Diminution in Value

Diminution in Value is what insurance companies don’t want you to know about.  Diminution in value describes a reduction in the worth or value of something, generally caused by a specific circumstance or set of circumstances. In the context of an auto accident, diminution in value is the difference between a vehicle’s value before the collision and its value after collision and repair.

Diminution of value claims are based on the fact that damage to a motor vehicle results in a loss in market value, even after the damage has been repaired. Indeed, the resale value of a vehicle that has been repaired after an accident is often diminished significantly due either to actual damage or to the stigma carried by repairs. Luxury vehicles, for example, can lose more than a quarter of their value if damaged and repaired after a serious accident. (Washington Post, 2004). Moreover, with services like CarFax® or AutoCheck® now routinely provided to purchasers of previously owned vehicles, recovering for the diminished value of your damaged vehicle is more important than ever, to avoid “leaving money on the table.”

The Nevada Supreme Court took up the issue of whether Nevada recognizes these types of claims in Dugan v. Gotsopoulos, 117 Nev. 285, 22 P.3d 203 (2001).   In that case, a property owner sustained damage to her car.  She didn’t have money to get it fixed.  She drove it around for a while but ultimately had to sell it for scrap.  At trial, the judge refused to allow her to  introduce evidence about the value of the car both before and after the accident.  The Nevada Supreme Court held that this was an abuse of discretion.  Although the car’s “diminished value” was not directly at issue in the case, this statement tells us that the Nevada Supreme would allow a claim for “diminished value” and that such a claim would be relatively easy to prove.

In such a case, a person whose vehicle is repairable should end up with a vehicle of the same market value as a  person whose vehicle is destroyed in an accident and receives its full market value. If the vehicle does not have the same market value after repairs, the owner should receive additional damages to account for the discrepancy.  For example, if a car is worth $40,000 before a collision and only $25,000 after being damaged, its gross diminution in value is $15,000. If after repairs of $10,000, the car is worth $30,000, the residual diminution in value is $10,000. Even though the cost of repairs and the residual diminution total $20,000, the maximum award will be $15,000, the gross diminution in value caused by the collision.

Nevada law allows for certain methods to calculate damages to be paid in the case of a loss of property or value to property: (1) If the property has no market value after the loss, then the amount paid is the fair market value of the property before it was destroyed; and (2) if the repairs will not fully restore the value of the property, then the amount paid is the difference between the value before and after the repairs, plus the cost of the repairs.

A claim for diminution in the value of a vehicle arises whether or not there are injuries in the accident, and are asserted against a third party whose negligent action caused damage to the automobile, or as a first-party claim against the car owner’s own physical damage insurance coverage (provided that person’s insurance policy allows for such claims).  Most automobile insurance policies cover the costs to repair a vehicle after a collision or some other insured cause, or if the damage is irreparable, the actual cash value of the vehicle. Since State Farm Mutual Automobile Insurance Co. v. Mabry (GA, 2001), a few insurance companies have added wording to establish that they will not compensate for diminution in value, but most policies omit any mention of the issue.

In any case, it’s important to document the extent of the damage and the repairs with detailed estimates and lots of photographs.  Owen & LoBello Law Firm provides the experience, compassion, and tenacity needed to fully recover compensation for your case. We will carefully evaluate your case under Nevada law and precedent and help you determine what steps to take next.

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