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| So what does the Law say? Here are a few recent articles: |
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| Diminished Value - What it is and How to Make an Insurance Claim for a Cash Insurance Settlement Does the insurance company owe you some additional cash for your damaged vehicle? Diminished value is a compensable loss in many third party auto accident claims, but owners don't know that they could be entitled to a cash award in addition to getting their vehicle repaired. The basis of the diminished value insurance claim is the duty of the insurance carrier to restore the owner of a damaged vehicle to the same position they were in before the accident. And if your beautiful late model car sustained structural damage, or was repaired with cheap foreign parts, your car will likely not have the same value in the marketplace as it did before the auto accident. Why is that? Well, consider your own reactions if you were shopping for an expensive vehicle and one of the alternate choices on the lot had no prior accidents, but the other choice had sustained substantial damage involving structural members or had replacement of important parts from an uncertified source somewhere overseas. Surely you would never value those two vehicles the same. Same thing for any potential buyer who simply checks the Internet with any of the several growing car-history services; they're not going to be willing to pay as much for it as they would have before it was hit-irrespective of how well it's been repaired. The difference in the market value between the two vehicles is the diminished value suffered by the vehicle that was damaged. Thus, in order to restore the owner to where she was before the accident, the insurance company should be made to pay her the diminished value in cash in addition to repairing her vehicle. But, as we shall see below, there are SEVERE RESTRICTIONS on most such payments, especially in first party claims. Diminished value insurance claims have become more prevalent because of three factors. The more expensive the vehicle, the easier to prove diminished value. Vehicles are increasingly more expensive, and hence there is an expectation of high quality associated with having to part with tens of thousands of dollars. No one wants to take a chance on a vehicle that has been wrecked when they are paying big money. The higher the value of the vehicle, the more apparent it becomes that a wreck will reduce the fair market value. State full disclosure upon sale laws mean you have to tell about accidents. Many states have laws that require full disclosure upon sale of the vehicle, so it is no longer possible to "hide" (or fail to disclose) the facts of an accident and subsequent repairs. Even if one tries to just trade-in the vehicle, the dealer will likely require completion of a disclosure form. Since failure to reveal the accident could be a fraud (or at least a misrepresentation), it is more likely that the damage history will follow the vehicle wherever you try to unload it. Internet sites can disclose significant repairs. It is now easier than ever to pay a small fee and to check for the most serious damage accidents right online. This means it will be virtually impossible to hide the fact that your vehicle has suffered major damage. No-or few-diminished value insurance claims allowed in FIRST PARTY insurance claims. When can you claim for diminished value? NOT IN FIRST PARTY CLAIMS-at least not in most states and not with the revisions insurance companies have added to their policies to eliminate any right to make such a claim. So if you are having your own company repair your car after an accident, it is unlikely that you will be able to make a first party claim. Still, it would not hurt to check with your state insurance commissioner. Give a call to see about making such a first party claim for diminished value in your state and under your own policy. Third party diminished value insurance claims must be proven BY YOU. So that leaves us with the third party claims. When someone hits your late model car and causes substantial damage, you should plan to make a diminished value insurance claim. Remember that in order to succeed, it will be your burden of proof to show that there is a difference in value between similar vehicles with a clean history, as opposed to your vehicle that was in an auto accident. YOU must gather to facts and professional opinions necessary to carry the day in proving that your vehicle has a measurable difference in value because of the accident. Three Causes of Diminished Value Let's go to school on this topic: there are three factors that you will want to know about in order to gather and present the evidence to prove your diminished value insurance claim as part of the third party payment for damages caused. 