Getting into a car accident and repairing your vehicle may make you think your costs are covered, but that’s not true. Vehicles that have been repaired still suffer from diminished market value, and that’s where diminished value claims come in.
According to Forbes, more than 44,000 lives were lost in car accidents in 2023, which is just a fraction of the actual number of accidents. Most accidents result in some form of vehicle repair as part of an insurance claim or settlement from a personal injury lawsuit. Diminished value claims are designed to make up for the loss of vehicle value following repairs.
If you've been involved in an accident, consulting an experienced Austin car accident lawyer can help you understand your rights regarding diminished value claims.
In this guide, we’ll discuss diminished value claims, how they’re calculated, and how they differ across the states.
Key Takeaways
- Diminished value claims enable you to claim for the loss of a vehicle's diminished value after it has been fully repaired.
- First-party diminished value claims are made against your own insurance company, whereas third-party claims are made against the at-fault driver’s insurance company.
- Each state may set its own laws, except for Nebraska, which bans third-party claims. In contrast, first-party claims are heavily restricted, with state law and your insurance policy’s terms and conditions determining whether you can file this type of claim.
- Loss of value appraisals may be conducted by a standardized industry formula, such as the 17c formula, market-based approaches, or via independent valuations.
- Plaintiffs must beware of the statute of limitations for their state on these claims, which doesn’t necessarily align with that state’s personal injury claim statute of limitations.
- The best way to manage the claims process and seek compensation is to speak to an attorney who can decide whether you have a valid claim and how best to proceed.
Understanding Diminished Value Claims Across States
Many drivers are unaware that after your vehicle is fully repaired after an accident, the car's market value is permanently lowered. In the eyes of potential buyers, it means you’ll get less in resale and trade-in value. According to Kelley Blue Book, this could amount to a drop of 30% in the value of your vehicle.
Launching a diminished value claim means getting compensated for this drop in vehicle value. Unfortunately, auto insurers usually don’t cover this type of payment in full. How these claims are handled depends on where you live because, like auto insurance, every state handles the situation differently.
Definition and Importance of Diminished Value Claims
Diminished value is the reduced value of your vehicle on the open market after it’s been involved in an accident and subsequently repaired. The fact is, even the best mechanic in the world can’t erase your vehicle's accident history. And that’s why buyers and dealers will pay less than they would for a vehicle that’s never been in an accident.
Typically, three types of diminished value come into play:
- Inherent Diminished Value – This is the most common type of diminished value, and it revolves around the idea that an undamaged vehicle is always more valuable than one that’s been repaired.
- Repair-Related Diminished Value – The second type of diminished value uses the idea that the repair quality reduces the vehicle's value even more.
- Immediate Diminished Value – Finally, there’s the immediate diminished value of the vehicle, which is the difference between what your vehicle was worth before an accident and what it’s worth after a collision, but before any repairs are carried out.
According to the Insurance Information Institute, 4.54% of all collision insurance policyholders made a claim in 2022. Most of these drivers would have lost money because they didn’t consider diminished value claims. Pushing these claims is designed to protect your financial investment, but it might surprise you that it isn’t a cost that’s automatically covered.
The Role of Insurance Companies in Diminished Value Claims
Insurance companies play an integral part in deciding whether a diminished value claim is valid. Most traditional policies won’t automatically include this type of coverage. However, at-fault states usually allow you to file this claim against the at-fault driver’s policy even if you’re not covered for it under your own policy.
Like all claims, insurers are responsible for deciding what the vehicle was worth before the accident and then using factors like repair quality and the market to decide the level of diminished value.
According to the Insurance Information Institute, the average nationwide value of a diminished value claim is estimated to be $1,500. However, since every state has a different system, this could be considerably higher or lower.
State-Specific Diminished Value Laws and Regulations
Practically every state permits car owners to recover their losses through diminished value claims. The sole exception is Nebraska, which doesn’t recognize such claims due to a legal precedent set by the Nebraska Supreme Court. Michigan also heavily limits these claims.
However, despite nearly all states recognizing diminished value claims, the process and whether you can file one at all vary heavily depending on where you live.
