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Around Our Town...Legally Speaking

05/01/2005 - The "Diminished Value" Automobile Insurance Claim Issue

Your brand-new car is smacked by a careless driver. You are uninjured, and the offending driver's insurance pays for repairs using top quality parts and quality workmanship. Sound like a fair resolution, right?

However, no matter how well your car was repaired it now has less value than it had a millisecond prior to the accident.

The current "diminished value" of your vehicle may be as high as 18%, because your vehicle is burdened with accident record which will now follow it like fleas on a mutt. If any potential buyer checks with an internet car-history service, they'll be unwilling to pay as much for it as they would have before it was hit, regardless of how well it has been repaired, and it will have less value as a trade in.

CarFax.com, which maintains a database of damaged vehicles throughout the U.S is thriving on the concept of "diminished value." CarFax lists any vehicle which has frame repairs, flood damage, has had an air bag deployed, or has otherwise been in an accident.

Unfortunately, insurers are typically not liable for loss of value, according to court decisions in Texas, Maine, South Carolina and Delaware. However, judges in some states, such as Georgia and Kansas have ruled insurers must compensate policyholders for any real loss of value from an accident.

Insurance companies insist that since lost or "diminished" value was not considered when the policies were being priced, insurance companies would lose too much money if they were forced to pay these claims.

Insurance companies also argue the term "repair or replace" in an automobile policy does not encompass any concept of "value," and thus the "diminished value" of a vehicle after repair is not compensable.

Additionally, they argue loss is circumscribed by the "Limit of Liability" section, which states that liability for loss is limited to the damaged vehicle's "actual cash value" or the amount needed "to repair or replace" the vehicle, whichever is less.

Owners of damaged cars trying to sell or trade in their cars are left with the choice of trying to hide the damage and hoping no one finds out; biting the bullet and accepting the lower price, or fighting their insurers. To do the latter, start by finding out how much the car would have been worth before it was damaged, either on the Internet or by checking used car sales in your area.

With an accurate price in hand, first try the insurance agent who sold you the policy. If it is a dedicated agent who only sells one insurance company, you may have a hard sell. But if you went through an independent agent, they may be more likely to fight for you. The next step is the State of Wyoming Insurance Department. A last resort is litigation which, however, is an expensive choice.

The issue of whether or not a loss under a policy of automobile insurance includes lost value has not yet been presented to the Wyoming Supreme Court, so here it remains an open question.

However, the Insurance Services Office (ISO), which provides insurance forms and data, has authored policy language which officially takes insurers off the hook for diminished value payments. The ISO has submitted sample property/casualty policy language to state insurance departments across the country that help insurance companies alter and clarify their own insurance policies. Many state insurance departments have approved the ISO's filings, permitting an insurance company to adopt the policy language proposed by ISO.

Wyoming is a state where insurance companies may incorporate language which excludes diminished car value coverage from policies.

So the first step is to check your automobile insurance policy to determine whether it restricts collection of a diminished-value claim.

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