1. "Inherent" risk of diminished value, just because it was in an accident. FIRST, there is the "INHERENT" RISK OF DIMINISHED VALUE whenever we have a big car accident impact and repair. And, as noted elsewhere, the more expensive or the newer the vehicle, the higher the market place expectations will be on a "virgin" accident history. In those higher end vehicles (and to a lesser extent even in the $10,000 value range), buyers just do not feel the same about a vehicle if they know it has been in a pretty serious accident. People do not trust that even the best shops can get the exact tolerances and centered welds and matching paint as the vehicle had to start with. Hence, they will just not pay the same as compared to a vehicle that has never had an accident. And that is true even if the collision repair shop owner has absolute proof that your vehicle was repaired in accordance with all manufacturer's specifications. It is very likely the case that you will have to reveal the facts of this accident to any prospective purchaser of your vehicle. Call some dealerships and ask if you were trading in a vehicle such as yours, would they require you to complete a disclosure statement. If so, be sure to mention that fact to the insurance adjuster as part of your proof. Even if you never would have to disclose this damage in your own state, there could be a record of serious repairs that was filed and will surely be picked up by online businesses such as www.carfax.com, which is used to check out very serious damage repairs for prospective buyers. Thus, it is even more certain that a buyer will have knowledge of the fact your vehicle was in a very serious accident. If the expected market value of your vehicle before the accident was $33,000 and a buyer had a choice of two twin vehicles, one of which had $16,000 worth of good competent repairs done to it, so that they both appeared the same and were in the same mechanical condition, which one would be sold first? Or, conversely, what would the market place penalize your vehicle for having been in that serious accident? NOTE: since this factor may depend upon the opinion of dealers, this will be the weakest link of your argument and the one more easily opposed by insurance companies. You will want to get a few opinions of dealers in writing to firm up this factor inasmuch as it is perhaps a bit more speculative than the other two below. As you will see below, there is no shortage of businesses listed on the Internet that make a living preparing diminished value reports. We recommend going with one that is local so that an actual inspection can be made to examine the quality of the repairs, not just reliance upon general non-specific market information. 2. Big difference what was damaged-sheet metal, cosmetics, or structural. SECOND, it makes a BIG difference what was damaged: SHEET METAL OR STRUCTURE. What if the repairs were just sheet metal and trim and paint, as opposed to important structural members that were damaged? Have someone who knows collision repairs review your repair order and invoice and tell you whether or not any important parts of your car were damaged. If so, the existence of structural damage would likely reduce the value of your vehicle, even if it were done competently. List those important parts or structural members that show on the repair order and argue that a prospective buyer is likely to penalize your vehicle since you, as seller, would be asking him to take a chance that the repairs restored the vehicle to its previous good condition. Most buyers believe that important structural damage cannot be repaired to manufacturer's specifications. It will be up to YOU to develop the facts here, so we suggest using both your own legwork and the professional opinion of one of the online sites that sells its opinions. Once again, our preference is for someone who is local and hence could actually inspect your vehicle. There are all kinds of things that can be found to show that the repairs were not done to professional standards. Ask the dealers for their estimates of price reduction THEY would expect should they have to sell your vehicle with prospective buyers fully aware of the damage done to your vehicle. 3. Insurance companies CAUSE DIMINISHED VALUE by trying to scrimp on repair costs: loss of manufacturer's WARRANTY. THIRD is the topic of the QUALITY OF REPAIRS. This is where you really need some professional help. Most of us have no idea whatsoever whether or not repairs were done properly. It is just not in our experience to be able to spot problems in the finer points of repair work, such welds and finishing. For example, how would you tell whether or not the repairs were done to pre-accident standards? Insurance related D.V. can be defined as the depreciation incurred due to oversights and/or omissions by the insurance company on their appraisal. Another major factor that contributes to Insurance related D.V. is the mandated use of imitation replacement parts. Insurance related D.V. can be eliminated through properly completed insurance estimates and supplements. Take, for example, the issue of using Original Manufacturers' Equipment (OEM) parts versus those "quality replacement parts" the adjuster insists upon using. Here is the scoop: we all want to use Original Manufacturers' Equipment (OEM) parts to repair our vehicles. There are two problems in using after market NON-OEM parts to repair late model or high value vehicles. The first is that most manufacturers will consider their warranty to be void once such parts are installed in their vehicle. You can do your own research for your own vehicle, but here, for example, is what General Motors thinks about that adjuster making you repair with NON-OEM parts: "General Motors' vehicle factory warranties transfer when repairs are completed with new genuine GM Parts. The use of used salvage and/or imitation/counterfeit parts is not covered by the GM factory transferable limited warranty on that part and all adjoining parts and systems that are caused to fail by these parts." Even if your vehicle is no longer in warranty, if it has significant life left in the parts, one would want to fight for OEM parts. The exceptions to this are when the vehicle is older, or when one wants to voluntarily reduce the cost of repairs so as to retain a trusted vehicle, rather than forcing the adjuster to total it. With respect to an