Overview of Diminished Value Laws in Major States
Every state may choose how to handle claims via its own diminished value laws. Although there are many similarities between the states, there are also substantial differences, especially when it comes to issues like the statute of limitations and first-party vs. third-party claims.
Here’s a rundown of how some prominent states choose to handle the issue:
- Georgia – The Peach State permits first and third-party claims with a four-year statute of limitations. Insurers must also proactively offer diminished value compensation without policyholders needing to file a claim first, making it one of the best states for these claim types.
- California – In contrast, California allows third-party claims, but first-party claims are heavily restricted and depend on your policy’s terms. There’s a three-year statute of limitations on these claims.
- Florida – Over in the Sunshine State, first-party claims are generally not permitted unless explicitly mentioned in your policy. However, they offer just a two-year statute of limitations on these claims.
- Texas – The Lone Star State is much the same as Florida, with a two-year statute of limitations and first-party claims only permitted if mentioned in your policy.
- New York – New York also takes a strict stance on diminished value compensation. With a three-year statute of limitations, nearly all first-party claims aren’t recognized in the Empire State.
Unique Aspects of Diminished Value Claims in Different States
The more straightforward aspects of diminished value claims, such as statute of limitations and whether first-party claims are recognized, are easy enough to understand. However, there are some nuances that add wrinkles to each state’s respective systems.
For example, Georgia is the only state in the country where insurers are obligated to consider diminished value compensation. The law is so strict that policyholders don’t even have to launch a claim for it.
Over in Nebraska, they’ve established a reputation for being the only state that doesn’t recognize first- or third-party diminished value claims, meaning that you’ve no hope of getting this type of compensation here.
Michigan is another state that heavily restricts these types of claims. Under its mini-tort law, all claims of this type are limited to $3,000 and don’t apply to inherent value loss but only to a driver’s out-of-pocket expenses.
These examples show just how complex diminished value claims can get and why so many drivers fail to incorporate these types of losses into their insurance claims and lawsuits.
State Comparisons: How Diminished Value Claims Differ
| State | First-Party Claims | Third-Party Claims | Statute of Limitations |
|---|---|---|---|
| Alabama | No | Yes | 2 years |
| Alaska | No | Yes | 2 years |
| Arizona | No | Yes | 2 years |
| Arkansas | Yes | Yes | 3 years |
| California | Depends on policy | Yes | 3 years |
| Colorado | No | Yes | 2 years |
| Connecticut | No | Yes | 2 years |
| Delaware | No | Yes | 2 years |
| Florida | No | Yes | 2 years |
| Georgia | Yes | Yes | 4 years |
| Hawaii | No | Yes | 2 years |
| Idaho | No | Yes | 3 years |
| Illinois | Yes | Yes | 5 years |
| Indiana | Yes | Yes | 2 years |
| Iowa | No | Yes | 5 years |
| Kansas | No | Yes | 2 years |
| Kentucky | No | Yes | 2 years |
| Louisiana | Yes | Yes | 1 year |
| Maine | No | Yes | 6 years |
| Maryland | Yes | Yes | 3 years |
| Massachusetts | No | Yes | 3 years |
| Michigan | Limited (mini-tort) | Limited (mini-tort) | 3 years |
| Minnesota | No | Yes | 6 years |
| Mississippi | Yes | Yes | 3 years |
| Missouri | No | Yes | 5 years |
| Montana | No | Yes | 2 years |
| Nebraska | No | No | 4 years |
| Nevada | No | Yes | 3 years |
| New Hampshire | No | Yes | 3 years |
| New Jersey | Yes | Yes | 6 years |
| New Mexico | Yes | Yes | 4 years |
| New York | No | Yes | 3 years |
| North Carolina | Yes | Yes | 3 years |
| North Dakota | No | Yes | 6 years |
| Ohio | Yes | Yes | 2 years |
| Oklahoma | No | Yes | 2 years |
| Oregon | Yes | Yes | 6 years |
| Pennsylvania | No | Yes | 2 years |
| Rhode Island | Yes | Yes | 10 years |
| South Carolina | Yes | Yes | 3 years |
| South Dakota | No | Yes | 6 years |
| Tennessee | Yes | Yes | 3 years |
| Texas | Yes | Yes | 2 years |
| Utah | Yes | Yes | 3 years |
| Vermont | Yes | Yes | 3 years |
| Virginia | Yes | Yes | 5 years |
| Washington | Yes | Yes | 3 years |
| West Virginia | Yes | Yes | 2 years |
| Wisconsin | No | Yes | 6 years |
| Wyoming | No | Yes | 4 years |
The Process of Filing Diminished Value Claims
Filing diminished value claims can be intimidating because what applies to one state doesn’t necessarily apply to your state. Likewise, your auto insurance policy has a massive impact on whether you can file a claim in many states.
