Claims & Billing Information

DIMINISHED VALUE

What is Diminished Value?
Has your car ever suffered from diminished value (DV)? DV refers to damage to an auto that reduces its market value. There are several different types of DV:

Inherent DV - Describes a general conviction that a wrecked vehicle, which is then repaired, is less valuable than a vehicle that is accident-free. This belief is unaffected by having information on the scope of the repairs or by whether there are any visible signs of repair.

Example: Will Prudent is ready to get a new car. Although his '98 model has served him well, he's ready for a change. After finding his dream car, Will wants to make a good trade-in deal. Will and the sales rep look over his '98 and agree on a $3,950 trade-in. As they discuss the loan papers, the rep asks if the '98 has ever been in an accident. Will slaps his forehead and says "Oops, I was rear-ended three years ago. My insurer paid about $2,000 in repairs." The sales rep then picks up the finance paperwork and says that he will have to re-figure the agreement. When he comes back, the rep says that they can only offer him $2,400 on the trade-in. Will points out that he's never had any problems with the car and that it ran even better after the repairs...the rep won't budge on the lower trade-in offer.

Claim Related DV - This refers to any instance where an insurer's action or practice results in an inferior vehicle repair. This is subjective because parties can argue over what is meant by inadequate repair. Insurer actions that could trigger claims-related DV include an insurer's:

• insistence upon the use of selected auto repair shops
• requirement that a repair facility use after-market, rather than original, equipment and manufacturer parts
• refusal to pay for additional repairs identified by a repair shop.

Repair Related DV - This refers to any instance where a repair shop's action or practice results in an inferior vehicle repair. What is considered a below-standard result that is created by a repair shop may involve:

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

Is Diminished Value Covered?
The issue of diminished value (DV) has long been a great debate among insurance companies, lawyers, state courts, consumers (including activist groups), auto parts manufacturers, auto repairs shops and others. The focus on whether such losses are covered concentrates on claims that a policyholder would make to his insurer for damage to his or her own car. Answering this question is only clear from one's viewpoint. 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 a covered car. Other groups say that such losses are similar to depreciation and were never intended to be covered. Factors affecting this debate include:

• Can DV be accurately measured?
• What are the financial stakes of the groups supporting each side of the issue?
• Should DV be considered only when a vehicle is repaired and then sold?
• How is an older car's "pre-accident" value measured?
• Should repair shops or insurers bear the responsibility for DV?
• The wording of applicable insurance policies.
• Current and pending state laws involving DV.
• If DV is paid and a vehicle owner sells the car without a loss of market value, does the DV payment have to be returned to the insurer?

Courts’ Views - Over a dozen, high-profile cases have been decided by courts nationwide over the last 18 months. Most of the cases have resulted in the courts dismissing DV as a legitimate area of coverage, but there has been a notable exception. In November, 2001, Georgia’s Supreme court ruled that DV should be considered whenever a loss occurs to a vehicle, so insurers will have to include DV in any settlements they make.

What To Do About DV - The only thing that is really important to you is your unique coverage situation. Depending upon the age and value of your cars, you may or may not have a concern over this issue. If you do, your best bet is to discuss your concerns with an insurance professional. You can find out what coverage options may be available or, at the very least, gain a better understanding of your existing coverage.