehicle that deserved OEM parts because of its age before the accident. While it is true that there are a number of studies proving that the foreign made replacement parts are inferior to OEM parts, those studies compared "new" versus "new". There is little doubt that NEW foreign replacement parts will be superior to OEM parts on an eight year old vehicle.

In your case it is hard to say for sure, but let's just use examples of some common replacements. What if the collision repair shop had to install a new alternator, a new starter motor, a new thermostat, a new large snake belt, a new air conditioner compressor, etc.?

Usually, if the car is a lot newer than yours, we will insist on getting strictly OEM parts as replacements. But with the age of your vehicle and its average annual mileage, your parts were likely nearing or beyond their expected useful life. So you could not really expect the insurance company to improve your position by installing new OEM parts. In that case, they can come back and exact cash for improving your position; this is called "betterment".

Here is another example of betterment: consider the case of two worn tires that were ruined in an accident. Many times adjusters will insist on a betterment charge when they have to put brand new tires on a vehicle in place of worn tires with little remaining life.

But if you got NEW imitation parts, even though that would be a true improvement in most cases involving older vehicles such as yours, there would not be any betterment charge. The adjuster has no basis to charge you for betterment, inasmuch as he would not be able to prove it.

So, in the absence of more information, with a car over eight years old, it will be more difficult to prove diminished value. The older the vehicle and the less the pre-accident fair market value, the less the market is going to punish you for an accident that was repaired with NON-OEM parts. That is justice since many cars that age already have such replacement parts in use.

3. I have a three year old Acura that was in a car accident and the insurance adjuster did everything according to the book, I am sure-original parts that were new, good paint, the works. The car was returned to me in good condition so I am happy about that.

But a guy at work says my car has lost value because no one will pay the same for it as one that has not been in an accident. He wants me to contact a company he found on the Internet to make a claim for the lower value of my car. What should I do?

Dr. Settlement's answer:

Here again, we do not have sufficient information presented to allow for an educated guess as to what is best for this questioner. How much repair work was done? What areas were repaired? Yes, the car may look to be "in good condition", but how does this questioner know whether a post-repair inspection might reveal substantial continuing problems with the vehicle?

In this case, I would NOT RECOMMEND using an Internet company unless they are local so that they can actually inspect your vehicle. Let them come out and measure the tolerances for how parts are supposed to be fit together, and to see if there is overspray, etc..

But also make sure that this company does have the ability to make a report that will support a insurance claim. I think the market expectations for a vehicle such as yours are pretty high, so I would tell you to spend the money necessary to make the claim. Sure, why not? Maybe you will get some cash coming your way. But there are two other reasons to make a diminished value insurance claim, aside from any cash award.

First would be so you can get in writing the opinion of the insurance adjuster that the repairs did not reduce the value of your vehicle, or if it did, the diminished value was only the amount he is going to offer to you. Make the adjuster respond ONLY in writing with his reasoning if he is going to kill or reduce your diminished value insurance claim.

Save that letter for when you sell the vehicle. If someone says that the accident did not diminish the value of the vehicle, perhaps the accident does not have to be disclosed upon sale, OR, at the least, you will have evidence to show a buyer that the diminished value was only a limited amount, according to an expert (the adjuster who handled your claim).

That way, when you go to sell the vehicle, the adjuster's letter could insulate you to some degree if you were to omit telling a prospective buyer about the repairs. In other words, since an expert in the field (the adjuster who killed your diminished value insurance claim) concluded in writing that the repairs completely restored your vehicle to pre-accident condition, and since he further stated that there was no reduction in value, why is it necessary to disclose the fact of the accident, unless specifically required to do so by your state law?

Plus, as I am about to include in a later answer below, this could be a tax write off as a loss if you itemize.

4. Please help me! I am so confused about what to do with getting my car repaired. It is now in the storage yard, piling up charges, and the adjuster is telling me one thing, but the auto repair shop I selected is telling me something entirely different about what should be done with my car. Who can I trust, since each has a financial interest in this, and if I side with the repair shop, how can I convince the adjuster to go along with the extra expenses the collision shop wants?

Dr. Settlement's answer:

I hear what you are saying: this whole business or collision repair is getting more complex. That is why you can find a number of professionals on the Internet who will assist in this process in order to protect a big asset: your vehicle.

