A Crash Course in Diminished Value

Story by John Webber • Photography as Credited

You’ve detailed your ride and it’s never looked better. It’s a bright Saturday morning, and you’re cruising to a cars and coffee gathering, ready for a double shot of chrome and caffeine.

Traffic is light, but you get caught at a long red. Waiting, you glance up and catch a fast-moving blur in your mirror, accompanied by the wail of locked-up tires.

A tick later: wham! The driver behind–checking a text message, as it turns out–didn’t see the stopped traffic. Steaming, you jump out, primed to inflict bodily harm.

But fortunately for the cell phone junkie (and probably you, too), a cop rolls up behind you two. After the red mist clears, you realize it could’ve been worse:There were no injuries, the other driver was clearly at fault (the citation proves it), and they have insurance. But your pride and joy, accident-free all these years and still wearing its original paint, is wrinkled up. You feel sick. Will it ever be the same?

Unfortunately, after it’s repaired, potential buyers will ask the same question. In fact, many won’t touch a car with a vehicle history report that shows accident damage and repair. Sadly, no cars and coffee for you today. You’re about to take a dip into the murky waters of diminished value.

What Is This Diminished Value?

Simply put, diminished value is the difference between what your car would have sold for before the accident and what it will sell for after being repaired, even if it’s expertly fixed by an authorized shop using factory replacement parts.

Thanks to Carfax, AutoCheck and other companies that compile and sell vehicle history reports (VHRs), this incident will haunt your car forever. Today, most savvy auto buyers demand to see a VHR before they pull the trigger, and an accident-free Carfax has, deservingly or not, become the gold standard.

Making a Diminished Value Claim

Let’s fast-forward three months. Your accident ticked all the boxes that make a DV claim possible: You were not at fault, the person who hit you had coverage, and you had your ride repaired. (Repairs must be completed before a DV calculation can be done.)

Because you’re fanatical about this car, you insisted on a factory-certified, highly regarded shop. The repairs totaled $4500, and the at-fault driver’s carrier paid for everything.

You’ve examined your car with a magnifying glass from roof to rails– including checking the underside on a lift–and taken it for a test drive. You’re completely satisfied, but you know that doesn’t mean the resale market will agree. When a prospective buyer runs a VHR, that accident report will pop up and raise a flag. You decide to pursue a diminished value claim. You have two options: attempt to collect on your own or retain an attorney.

Photograph Courtesy Mercedes-Benz

On Your Own

Many insurance companies resist DV claims. In fact, some maintain that such a category does not exist. They may counter that a properly repaired vehicle does not automatically lose market value simply because it has been in an accident, that skilled repairers can restore a vehicle to its pre-accident condition and market value. Not so, you say. They say prove it.

It’s on you. You have the burden of proof to convince them that your car is no longer worth what it was before the accident. To substantiate your claim, you must be prepared and persistent, because pursuing a DV claim can be a tedious, number-crunching exercise.

State laws differ, so you research applicable law. You study your insurance policy, too, because its limits may determine the amount of your claim. After spending some time online, you, find dozens of accident appraisal services that offer to help for a fee, as well as “formulas” that claim to allow you to calculate diminished value. Read carefully. Beware that an online appraisal may not provide the documentation you need, especially if your claim ends up in court. Due diligence is required.

You dig in and take copious notes. If the responsible carrier has agreed to consider your claim, ask them to have their appraiser inspect your car and calculate its DV. Expect a lowball number and use it as a starting point. Be ready to counter with an inspection and evaluation of your own, performed by a professional appraiser, which will generally cost $300 to $500.

To help establish your car’s pre-accident value, you check Kelly Blue Book, NADA, Edmunds, your dealership (which may be willing to provide before and after values), auction results and other sources in search of comparable sales. To help establish condition, you happen to have a three-ring binder (you’re a bit obsessive) stuffed with the car’s history, including service receipts, photos, insurance appraisals and other pertinent data.

Based on your research, you calculate a reasonable number and present it to the carrier. Don’t be disappointed when they counter. Stay firm. Don’t bluster and threaten to hire a lawyer. They’ve heard this before and know it’s generally a hollow threat. Stay calm and stick to the facts.

If negotiations fail and you reach an impasse, you can take the case to small-claims court. You’ll need to bone up on the rules and procedures (found online), draft a complaint (fee required), and serve notices to appear to all involved. Once in court, you’ll be asked to testify about the accident, present the cost of repairs, and explain how you reached a DV. A written appraisal will not be admissible, so you’ll need to bring your appraiser to testify as to how the value was reached.

If you win, the court cannot collect money, so a judgement in your favor is just the first step. Pursing a claim in court is an involved, time-consuming process, and your success will depend on how effectively you present and support your claim.

Working With an Atorney

If your cars and coffee ride was something special–like a Lambo, Porsche, Jaguar or Aston Martin–the post-crunch repairs become a big-ticket item. Since repair costs for exotics routinely reach levels that would render most cars a total loss, you may consider working with a “no recovery, no fee” attorney who specializes in diminished value.

This attorney will investigate your accident, verify amounts available under the insured’s policy, calculate DV, negotiate your claim, and pursue it in court if necessary. If they settle your claim, they take a percentage, generally one-third.

