What is diminished value?
Diminished value is the reduction in the market value of a vehicle after an accident. There are three types of diminished value: Immediate, Repair-Related and Inherent. Immediate diminished value is the difference between market value of the vehicle before and immediately after the accident without any repairs. Inherent diminished value is the difference between the market value of a vehicle before the accident and after the accident assuming repairs were performed with no issues. Repair-related diminished value arises if there were issues with the repair of the vehicle and the repairs were not done properly. Inherent diminished value claims are the most common and that's why when people refer to "diminished value" they are talking about Inherent Diminished Value.
Does the law recognize diminished value claims in the United States?
Yes, in all 50 states except Nebraska. Importantly, in Michigan there is a limit of $3,000 due to mini-tort legislation.
Do I make a diminished value claim with my own insurance or with the at-fault insurance?
Unless you're in Georgia, you make a claim with the at-fault insurance. If you and the at-fault driver share the same insurance company then you make the claim with your own insurance company but on the Liability Policy of the at-fault driver, not on your own policy.
What legal basis backs up my claim for diminished value in the United States?
Law firm Matthiesen, Wickert & Lehrer has compiled legal basis for diminished value in all 50 states. You can check out their PDF here. Find your own state and refer to your state's legal basis when making a claim.
Does the law allow diminished value claims in Canada?
In some provinces, like British Columbia and Alberta, yes. In Ontario, no. Research local law for more information.
Am I entitled to diminished value if the accident is my fault?
No, unless you're in Georgia where you can make a first-party diminished value claim against your own auto insurance.
Am I entitled to diminished value if my vehicle is under lease?
No, because you are not the legal owner of the vehicle - the leasing company is and only the owners can suffer diminished value. That said, diminished value can still impact you financially. For example, you should not purchase the vehicle at the end of the lease at the original contract price because its market value has diminished due to the accident.
Am I entitled to diminished value if my car is old, high-mileage or had previous accidents?
Legally, yes - all vehicles lose market value after an accident. The only question is how much? If your vehicle is old, high-mileage or had previous accidents the amount of diminished value may be very low.
The auto insurance company has said they never pay diminished value. What should I do?
That is almost certainly false. All major auto insurance companies in the United States routinely pay out diminished value claims. We highly suggest not giving up on your claim and escalating the matter to your state's Insurance Commission and if that's not enough, file a case in Small Claims Court where you can make your case without hiring a lawyer. Small Claim Courts are designed to be simple, cheap, fast and easy so everyday people can represent themselves.
The auto insurance company has said there is no such thing as diminished value.
What should I do? That is false. U.S. courts have consistently affirmed the legal concept of diminished value in all 50 states. Moreover, all major auto insurance companies in the United States routinely pay out diminished value claims. Law firm Matthiesen, Wickert & Lehrer specializes in insurance law and they have compiled legal basis for diminished value in all 50 states in this PDF file here.
The auto insurance company has denied my diminished value claim. What should I do?
If you believe the denial is unfair you can continue pursuing your claim by filing a complaint with your state's Insurance Commission. If that doesn't resolve the issue, we suggest filing a case in Small Claims Court where you can make your case without hiring a lawyer. Small Claim Courts are designed to be simple, cheap, fast and easy so everyday people can represent themselves.
Are all accidents reflected on Carfax?
Sometimes the accident takes several months to get on Carfax but there are instances where it never gets there. CARFAX collects information from multiple sources such as Department of Motor Vehicles, police, body shops, and insurance companies. If none of these sources reported the accident CARFAX won't have the accident on file. That does not mean that your vehicle avoided diminution of value. Its market value still dropped. Lying about a vehicle's accident history to a potential buyer is not only unethical but also illegal under fraud statutes in many states. Moreover, any dealer or mechanic can easily tell if the vehicle has been in an accident. We recommend claiming diminished value irregardless of whether the accident is on Carfax or not.
What is the best time to file a diminished value claim?
Right after the repairs are done.
How long do I have to file a diminished value claim?
Diminished value claims fall under Property Damage and most states give you several years since the date of the accident to file a claim. You can see the statute of limitations for your state at this link here.
Do I have to sell my car to collect on a diminished value claim?
Absolutely not. The vehicle has suffered diminished market value due to the accident regardless of whether you ever sell the car or not.
Does signing an insurance company release prevent me from claiming diminished value?
That depends on exactly what it says in the release. Some releases do prevent diminished value claims. And that's why we recommend making sure the release won't prevent diminished value claims before signing it. If you're not sure, consult a lawyer.
Do I need a lawyer to claim diminished value?
No. Most people are able to handle their own claims. Claims over $20,000 or very complex claims such as pertaining to exotic vehicles may benefit from using a lawyer. Lawyers usually work on a contingency basis, taking 20%-33% of the settlement if you win and nothing if you lose.
Can I claim diminished value as a deduction on my IRS federal income tax return?
"Under the 2017 tax act, the types of allowable losses were narrowed significantly. Under current law, only personal casualty losses attributable to a federally-declared disaster are deductible for federal tax purposes. These disasters are those determined to warrant assistance from the federal government under the Stafford Disaster Relief and Emergency Assistance Act. This limitation only applies to losses incurred in 2018 through 2025."
Source: Tax Deductions for Casualty & Theft Losses by Tim Steffen, CPA, CFP®, CPWA®, Baird Wealth Solutions Group
The information on my car's CARFAX or Autocheck report is incorrect. What should I do?
Is settling with the at-fault driver privately so I can avoid a CARFAX accident report a good idea?
Absolutely not. It's generally prudent to do things aboveboard and this is certainly the case here. Sure, you could try to avoid the CARFAX record. First of all, you would have to lie to the buyer for it to make any difference as all buyers ask about prior accidents. It's obviously unethical and also illegal under fraud statutes in many states. Secondly, any dealer or mechanic will be able to ascertain the presence of a prior accident regardless of what you say or don't say. Thirdly, you have a contractual obligation to promptly report any accident to your insurance company regardless of who's at fault. If you find additional problems later, report it and want them to cover repairs, they will have a legitimate reason to deny your claim.
In short, it's a very bad idea, both morally and practically. Do things aboveboard, properly do the repairs, claim diminished value, and you will be just fine. After the repairs are complete, get a Diminished Value Appraisal and make a claim with the at-fault insurance by sending them a Demand Letter and attaching the appraisal as proof.
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Frequently Asked Questions about Diminished Value
Simon Galperin is a senior auto appraiser at Tiger DV and an expert on diminished value. He consults attorneys, insurance companies and individual car owners on the subject of automotive diminished value.