I am going to recommend that you find a LOCAL collision repair professional and hire him to assist you through this process. After all, doesn't it make a lot of sense to spend a few hundred dollars in order to safeguard an investment worth tens of thousands of dollars?

For those with a valuable asset that has suffered very significant damage, SettlementCentral.Com suggests that it makes sense to hire a company to perform both collision consultation and interaction with the insurance adjuster AND a diminished value analysis. Why do some owners of expensive cars think that they know as much about the repair game as the adjuster and the collision repair shop?

It just makes good sense to spend some money to make sure your asset is going to be restored fully and fairly, and that any diminished value is paid to the owner as a cash award.

Thus, we suggest that you consider hiring a consultant who can perform the following services for you.

A. COLLISION REPAIR CONSULTATIONS: This is JUST THE SERVICE you need right now. This expert gets between the shop and the adjuster to negotiate things in your favor. Think of this like having your side represented in making arrangements for the collision repairs before the shop even gets started. Your expert can review and guide you through repair estimates, supplements, first party, third party, steering, OEM or imitation parts, etc.

B. COLLISION REPAIR MONITORING: It would pay to have someone on your side-first to define the actual damages to your vehicle, and second, to help you achieve a proper repair. This is where it pays to have someone who is local so that you can have both a comprehensive inspection of your vehicle and suggestions and interaction on handling the complex maze of collision repair. He will take a lot of photos and he will use those and his local access to push both the adjuster and the shop for what is right for you.

C. POST-COLLISION REPAIR INSPECTION: We all hope the only purpose of this service would be to form the basis for a diminished value opinion. But this service is also necessary because sometimes the owner experiences problems with the repairs done on her vehicle. A local professional will make a personal inspection and prepare a written report on overall quality and safety of the repair. In larger repairs, it is helpful to have someone to review and discuss the shop and insurance paperwork. He will once again take a lot of photos to form the basis of any "come back" work that needs to be done and the evidence for your diminished value insurance claim.

5. Why can't I claim versus MY OWN insurance company for diminished value? Hi, I live in California, and my own insurance company has taken the position that although I have provable diminished value in my repaired one year old Chevy Impala, they will not pay me for it. I was at fault for the crash, and so it is my own company that is supposed to restore me to my previous position.

I did all my research and presented a diminished value claim to them in the amount of $9,000, in light of all the VERY significant damage to my car. The adjuster stated that she thought in other circumstances, for example if someone else had caused the accident, $7,000 would not be out of line for a diminished value insurance award. But she said that in my state they are not required to pay it, and in fact my policy had an amendment three years ago to say just that. I told her I never saw that, or if I did, it never registered with me. What gives-aren't they supposed to restore me to my pre-accident position-isn't that what I have been paying them for?

Dr. Settlement's answer:

Ahhhh… you now are getting a glimpse of why the insurance industry is the wealthiest in America. They whine about frivolous lawsuits, but yet rake in record profits in recent years. And this is an example of how they do it. They did see exposure to first party claims for diminished value years ago, and some state courts did allow such claims. In order to stop that practice, most companies issued amendments to their policies that prohibited first party claims. Your company did as all the others in this regard.

Gee, let's see: if you previously did have the right to a diminished value insurance claim, and if they then unilaterally took away that right with a sneak amendment, shouldn't your premiums have dropped? I will bet a hundred bucks that not only did they fail to reduce your premiums, they did not even explain the amendment. It was just mailed to all policyholders at time of renewal. Thank you for contributing to the success of corporate insurance America!

Here is what I would suggest you do. First, you can confirm that the diminished value exclusion language is part of your policy. And I am sure it will be there.

Next, I would check with your CPA or tax preparer to see whether or not you can claim this as a loss on your taxes. I have never known it to be done, but I have heard that IF you itemize your deductions, use Line # 19 of Form 1040-Schedule "A" to deduct your unrecovered diminished value loss (also, if applicable, use Form # 4684 to deduct the cost of having a professional prepare the diminished value report). Assuming you have a provable unrecovered diminished value loss $7,000 minimum per the adjuster, and a tax rate of 20%, you can reduce your tax obligation by $1,200, or so I am told.

Thus, in this instance, I would go ahead and submit all of your evidence to the adjuster in a formal written diminished value insurance claim, and get her to value the diminished value loss for you, even though she is going to deny it. Then, you will have good evidence to claim the loss in your tax return.


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