older vehicle, the parts have seen their useful life, so the car is not entitled to be repaired with new OEM parts. That would significantly improve the condition, so the adjuster could be entitled to a "betterment" payback. Thus, for older vehicles, it is just fine to get NON-OEM parts, as they usually will have more useful life than what you had in there to begin with. But, for medium to higher end vehicles with significant life left, the insurance adjuster's insistence on using NON-OEM parts could contribute to a diminished value insurance claim. The question is: how can you or I know what the market place is going to think of this or that part, and, furthermore, how can we tell if it has been installed to proper tolerances. For example, even something as simple as a hood can present difficulties in both safety and tolerances, since the end product from overseas can vary quite a bit from what the manufacture put in there. This would take an examination by someone knowledgeable, and it is a RECOMMENDED INVESTMENT to hire a professional to go over all of the places of repair. They can spot things we would miss, such as paint being where it should not be, panel spacing not being even on the trunk, hood, doors, etc, welds not being proper, or important parts being replaced with inferior after-market foreign-made parts. The point of your diminished value insurance claim is to demonstrate the extent to which a potential buyer will surely devalue your vehicle. So you need help to gather evidence regarding even things like a hood. But what if the adjuster insisted on replacing some important functioning parts (i.e. starter motor, alternator, air conditioner compressor) with NON-OEM parts from some uncertified shop overseas? Wouldn't that result in an obvious reduction in value? Not necessarily: some of those parts will be touted by the supplier as being as good as the originals, and who are you to argue with that kind of evidence? Hire some help. The issue in proving your diminished value insurance case is to FIRST hire a professional to identify the parts, and then to figure out HOW MUCH the market will punish you for having those parts in your repaired vehicle. ________________________________________ This article was originally published at www.settlementcentral.com |
| Diminished Value: First Parties v. Third Parties By E. L. Eversman, Esq. Third Parties v. First Parties When it comes to automobile accidents and claims under insurance policies, it is important to differentiate the relationship of the parties. First parties are those in direct contractual relationship with an insurance company, i.e., "the Insured". Third parties are those outside of the insurance relationship. In diminished value matters, the first party is typically the person responsible for the collision and whose insurance company will pay the claims. A third party is typically the person not responsible for the collision. In other words, the first party is the tortfeasor (one at fault) causing damage to the third party. While this may seem academic, it has great practical significance. If you are a first party seeking recovery for diminished value to your vehicle, your right to recover is governed by the terms of your policy. Why? Because your right of recovery is based on contract law. As the insurance policy is a contract, the terms of the contract govern unless they are ambiguous or violate public policy. Third parties, conversely, have the right to recover against the person causing the accident based on tort law. A third party's recovery is not limited by the terms of an insurance contract to which that person has no connection. Instead, tort law demands that the injured party be "made whole". As the decrease in the third party's vehicle's value is part of the damage caused by the tortfeasor, the third party is certainly entitled to seek compensation for that decrease in value. Many insurers recognize third party diminished value and pay those claims without protest. In some circumstances, the insurer may assert that it has no obligation to pay for any diminished value loss found to have been caused by its insured based on the terms of the policy. However, that policy cannot prevent the injured party from seeking recovery for diminished value loss directly from the insured/tortfeasor, much as a party can recover damages in excess of the limits of an insurance policy. Nonetheless, the insurer has an obligation to defend its insured in a lawsuit brought by the third party related to the collision. Keeping in mind the financial cost of fulfilling the duty to defend and the possibility of facing a "bad faith" claim brought by its insured are often incentives for insurers to pay the diminished value suffered by the third party. Uninsured/Underinsured Motorist Coverage Another wrinkle in the first party/third party analysis arises if you seek recovery through your own policy under the uninsured/underinsured motorist coverage rather than under your collision coverage. Although you are seeking payment under your own policy, in these circumstances, you typically are not subject to the limitations contained in the collision coverage, as you are not "at fault". Diminished Value Class Actions Although there is considerably more conflict over first party diminished value cases than third party ones, the recent class actions involving diminished value payments have been first party focused - mostly because of the anticipated difficulty identifying third party class members and all of the individual defendants necessary for the lawsuit. Of course, the dynamics of the relationship are entirely different when