Understanding the general process will point you in the right direction, but the best way to handle the problem is to hire an experienced car accident attorney. They’ll file your claim and ensure that every cent lost is returned to you in accordance with your state’s laws.
So, what does the basic process of filing a diminished value claim look like?
Step-by-Step Guide to Filing a Claim in Your State
Since each state differs, we’ll go through the basic framework of what filing one of these claims might look like. Follow these steps to begin putting together your claim:
- Step One – Confirm what your policy covers. Does your policy allow for first-party diminished value claims? If not, you’ll have to file a third-party diminished value claim against the negligent driver’s insurer.
- Step Two – Determine whether you’re eligible based on the laws of your state. Some may allow all types of claims, whereas others might expressly ban first-party claims, or even outlaw all such claims entirely.
- Step Three – Get a professional appraisal to decide how much your vehicle has lost in value. This will help you defend against an insurer trying to low-ball you.
- Step Four – Gather evidence to support your claim, including repair estimates, official accident reports, before-and-after photos of your vehicle, and market value reports.
- Step Five – File your claim with the relevant insurance company, whether that’s your own or the at-fault driver’s.
- Step Six – Expect an initial low-ball offer as standard. It’s a common strategy for insurers to get you to settle for less than what your claim is worth. Now is the time to start negotiating, including using your supporting documentation from steps three and four.
If negotiations grind to a halt or the insurer decides to deny your claim entirely, you’ll have to look into taking formal legal action. An experienced personal injury lawyer can advise you and file the necessary legal paperwork, if necessary.
Documentation Required for Successful Claims
All claims are evidence-based. Get as much documentation as possible to support your claim and demolish insurers trying to offer you less than what your claim is worth. We recommend the following to support your claim:
- Police accident report
- Vehicle photos from before and after your accident
- Repair estimates
- Repair invoices
- Diminished value appraisal
- Vehicle pre-accident value
- Repair shop statements
- Insurer correspondence
Common Mistakes to Avoid When Filing Claims
Even when drivers are aware of the diminished value concept and attempt to make a claim, they often make critical errors that stop them from getting what they deserve. Based on our experience with drivers who have struggled with these claims, here are the top mistakes to avoid:
- Missing out entirely due to not filing your claim before your state’s statute of limitations expires.
- Not taking the time to get a professional appraisal before entering into negotiations with insurers.
- Jumping at the first offer and inadvertently accepting considerably less than what you’re entitled to.
- Providing incomplete documentation to back up your assertions.
- Not consulting an attorney to provide help and support in making your claim.
Unbelievably, many drivers file first-party claims in states where they aren’t recognized or when they don’t have the coverage within their policies. Too many drivers have assumed that what applies in one state applies in their own when that’s not the case.
Proving Diminished Value: Key Considerations
Proving a diminished value claim isn’t just a matter of telling an insurance company that your vehicle is worth less than before, and so you’re entitled to money. Insurers constantly challenge these claims, so be prepared to defend your valuation with evidence.
It’s also vital to understand how insurers calculate diminished value because, like with the laws, this isn’t standardized nationwide. So, how do you go about proving your claim?
Methods for Calculating Diminished Value by State
Insurers in different states often use the same formulas for calculating diminished value claims in their states. However, they can also default to their own formulas. Naturally, the formulas chosen are typically used to devalue these claims and preserve their bottom lines.
Here are the most common methods employed to determine the value of these claims:
- 17c Formula – The 17c formula is the closest thing to an industry standard there is. It arose from a Georgia court case, takes a percentage of a vehicle’s pre-accident value, and applies multipliers for damage severity and mileage. Some insurers may modify this formula slightly.
