October 03, 2005

Third Parties Get Diminished Value “ No Matter Where You Live”

Contrary to what MSN.com splashed over its front page last Saturday (which was a reprint of a 2003 article from Bankrate.com), your right to recover “diminished value” does not necessarily depend on where you live. That may be true when you are trying to recover diminished value from your own insurance company as the "at-fault" driver, but it is not true when you are claiming diminished value as the innocent party.

“Diminished value” is the term given to the automatic decrease in value caused to your vehicle by virtue of the fact that it has been involved in an accident “ no matter how perfectly it has been repaired. This is often referred to as “inherent diminished “ because it is not remedial. That is, nothing can make it go away. There are other things that can contribute additionally to increase the automatic diminished value suffered by a collision. Those things can be a poor repair performed by the body shop and/or an insurer’s refusal to pay for a complete repair or required use of generic parts. Both of these later varieties do not automatically occur and are potentially remedial. As a result, the diminished value most often discussed is inherent diminished value.

Just the facts, M’am

What has your state of residency got to do with whether you can recover diminished value? Well, if yours was the vehicle that was struck (not at-fault for the collision) absolutely nothing. As the innocent party, you are entitled to be “made whole” which means putting you back in the position you were in immediately before the accident and, of course, includes giving you back the total value of your vehicle. Simply paying for the repair can almost never do that.

As the innocent party, you are typically referred to as a “third party” when the other driver’s insurance company is involved. When you are claiming against your own insurance policy, you are a “first party.” A third party’s right to claim diminished value stems from a legal theory of negligence. A first party’s right, if any, to claim diminished value stems from a legal theory of contract. And these distinctions are significant.

Here’s the thing: If someone rear-ends your car, the at-fault driver’s insurer may step in and tell you to have your car fixed. But the insurer does not have the right to dictate the terms of the repair or to limit your recovery. In fact, the insurer is not really involved in the situation, and this is why. If you were to file a lawsuit to recover for the entire decrease in value of your vehicle ‘s cost of repair, diminished value, etc. (and loss of use) , you would not name the at-fault driver’s insurance company, you would have to name the at-fault driver. That person’s insurance company has an obligation to pay (on behalf of its insured) for everything for which it’s insured/driver becomes liable, up to the policy limits.

Insurance representatives frequently fail to make any distinctions between what is owed to the insured and what is owed (on behalf of the insured) to a third party. Third parties are entitled to be made whole. The insured is only entitled to what the insurance contract provides – which in some states has been interpreted as the cost to repair or replace the vehicle, not to restore the value.

The bottom line is that if you are the at-fault driver trying to recover against your own insurer for the diminished value caused when you crashed into someone else, your ability to recover the diminished value is dictated by the insurance contract provided it is not violating the public policy of the state. Georgia allows first parties to recover diminished value even when you are the at-fault driver because the Georgia Supreme Court has decided that public policy dictates that auto insurance coverage insures value, not just a repair. Florida, Maine, and South Carolina, for example, take the opposite approach and do not require an insurer under an ordinary insurance policy to compensate at-fault drivers for the diminished value caused to vehicles.

But don’t be fooled. No state has said that you cannot recover diminished value if you are the innocent third party and any insurance claims representative or department of insurance telling you otherwise is WRONG.

Posted by E L Eversman in Collision Repair Commentary , Consumer Issues , Diminished Value , Insurance |

Who is Erica L. Eversman?

One-Line Bio

Chief counsel for Vehicle Information Services, Inc.

Biography

I am the chief counsel for Vehicle Information Services, Inc. and the author of an informational column for the online site AutoGuide.net.

Having left the automotive industry to attend law school a number of years ago, I have the privilege of focusing my interests on topics I enjoy. I am admitted to practice in Ohio before state and federal courts, as well as the U.S. Supreme Court, Federal Court of Claims, and Court of International Trade. I  spent the majority of my trial practice on the defense side of the bar, a good  deal of which addressed insurance coverage and professional malpractice issues.  During that time, I served as an officer of the Cleveland Bar Association's International Law section and as chair of the Unauthorized Practice of Law Committee -- so when I tell insurers that their claims representatives have  crossed the line and are engaged in UPL violations, I know what I am talking about.