Following an accident, your insurance company generally will assess whether your vehicle can be repaired or is a “total loss.” A total loss occurs when the repairs would:
- cost more than the car’s value, or
- not restore the car to a condition where it could be driven safely.
On a total loss, your insurance company typically pays the amount the car was worth (called the “actual cash value”) before the accident, minus the deductible.
If, on the other hand, the damage isn’t bad enough to total the car, your insurer usually pays only for the repairs. When a car is repaired, the owner sometimes can make a claim against the at-fault driver (or the at-fault driver’s insurance company) for the diminished value of the repaired vehicle.
This article gives an overview of total loss and diminished value claims.
Total Loss Claims
Total loss claims require your insurance company to determine the pre-accident actual cash value of your car. Most insurance companies calculate this value by taking the cost of replacing your vehicle minus any pre-accident depreciation. Replacement cost is normally based on the sale prices of vehicles similar to yours that are being sold in your area. Insurance companies estimate depreciation using factors like mileage and damage from prior accidents.
After determining actual cash value, the insurance company subtracts your deductible and pays you the remainder. Your insurance company then takes ownership of the car and obtains a salvage title.
Diminished Value Claims
Diminished value claims come into play when:
- the driver of another car was at fault for the accident, and
- your insurance company decides to repair rather than total your damaged vehicle.
A repaired vehicle—though it may look and drive fine—is worth less than it otherwise would be simply because of its accident history. The purpose of a diminished value claim is to recover this lost value.
Typically, drivers don’t bring diminished value claims against their own insurer—mostly because insurance policies generally don’t cover these types of claims. A driver would, instead, bring a lost value claim against the at-fault driver or the at-fault driver’s insurance company.
Proving a diminished value claim can be difficult. Would-be buyers are certainly more wary of cars that have been in accidents. But quantifying how much less a buyer would be willing to pay for such a vehicle is tricky. And many states also have special rules for diminished value claims. For instance, some states require drivers to sell the vehicle (sometimes called “realizing” the loss) before they’re allowed to make a claim for diminished value. In other states, the driver must hire an expert appraiser who can testify about the amount of lost value.
Because of the intricacies and complications of this area of law, if you’re thinking of making a diminished value claim, it’s a good idea to consult with a knowledgeable attorney first.
Questions an Attorney
- What should I do if I disagree with my insurance company’s determination of the actual cash value of my car?
- Is it worth bringing a diminished value claim against the at-fault driver?
- If my insurance company decides my car isn’t damaged badly enough to be totaled, can I get a second opinion?