Post-Collision Diminished Value: Is the Insurance Company Liable?

You are listening to the radio at a red light when a texting teenager rams his Mustang into the back end of your Prius. The kid is sorry. His old man’s insurance covers the damage. The mechanic restores your hybrid honey to pristine condition. Except the accident diminishes your resale value beyond repair.

Never mind that the crash was not your fault. So what that the mechanic’s stellar work might even have increased the actual value of your car. The next potential buyer won’t see it that way. He’ll check the CARFAX, then lowball you. The collision will follow your vehicle wherever it goes.

“Damage from a crash can affect a car’s reliability as well as its safety,” says Daniel R. Rosen, a Denver personal injury lawyer. That results in perceived loss in value. It hardly seems fair that the owner of the car bears that brunt, particularly if the accident wasn’t his or her fault. The issue piques the docket of U.S. state courts.

To adjudicate such matters, courts look to the language of the relevant insurance policy. Most insurance policies guarantee that a vehicle will be repaired to its condition before the accident. California, Florida, Texas, Maine, South Carolina, and Delaware state courts have sided with insurance companies that policy language is clear: Insurers are not liable for diminished value claims under comprehensive and collision coverage. Insurance companies must pay only the cost of the repair.

It is difficult to quantify how much a car’s value diminishes after an accident. Neither the Kelley Blue Book nor the National Automobile Dealers Association (NADA) book maintains a particular valuation table for vehicles that have been in accidents and have been repaired. State Farm Insurance has maintained in litigation that value does not necessarily decrease after an accident. Claimants have rebutted that many auto makers will not grant Certified Pre-Owned (CPO) approval to vehicles that have been in accidents. There is no guarantee, though, that the car would have qualified for CPO status absent a collision. Plus, the actual value of CPO certification is hotly disputed.

Most policies do not mention diminution of value. One side says this indicates no intent to provide coverage. The other side argues it is evidence of implied coverage.  In Georgia, Kansas, Mississippi, and Tennessee, some court decisions ruled in favor of claimants for diminished value. But it’s a Pyrrhic victory if insurance companies respond by increasing premiums.

About: Pari Chang is an attorney who graduated from NYU School of Law, and a professional blogger for the Law Offices of Daniel R. Rosen. Her essays have appeared in The New York Times, SELF, Glamour, Redbook, and the anthology, Behind the Bedroom Door. She is at work on a book, Notes from the Basement.