What is diminished value?
Today’s post is about diminished value under Texas law. Future posts this week will discuss: (1) how to evaluate a diminished value claim; (2) how to file your diminished value claim; and (3) what steps you will need to take after you file your diminished value claim. Diminished value is a form of monetary relief you are entitled to, under Texas law, for value you have lost on your vehicle after an accident even after it has been repaired. When you are in an accident with another driver who is at fault, that driver is liable for making you whole after an accident has occurred. Normally, people know that means the car will receive repairs or the insurer will total it.
If repaired, it receives repairs to it’s pre-collision physical state; but that does not mean the car is worth what it was before the accident. That is diminished value and you car recover on it. It is important to understand what diminished value is, how to calculate it and how to recover it from the insurance company of the driver at fault. Today’s post will go into detail about what diminished value.
Diminished Value Explained
In its pure form, diminished value is the difference between what your car would sell for the day after repairs are completed and what the car would have sold for the same day if it had never been in an accident and required repair. In other words, it is the lost value simply for the sake of the vehicle being in an accident. From the insurer’s standpoint, they will always argue that after completing repairs the car is just as good as what it was before the accident. Therefore, they argue, the car is just as good as if the accident never occurred. Mechanically, that argument may be correct. However, the value of your vehicle is not just the functional value of getting you from point A to point B. There is also resale value. That’s where you have lost value even when repairs are perfectly completed.
Car buyers do not like to buy cars with accident histories, so cars with prior accidents almost always sell at a discount compared to similar vehicles in the same market. So you have a right to recover that lost value on the resale value even if you do not sell the car immediately after the repairs. Even if you wait five years to sell that car, it will still sell for less than the same car in the same area due to the accident. Even if you drive that car into the ground, you have still lost the opportunity to sell the car for the same price as the same car without the accident on its history and that is a lost value you can recover.
Types of Diminished Value
1. Repair-related diminished value. You can recover for the diminished value of the vehicle based on the imperfect repairs done to your car. This includes imperfect cosmetic repairs, such as paint tape lines, dings, imperfect color match, misaligned doors and other visual clues that the car has been in an accident. It also includes imperfect mechanical repairs that result in inferior operation compared to pre-accident performance. That can include steering and alignment problems, engine problems, electrical problems and so forth.
It also includes cases where the repair shop has used aftermarket parts rather than manufacturer’s parts (OEM parts). The use of generic parts in repairs lowers the value of a vehicle compared to one with original manufacturer parts. (You can usually avoid aftermarket parts by completing repairs through a dealer.) Even if the car runs perfectly, it has still lost value due to the use of aftermarket parts.
2. Claim-related diminished value. Sometimes insurance companies will refuse to authorize certain types of repairs or the use of certain parts (such as using OEM parts instead of aftermarket parts) that may be necessary for the repairs to make the car cosmetically and mechanically the same as it was before the accident. You can recover for the lost value due to the insurance company refusing necessary repairs.
3. Inherent diminished value. Inherent diminished value is the lost value in the resale market because the car has been in an accident. Thanks to companies like CarFax that offer reports at a low cost it is easy for buyers to discover accidents. As a result, resale value on cars with accidents is becoming increasingly less than cars that report no accidents. That means even minor accidents can have substantial diminished value based solely on the accident report. Most, if not all, cars in accidents will suffer some inherent diminished value.
In the next installment in the diminished value series I will discuss how to evaluate a diminished value claim.
Adam Kielich is an employment attorney, divorce lawyer and principal attorney at The Kielich Law Firm in Bedford, Texas. The Kielich Law Firm represents clients in employment law and family law matters across the Dallas and Fort Worth area. Attorney Adam Kielich helps clients with employment discrimination, wrongful termination, overtime pay, FMLA, contested and uncontested divorce, modifications, QDROs and more.