- Market-Based Approach – The market-based approach is the most straightforward history and uses platforms like CARFAX to determine value by using similar vehicles with and without accident histories.
- Independent Appraisal – Some insurers may use independent appraisers to evaluate specific vehicles. It’s the most accurate method because it calculates a range of metrics, including vehicle age, repair quality, and market demand. Of course, it’s also the least efficient appraisal method.
Some states might favor different calculation methods over others. However, you’re free to challenge the formulas’ use. For example, although the 17c formula is often used, claimants in the past have successfully argued for valuations based on other methods.
The Role of Appraisals and Expert Opinions
Regardless of the calculation method used for diminished value claims, all drivers can seek an independent appraisal. It’s strongly recommended that drivers do this to provide a benchmark, so they aren’t relying entirely on the insurer’s claim.
Hiring an expert lends credibility to your argument because they’re professional, qualified, and independent. Moreover, independent appraisals are more accurate because they account for factors that other frameworks don’t, such as rare models, limited-edition additions, and aftermarket upgrades.
Possessing a signed and sealed independent appraisal provides grounds to push back against undervalued diminished value figures. It provides expert testimony that can be called upon if your claim goes to court.
Time Constraints and Limitations on Diminished Value Claims
Diminished value claims always have time limits applied to them. Like all personal injury cases, states may set a statute of limitations for lodging a claim. Although there’s no time limit on claim resolution, all the paperwork must be formally filed before the statute of limitations expires, or you’ll lose your right to claim compensation.
Like with other aspects of diminished value settlements, states can choose their diminished value claims, but many choose to align them with their personal injury statute of limitations.
Understanding the Statute of Limitations by State
The statute of limitations is the maximum time you have to file. Ideally, you’ll file your claim as soon as possible to make this a non-issue, but it means moving quickly after your accident, as the clock can tick down fast.
The shortest time limits in the country go to Louisiana, which allows just one year from the date of your accident. Tennessee also offers a one-year filing limit, since these claim types are aligned with property damage claims.
On the other hand, Rhode Island stands alone by offering an incredible ten-year statute of limitations. Other states with longer time limits include Maine, North Dakota, Minnesota, Missouri, and New Jersey, which all allow statutes of limitations of five to six years.
However, most states, including California, Florida, and Texas, have more moderate time limits of two to three years.
Consequences of Missing Deadlines
Missing the statute of limitations for your diminished value claim means you’ll lose your claim rights entirely. Insurers have no obligation to listen to or pay out claims that weren’t filed before the statute of limitations expires. Likewise, courts will dismiss any lawsuits out of hand if they weren’t filed in time.
However, there are other consequences to delaying your claim. With a statute of limitations bearing down on you, you’re giving up some of your negotiating power. It’s a common strategy for insurers to delay, delay, delay if they think they can run down the clock and let the statute of limitations expire on you.
Don’t make the mistake of assuming you have plenty of time because the months can slip by, which will eventually put you under pressure. Filing early puts you in a position of strength and makes the statute of limitations a non-issue.
The Financial Implications of Diminished Value Claims
Diminished value claims are worth thousands of dollars, especially with high-value vehicles and rare limited edition models. Pushing your claim makes a dramatic difference to your final settlement package, but there are other financial implications to diminished value claims, including your insurance premiums.
Who is Responsible for Payment of Diminished Value Claims?
The responsible party depends on who was at fault and the type of claim you’re filing. In the case of a third-party claim, which is the most common, the at-fault driver’s insurance company pays the claim. In contrast, first-party claims are paid by your own insurer. How much you get paid and whether you can claim at all will depend on where you live and your policy’s terms and conditions.
If an uninsured driver is at fault, you’ll need to file a lawsuit against them unless you have first-party diminished value coverage.
The Impact of Diminished Value on Your Insurance Premiums
Diminished value claims can impact your future auto insurance premiums. If you file a third-party claim, you won’t see any effect because the at-fault driver’s insurance company pays all costs.