We spent some time with Brett M. Bressler, a Winter Park, Florida, attorney who specializes in DV claims, typically on high-end cars, RVs and motorcycles. Over the past 10 years, he has negotiated hundreds of diminished value/loss of use settlements, ranging from $2700 on an Audi Q5 to $90K on a Bentley and $100K on a Lamborghini Murciélago. He says every case is unique, and while awareness of diminished value is growing, he’s surprised at how often owners of high-end cars–including lawyers–tell him, “I just didn’t know I could do that.”

Photograph Courtesy Mercedes-Benz

But What If You Have Collector Car Insurance?

“Not all insurance companies resist diminished value claims on collectible cars,” says Paul Morrissette, senior vice president at Chubb Insurance, a firm that specializes in collector car coverage˙

Like most other collector car insurers, Chubb has damaged vehicles repaired using a shop and materials approved by the client. “Furthermore,” he adds, “choosing a qualified repair facility is the best way to preserve the value of a special car, even if it means sending their vehicle out of state, to another country, or back to the manufacturer.”

Some final advice from Morrissette: “Because successful collectors are worried about preserving their investment, owners of unrestored, original cars may wish to consider diminished value coverage.”

If the owner of the damaged car has purchased diminished value coverage, he explains, Chubb will work with the client to determine if the value of the car has been impacted by the incident. If the market value of the vehicle after the repair is lower than the amount of coverage prior to the loss, Chubb will pay the difference.

Here’s how Bressler proceeds with a claim: “After the car is repaired, usually I start by hiring a professional appraiser to write me an opinion. And I use people who have experience and credentials, because if we can’t settle with an insurance company and do go to court, this person will act as an expert witness. I use their report on diminished value to prepare a detailed demand package, which I submit to the insurance company to negotiate a settlement.”

Typically, he says, the insurer counters. “It’s almost always a fight. Very rarely do they pay exactly what I requested.” He mentions two exceptions: “If it’s a brand-new car and the demand is reasonable, I generally get it, as well as when the diminished value claim exceeds the policy’s maximum liability limits.” About 20 percent of his claims end up in litigation.

When prospective buyers check an auto’s vehicle history report, Bressler believes that most lose interest when they spot air bag deployment. “In my opinion,” he says, “that’s the death knell for the resale value of the vehicle. Air bag deployment indicates a major accident, and I don’t think that consumers trust that an air bag system has the same integrity when it’s installed by a body shop as it does when installed by the factory. And when people question the safety of a vehicle, that’s when the greatest diminished value occurs.”

While he’s not exactly a gearhead, Bressler has learned that people become very involved with their cars. “They love them,” he says (this from a man whose second car is a Honda Civic showing 225K miles). But emotions aside, he understands and conveys to clients the importance of being objective about a diminished value claim, even when it involves a cherished and valuable ride.

No Clean Vehicle History Report, No Sale?

Carfax and AutoCheck, the nation’s largest vehicle history report providers, buy their data from a variety of sources (Carfax alone claims 100,000 sources and a database of 15-billion records), including police departments, fire departments, insurance companies (some, not all), vehicle auctions, DMV agencies, car dealerships, collision repair shops, car rental companies, and replacement parts suppliers

Each vehicle history report (VHR) lists items such as title transfers (number of owners), title history (salvage/reconstructed/flood/the), vehicle use, odometer readings, air bag deployment, open recalls, lemon history, state emission inspections, and dealer service records

Any VHR is only as good as the data supplied, and reporting gaps exist Not all police departments and DMV centers report promptly (small town precincts are notoriously slow), sometimes causing time lags So a purchaser may buy a car with a clean VHR, only to find an accident report on it six months later Not all accidents, like single car versus tree scenarios or late night ditch excursions, are reported, nor are the ensuing repairs Not all body shops and dealerships share their data, and the ones that do may vary in depth of repair details

Carfax says it gets to million records a day, so entering and coding repairs (think human error) sometimes causes problems as well We talked to an authorized Porsche/Audi/Mercedes body repair shop near Orlando, and they cited some examples “Undercarriage damage” was found to be a bent tailpipe A malfunctioning engine warning light somehow translated to “engine fire” In one case, an obviously repaired Mercedes with a clean Carfax was found to be carrying a salvage title in another state.

A Florida Porsche dealership discovered some similar reporting quirks A routine service turned up on a Carfax as “replaced engine”. And when replacing a reluctant horn on a 911 required removing the bumper cover to access it, the service was coded “bumper replaced,” which implied accident damage. This dealership has also discovered VHRs with grossly inaccurate odometer readings Once an entry is listed on a VHR report, it is extremely difficult to have removed, with the burden of proof on the owner.

While a VHR can be a useful tool for prospective buyers, it shouldn’t be the only one A typical disclaimer reads: “Carfax depends on its sources for the accuracy and reliability of its information Therefore, no responsibility is assumed by Carfax or its agents for errors or omissions in this report.”

Nothing beats an up close and personal inspection by an expert, preferably on a li If a car you’re considering lives three states away, hire a professional appraiser. It’s an up-front investment, sure, but one that can end up saving you money. Consider it insurance.

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