attempting to recover under the collision coverage provisions of your own policy, and the headlines which periodically appear declaring victory for insurers and denouncing diminished value as a recoverable element of automobile damage are often misleading. (See, e.g. Diminished Value Payments When Your Car Has Been in a Wreck; Page 2: Diminished Value Payments Becoming Unlikely, insure.com/auto/collision/diminishedvalue2.html.) These articles almost always refer to first party cases and are, therefore, not necessarily applicable to third party claims. Against 1st Parties Florida recently settled the conflict among its appellate districts by finding that under insurance policy language stating that the insurer could elect to "pay the loss in money or repair or replace damaged or stolen property with other of like kind and quality", the first party insured was not entitled to collect diminished value after a repair. Siegle v. Progressive Consumers Insurance Co., 819 So. 2d 732, 2002 Fla. LEXIS 1097 (Fl. 2002). Additionally, the Maine Supreme Court tackled this issue of first impression in Hall v. Acadia Insurance Co., 2002 ME 110, 801 A.2d 993 (Me. 2002). In its decision, the Maine high court found that the insurer's requirement to "repair" a vehicle did not include compensating the insured for its decrease in value. Favoring 1st Parties As a result of the Georgia Supreme Court's November 2001 ruling in State Farm Mutual Automobile Insurance Company v. Mabry, 274 Ga. 498, 556 S.E.2d 114, 2001 Ga. LEXIS 910 (Ga. 2001), Georgia currently has the strongest precedent finding that insurers must compensate policy holders (first parties) for their diminished value losses. The Georgia Supreme Court determined that "[t]he insurance policy, drafted by the insurer, promises to pay for the insured's loss; what is lost when physical damage occurs is both utility and value; therefore, the insurer's obligation to pay for the loss includes paying for any lost value." Id., 2001 Ga. Lexis at *27. The Mabry court required State Farm to develop "an appropriate methodology and procedure" to determine diminished value. The method the parties agreed to use in the settlement of that lawsuit has come to be known as the "17c formula", and other insurers settling Georgia claims have adopted this formula. The "17c Formula" The 17c formula, however, is as mind-boggling as it is inaccurate.¹ The formula begins with false presumptions that the National Automobile Dealers' Association ("NADA") sale value for the vehicle will be an appropriate initial vehicle value and that 10% of that NADA value will represent the maximum decrease in value suffered. Often there are no NADA values for particular vehicles, especially in the beginning of a vehicle's model year. Additionally, the 17c formula provides no explanation substantiating why 10% of the NADA value is an appropriate base figure for the decrease in value. Then, there are multipliers and discounts and subjective determinations as to how severely a vehicle has been damaged, none of which have any real relationship to the actual change in fair market value of the particular vehicle. Insurers using this "formula" are, in many instances, paying diminished value for vehicles, which have not truly suffered any decreased value. Likewise, the actual diminished value suffered on other vehicles is significantly greater than as calculated under the 17c formula, and consumers are not being properly compensated for the decrease in value. As a result, how will any insurer be able to project future diminished value claims with any degree of accuracy? Additionally, consumers are often falsely led to believe that the 17c formula is the only applicable method for determining diminished value, when this is simply not the case. For those who contest the 17c-determined amount, insurers also place the responsibility on their insureds to "disprove" the 17c amount, which leaves claimants uncertain of their rights. Under the Mabry decision, however, the burden is on the insurer to establish that its valuation method is an "appropriate methodology and procedure". It is important for consumers to know that they have the right to a second opinion and do not simply have to accept the dollar value resulting from the 17c formula. Nor should they, because it is almost never correct. The Result? In the end, consumers need to pay attention to their rights as both first and third parties, and they need to ask questions. If there is something you do not understand, ask. And get the response in writing. Written confirmation always goes a long way toward understanding what you have been told - and determining whether that statement is accurate. If you are claiming as a third party and are told that state law or the insured's policy does not allow payment to you for diminished value, demand the law in writing. As to the policy, that is between the insurer and its insured. It has no application to you. E. L. Eversman ______________________________________ __ The information provided in this column is for information purposes only and should not be construed as legal advice. You should always consult an attorney licensed to practice in your Country, State, and/or Territory as laws vary from Country to Country, State to State, and Territory to Territory. The author is delighted to share information but cannot be responsible for damage or adversity encountered by reliance upon that information and urges you to consult with local counsel. ___________________________________ _____ This article was originally published at www.AutoGuide.net |
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