The problem is when first-party claims come up. Claiming via your own insurer may result in enhanced insurance premiums because your insurer may see you as a riskier prospect to insure. Likewise, your premiums will rise if you’re at fault and another driver makes a successful claim against you.
Real-Life Examples and Case Studies by State
Although most diminished value claims don’t involve high sums, some cases really stand out. Seeing how diminished value claims work in action and how plaintiffs have fought back against insurers helps you to see what’s possible when you have legal representation on your side.
Here’s a breakdown of three real-life cases.
Maryland
In 2023, a Maryland driver was presented with a $15,000 repair bill after they were involved in an accident where the other driver was at fault. They also filed a diminished value claim, and the insurer offered $1,300, based on a calculation using the 17c formula.
The owner decided this wasn’t enough and hired an independent appraiser to review it again. They also filed a small claims lawsuit against the insurance company. In the end, the insurer buckled and settled for $3,800, which is what the appraiser recommended.
North Carolina
Over in North Carolina, a driver was rear-ended by another driver while driving a 2018 Porsche 911 Carrera. The damages amounted to $15,000, and the repairs meant the car’s resale value fell by $25,000 because of its accident history. The figure might sound enormous, but an independent appraisal substantiated this. In this case, the insurer didn’t fight it any further and paid out $25,000 to the driver.
Washington
Auto insurers have also been taken to court for underpaying diminished value claims. In Washington, a class action lawsuit was filed against State Farm. It alleged that the insurer had underpaid accident victims by wrongfully excluding diminished value payments.
State Farm lost the lawsuit and was forced to pay $2.09 million. Anyone who had their vehicles repaired after accidents between March 2012 and February 2024 with bills of $1,000 or more was eligible to receive $550.
When to Seek Legal Assistance for Your Claim
The best time to seek legal assistance for your claim is as soon as possible. Lawyers can educate you on your state’s laws and tell you whether you’re able to make a diminished value claim at all. Likewise, they can tell you what you’ll need to do and potential limits to your compensation.
Since many states have such short statutes of limitations, filing early is critical because if you let the clock tick down, you could lose your right to claim entirely. Furthermore, attorneys are an excellent option for protecting your legal rights and handing over the process to a professional who will pursue auto insurers for the maximum compensation.
Trends and Predictions for Diminished Value Legislation
The diminished value system is under constant scrutiny, especially in states with more restrictive laws. State legislatures, courts, and insurers are paying close attention to how claims are handled and the legal grounds for these claims.
Thankfully, the general trends are all in favor of consumers. Here are the top trends we’ve noticed:
- More states are strengthening and clarifying driver rights regarding these claims.
- Pressure to remove the ambiguity surrounding third-party claims in many states.
- Push for more transparency in how insurance companies handle these claims.
- More use of independent appraisals at the expense of standard industry formulas.
But what does all this mean for consumers? Although there hasn’t been much movement to change the system at the legal level, we can see from recent court cases that the winds of change are blowing.
We expect that many states will adjust their statutes of limitations to align them more closely with the general personal injury statute of limitations. It’s also expected that calculation formulas will be altered to standardize them and align them more closely with the market, which is something that the 17c formula has long been criticized for not doing.
Overall, we also expect increasing driver awareness to drive further changes regarding transparency surrounding this coverage and further claim disclosure requirements for insurers. There’s also a chance that we may see first-party diminished value coverage become a well-publicized add-on in the same way as uninsured/underinsured motorist coverage.
Frequently Asked Questions About Diminished Value Claims
Who can file a diminished value claim?
Accident victims can file diminished value claims against the at-fault driver’s insurance company. You may be able to file a first-party claim against your own insurance company, but these are heavily restricted in most states and will depend on the law of the land and your policy’s terms and conditions.
Do all states allow diminished value claims?
No, but 49 of 50 states do. Only Nebraska outright bans all diminished value claims. All other states allow third-party claims in some form, but first-party claims are far more restricted.
Is hiring a professional appraiser required?
You don’t need to hire an independent professional, but it’s strongly recommended that you do so. Without a professional appraisal, you rely entirely on the insurer’s own internal calculations, which will usually be much lower than what your claim is actually worth, especially if they’re using the 17c formula.
