Diminution of Value

Most used car buyers are concerned about the maintenance and repair history of a used vehicle. If your car is involved in a collision requiring significant repairs, this will reduce the fair market value of the vehicle in a later sale. You can collect for this loss from the at-fault driver’s liability insurer.

The diminution of value claim is not as large as most owners expect. Cars can be repaired such that they retain full mechanical integrity. Most vehicles are designed for unibody construction. With this type of design, the body of the car is actually the frame of the vehicle. Further, all manufacturers design these frames with pre-engineered “crumple zones”, which are weaker spots in the frame/body. On impact, the car will fold at these points, which increases the extent of crush damage so that the vehicle absorbs impact energy. This reduces impact trauma for occupants and renders these vehicles much safer.

The unibody structure is built with high-strength, low-alloy (HSLA) steel. This type of steel can be bent and returned back to its original shape without losing strength or structural integrity. Simply put, frame damage is common and occurs in almost all collision impacts. It will not affect the function or mechanical integrity of your vehicle, and frame damage can be properly repaired on today’s automobiles. However, extensive repairs will affect the resale value of your vehicle.

Diminution of value is typically not covered under the collision policy. Thus, you can only collect this if you are presenting claims against the liability coverage for the at-fault vehicle. With the advent of CARFAX and other online vehicle history database services, it is impossible to hide the history of collision repair. Further, North Carolina law mandates disclosure on the bill of sale whenever a vehicle is sold if the vehicle has had collision damage with repair cost that equals or exceeds 25 percent of the fair-market value of the vehicle. Thus, you must actively inform the used-car buyer of the prior collision.

Diminution of value is difficult to prove with certainty. The goal is to determine how much value the car lost because it has been through a collision. Repairs typically restore all cosmetic damage completely. In some cases, the paint blending process will actually leave your car looking better than it did before the accident. However, a skilled technician will be able to discern that the car has been through the body-repair process. Vehicle history reports would also indicate that the vehicle underwent collision repair. Since this affects value, we must consider how to determine the dollar amount of value reduction.

To begin the process, you should formally request payment for diminution of value from the liability claims adjuster. Simply let them know that, when the repairs are completed, you are asking for payment for diminution of value of your vehicle. Under the North Carolina Administrative Code, you are required to report and present this claim within thirty days of conclusion of repairs (11 N.C.A.C. 4.0421(5)). Once the notice of intent to claim is made, you must allow all repairs to be completed. After the vehicle is repaired, you must make the vehicle available for adjuster inspection. Here, they are looking at the quality of repairs and the condition of your vehicle in relation to the same model vehicle that has not undergone collision repairs. The adjuster will typically photograph the vehicle, and if they do not already have full documentation, they will request a copy of the final repair estimate.

The typical offer for diminution of value is approximately 10 percent of the total cost of repairs. While this would not be appropriate for a unique or collectible vehicle, this range is appropriate in most cases. While vehicles are discounted if they have been through the repair process, used car value is typically not depleted. Further, because the repair process is engineered into most vehicle designs today, proper collision repair should restore the vehicle to perfect cosmetic and mechanical condition. Nevertheless, you certainly should be paid some amount for the loss of value.

To respond to the adjuster’s offer, you can also seek your own evidence of diminution of value. Many claimants begin with a statement from the local dealership that sells the same brand of vehicle. The used car manager may be willing to offer a written statement of the amount he or she perceives your vehicle has lost in value. Be aware that most of these estimates are extremely high. They are hoping to secure your business and often use trade-in value in their computations. Trade-in value offered by a dealership is not the appropriate value reference point. Instead, the dealership must provide a statement of what they would be able to sell the vehicle for in a fair, arm’s-length transaction to a willing buyer. Unfortunately, if you actually sell your vehicle to determine diminution of value, the responsible insurance carrier will accuse you of dumping the vehicle at below-market price simply to determine the amount of your claim for diminution of value.

The best approach would be to hire an independent appraiser who represents insurance carriers and private vehicle owners. An Internet search for “diminution of value appraiser” should help you to locate an experienced appraiser in your area. The appraisal would be at your expense, but the cost is typically less than $200.00. A qualified appraisal would be admissible trial evidence, and this hard evidence should help you to motivate the adjuster to extend higher offers.

Insurance carriers often refuse to pay any diminution of value if the vehicle is more than five model years old. Other states, such as Georgia, follow this approach by concluding that collision damage is typical wear and tear for a vehicle of this vintage. Also, some insurers refuse to pay diminution of value unless the repair cost equals or exceeds 25 percent of the fair market value. Their reasoning is that, in these more conservative repair cases, North Carolina law does not require disclosure of prior collision repairs on the bill of sale. You can respond by noting that prior collision repairs would be a material part of any used-car transaction and that it would be “fraud in the inducement to contract” to hide the fact of prior repairs. Thus, regardless of the cost of repairs, disclosure remains mandatory in all cases.

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