We are seeing a trend where vehicle owners and others are at the mercy of insurance carriers who create interpretations of laws and rules. Some states are also guilty in this regard, as they adhere to archaic laws, and possibly interpretations that were established when a horse and buggy was the main form of transportation. While any vehicle that is involved in an accident might have diminished value, it is important for claimants to understand that such claims can only be pursued on a third party basis.
Regardless of the source, the vehicle owner and possibly other entities are impacted with financial losses when their vehicle has been in an accident. This is evident when the vehicle owner attempts to trade or sell a vehicle that has a negative history. In vehicles with a negative history many automotive dealerships will not accept it as a trade –in; will not try to sell the vehicle in their used car facility; and if accepted on trade, will opt to sell the car at wholesale auction. This all comes with a direct loss to the consumer and can often result in an offer of 20% less on trade in than a vehicle without accident history.
In pursuing diminished value claims one of the most frustrating methods used by insurance carriers is known as the 17C formula. This formula was established by the Georgia Supreme Court in November 2001 to settle a class action suit involving 25,000 claimants. The formula assumes that all damaged vehicles have lost resale value; however it limits the loss to 10% of the market value on the date of loss; and then reduces the maximum 10% based on the degree of damage as well as current mileage. Remember this was based on a class action suit that pooled 25,000 vehicles regardless of age, model or cost. Consider a one month old vehicle that cost $60,000 dollars with a repair cost of $30,000 dollars, and noted frame damage. A certified vehicle appraiser might determine that this vehicle has a 35% diminished value or $17,150 dollars. The 17c formula would likely be less than $6,000. Two national carriers have adopted this method on all their diminished value claims and point to Georgia as the basis or give no justification for its use.
The State of New York falls into what we will call the archaic ruling category. How can diminished value only apply to vehicles that appreciate in value? Possibly a hundred years ago an appellate court decision with respect to diminished value might have had merit; that was when there was really only one manufacturer and one style of vehicle. How can such logic or application meet the vehicles of today? A hundred years ago there were limited vehicle manufacturers, while today there are many, as well as large number of models available. The courts prior decision lacks merit today and only benefits the insurance carrier. Court rulings should have understandable merit, be logical, and be understandable. Today the average vehicle owner cannot find merit or logic in this past court ruling. One can accept that vehicles do depreciate or lose value over time in the normal course of use. However, accidents tend to accelerate that depreciation or loss in value. The onetime event of an accident is the cause behind the accelerated loss in resale value and cannot be attributed to normal wear. The insurance carrier who denies the diminished value claim based on this court ruling just points to the court decision, and replies with” we are following the law”. The question we should be asking ourselves is, “what is right”? As one can only pursue diminished value claims against third party carriers whose insureds are at fault, the innocent vehicle owner is expected to bear the burden of another’ negligence based on this unrealistic ruling.
So what is the definition of a diminished value loss? How do we determine what is diminished value loss?
The definition of a diminished value loss is the current reduction in the resale value of a vehicle that can be directly attributed to an accident. The process of measuring or calculating this loss is complex. In determining this loss one must consider comparable vehicles, uniqueness of this make and model, as well as the impact on the vehicles future selling price. Additionally, consideration must be given to the possibility that once damaged in an accident, there may not be a resale market in the future.
Some insurance carriers use a data base company to evaluate the information that is submitted with a diminished value claim. This data base company is an approved valuation provider for total loss calculations in some states, but also provides diminished value services. The method they use for determining diminished value claims dissects the repairs into cosmetic and major damage categories. Only the major damage portion is considered for diminished value, while the cosmetic component is eliminated. Trying to determine their methodology and its basis is unclear. What it does impact, is the value they assign to a diminished value claim. Their method also considers OEM (original equipment manufacturer) parts, versus the use of non OEM parts. Again the consumer loses as non OEM parts tend to be less costly, and may result or be seen as a poorer quality repair on the vehicles resale value. However, based on their methodology in calculating a diminished value claim, a lower repair cost converts to a lower diminished value claim. In summary the carrier pays less to repair the vehicle using less expensive parts and then values the DV claim lower based on the repair cost. Once again the consumer loses though out the process and only the carrier receives a financial gain.
One major insurance carrier in the New York market insists on post repair inspections. It is unclear why, as their denial of the claim states they do not see any diminished value. Why go through the process if the denial is cast in stone? This can only be seen as a type of soothing to the claimant without any real intention of recognizing their financial loss. These post inspections are also performed by senior damage adjusters, who are not trained or educated vehicle value appraisers. A distinction needs to be made here between a vehicle damage adjuster and a vehicle appraiser. The vehicle adjuster works to determine what is needed to repair a vehicle to drivable condition, while the appraiser is trained to determine the repaired vehicles resale value after repairs. This company does not provide any written support for their determination of denial, just a form letter.
The final unnamed carrier also likes to perform post inspections. You need to question both their ethics and why they re-inspect. After inspection the claimant will likely receive a letter stating the vehicle was not repaired based on their initial estimate; this vehicle was not properly repaired or they do not see any diminished value. When asking for the detail behind their decision, one usually receives a response stating it is “work product”, and therefore not shareable. Apparently they have learned to use a legal term to avoid providing information or justification. Challenging their approach through legal means is also an option and requires that they provide support for their work product comment. Here again post inspections are performed by damage appraisers, not value appraisers. This important distinction in qualifications seems to be a consistent issue in determining what diminished value really means.
In summary we see that the vehicle owner is at the mercy of the insurance carrier. The tragedy of diminished value claims is that the party or person impacted was an innocent third party. When all is said and done, that innocent vehicle owner will carry the burden and loss as a result of the negligent acts of another and may have no recourse.
ZB Negotiations works to obtain settlements for vehicle owners who have been impacted as a result of the negligence of others. Before filing a claim, we evaluate the loss occurrence and advise our clients with respect to the possible outcome. Our service includes the initial evaluation, obtaining a diminished valuation report prepared by a licensed certified appraiser; and negotiation with the at fault insurance carrier. Our services are always provided on a contingency basis.
We will let you draw your own conclusion. Is diminished value fact or fiction?
The author of this article is a member of the Long Island Auto Body Repairmen’s Association. He specializes in helping vehicle owners obtain fair market settlement offers for their totaled vehicles. He can be reached by email at John@ZBLLC.net or by calling 516-364-0713.