Which States Have Laws That Support Diminished Value?
Filed under: Diminished Value, First Party Claims, Insurance Companies, State Farm, State Specific Information, Third Party Claims, West Virginia
Is diminished value recognized in all states or just in Georgia and California as I have been told?
Diminished value, in my opinion, is a very legitimate auto insurance claim. I am one of a majority of people reflected on surveys who wouldn’t buy a car that had been wrecked unless I received a huge discount to compensate for the added risk and aggravation I would likely encounter. Some folks, I’ve found, don’t share my view. A few days ago my brother-in-law who is a retired insurance adjuster (someone who should know what he is talking about when it comes to auto insurance claims) says claims for diminished value are wrong and shouldn’t be brought against insurance companies. He says the premiums we pay for our insurance policies don’t take these losses into account. Please tell me he is wrong, and tell me which states accept diminished value claims so I can straighten out my insurance-biased brother-in-law.
Jo Ann
Charleston, WV
David Williams writes:
First, a diminished value claim is not separate from the insurance claim that pays for a replacement fender, hood or bumper. There is generally only one property damage claim per accident with multiple elements of loss. Since insurance is based on the premise of indemnification (making one whole) a claim couldn’t be paid in its entirety without consideration for this element of damage called diminished value, even in cases where a repaired car looks and drives perfectly. This is true regardless which state you call home.
Second, auto insurance policies are all-inclusive of perils excepting those that are specifically excluded. Therefore, if an insurance policy doesn’t have a written exclusion prohibiting claims for diminished value, one would have to believe they are to be included.
Third, insurance companies know these claims are legitimate and even admit to the existence of diminished value when their backs are to the wall. For example, witnesses for State Farm provided testimony under oath in a Georgia court confirming that the potential for diminished value exists in every claim, even when cars appear properly repaired. Georgia Supreme Court Justice, Robert Benham, recounting the testimony of State Farm witness and documents the insurer produced in court, State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498, 501; 556 SE2d 114 (11/28/2001) had the following to say in his opinion dated November 28, 2001. It was not his sole opinion as the record shows that all justices concurred. Thus, as a result of this documentation State Farm was forced to begin considering and paying diminished value claims under Georgia law:
“… The first question, whether diminution in value occurs even when physical damage is properly repaired, is one of fact. The trial court found that there is a potential for a diminution in value loss in every event of loss, and that diminution in value can occur even when a vehicle is repaired properly. In support of those findings, the trial court relied primarily upon documents produced by State Farm during discovery and upon the testimony of State Farm’s witnesses. The documents from State Farm acknowledged that there is a common perception that a wrecked vehicle is worth less simply because it has been wrecked. Witnesses for State Farm testified that a potential for diminution in value exists in every automobile accident, and that the public perceives a loss of value in any wrecked vehicle and would choose an unwrecked vehicle over a wrecked one, assuming the vehicles are otherwise the same …”
There is nothing unique about repaired car values in Georgia as compared to their values in any of the other forty-nine states. The fact is, values plummet on all cars after an accident and repair. So one would have to conclude that if an insurer knows that diminished value exists and pays claimants in a few states , but not all of them, it isn’t being fair. In fact, I’m of the opinion that it teeters on the edge of bad faith. With that said, your brother-in-law is wayyyyyy off base.
Which state’s laws support claims for diminished value?
There is confusion as to which states demand, by case law, payment of diminished value claims. To sort it out, we must understand the difference in first party insurance claims and third party insurance claims. First party insurance claims are when you damage your car and your own insurance company is paying the claim. Third party claims are best understood to be when your car is damaged by a negligent driver and their insurance company is stepping up to pay your claim.
Generally speaking, since you are allowed to recover all of your losses when a wrong has been committed against you (such as when your car is damaged by a careless driver through no fault of your own), it is generally understood that all state courts support claims for diminished value so long as the loss can be proven. These third party claims would be civil in nature and based in tort law.
First party insurance claims are not governed by tort law, rather by contract law. Under contract law you can recover if your insurance policy doesn’t exclude coverage for diminished value. But, even when an insurance contract does exclude coverage for diminished value there is still some basis for recovery. This is because most state’s laws demand that when insurers undertake settlement based on repair they must put the car into its preloss condition.
Preloss condition is the minimal level of auto repair quality supported by law in virtually every state. The problem is that it is impossible to stretch, hammer, weld and paint the mangled metal of a wrecked car and leave it in a condition equal in every way to its condition before the accident. Tools and technology have not progressed to the point where this is achievable in the aftermarket.
Even though it’s not visible the metal could be fatigued causing the structure be weaker than before, timing of airbags could be altered, and there is no knowledge or proof that the car will perform its role of protecting passengers in a subsequent crash. None of these are concerns with a car that has never been damaged. Faced with proof that the car is inferior to a like-kind undamaged car, insurers must pay for the insufficiency, though rarely will they call it a diminished value payment.
In states where there is case law for the payment of diminished value conditions are sometimes applicable. For instance, as a general rule you can’t collect losses greater than the value of the car. West Virginia, the state you are from supports first party diminished value so long as the car sustained structural damage. Ellis v. King 400 S.E.2d 235, 184 W.Va. 227, (W.Va 1990) Other states have similar quarks in the law. Additionally, West Virginia law allows damages for annoyance and inconvenience when you lose use of your car after an accident.
I won’t attempt to go through the details of collecting diminished value in every state as it would require a much lengthier reply. But I hope I have shown you that claims can be brought for diminished value regardless where you reside when the criteria has been met. You simply have to be able to prove your loss and wait your day in court.
Thanks for writing, JoAnn. I always welcome the opportunity to set misinformed insurance adjusters straight. Many of them are good-hearted men and women passing untruths out of ignorance. Please have your brother-in-law run this reply by a lawyer (not an insurance defense firm) in your area, and I believe he will find with me (1) that diminished value claims are valid and compensable after an auto accident and repair. (2) Condition of the repaired car is more a factor in collecting than the state you reside.
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