An auto insurer might have owed you far more than you got for your last accident claim. If a driver on a cell phone rear-ended your car, for example, his insurer would probably pay for repairs, but did it compensate you for "diminished value"?
Diminished resale value is the dollar amount your vehicle inherently loses simply because it has been in a wreck. In other words, when it is time to sell, you probably won't get as much money for it because it is viewed as damaged goods, even if it has been expertly repaired.
So, to make you whole after an accident, you could argue that the insurance company should pay for repairs plus the diminished value of the car, now that it has a significant damage history. The concept of diminished value is controversial. As you might expect, insurers generally don't like it and have fought claims in court.
"These cases of diminished value are generally resolved on a case-by-case basis," said Carolyn Gorman, vice president of the Insurance Information Institute. "If it became a source of many, many lawsuits, then you would see premiums rising."
Diminished value can be worth a lot of money, literally thousands of dollars. It applies to leased vehicles too. It could amount to 10 percent to 15 percent of a vehicle's resale value.
Conversely, an older car that has an accident history and sustained only minor damage is a poor candidate for collecting much.
Insurance expert J.D. Howard estimates the average diminished-value case he is involved with to be $3,500 to $4,000. Howard's company, iCan (www.ican2000.com), sells diminished-value reports, refers people to other appraisers and offers guidance to help consumers recover money for claims.
"Diminished value is a legitimate damage," said Howard, a former claims adjuster.
Here are questions and answers about trying to recoup diminished value after an auto accident. Keep in mind that when insurance meets contract law, things can become complicated and might depend on specific circumstances.
What if the accident is my fault?
Every vehicle in an accident sustains diminished value. But circumstances dictate whether you will be compensated. State courts have been clear that consumers generally can't collect diminished-value money from their own insurance companies under collision and comprehensive policies, Howard said.
What if I'm the victim?
If your accident was caused by someone else's negligence, you likely can claim diminished value. If the other person's insurer owes for repairs, it probably owes for diminished value too.
Do details on repairs matter?
Yes. Diminished value can increase when you consider the nature of the repair. For example, did the repair shop use factory parts? If it used generic after-market parts, a portion of the warranty might be voided, which reduces the vehicle's value. Are there cosmetic blemishes or structural defects resulting from the accident, even after repair? You might be owed repair-related diminished value.
How do I calculate diminished value?
The burden is on you to provide evidence justifying diminished value. You will need a dollar figure for how much less your vehicle is worth because it was repaired after a major accident. You either have to develop a justification yourself, perhaps using sale prices of comparable vehicles with and without accident histories, or hire an appraiser who can conduct an analysis and determine an amount.
What if I'm unsuccessful?
If for some reason you can't get reimbursement for diminished value, and you itemize your tax deductions, you might be able to claim a deduction as an unrecovered casualty loss. On the Form 1040 Schedule A, you take the deduction for a portion of the diminished value on line 19. The loss has to be more than 10 percent of your adjusted gross income. You can additionally deduct the cost of a professional diminished-value appraisal. For more information, consult your tax preparer or IRS Publication 547 at www.irs.gov.
Is pursuing a diminished-value claim easy?
No. The insurance adjuster might even claim never to have heard of diminished value. But rest assured, the adjuster knows what it is.
Is pursuing a diminished-value claim against a third party worth the hassle?
Probably, if you have a relatively new car and plan to sell it while it is relatively young, said J. Robert Hunter, insurance expert for the Consumer Federation of America. It could mean thousands of dollars.
Gregory Karp writes for The Morning Call in Allentown, Pa.