The issue of diminished value (DV) has long been a great debate among insurance companies, lawyers, state courts, consumers (including activist groups), auto parts manufacturers, auto repairs shops and others. The focus on whether such losses are covered concentrates on claims that a policyholder would make to his insurer for damage to his or her own car. Answering this question is only clear from one's viewpoint. Supporters of the DV theory say that these losses are real and should be reimbursed under an insurance policy whenever there is accidental damage to a covered car. Other groups say that such losses are similar to depreciation and were never intended to be covered. Factors affecting this debate include:
- Can DV be accurately measured?
- What are the financial stakes of the groups supporting each side of the issue?
- Should DV be considered only when a vehicle is repaired and then sold?
- How is an older car's "pre-accident" value measured?
- Should repair shops or insurers bear the responsibility for DV?
- The wording of applicable insurance policies.
- Current and pending state laws involving DV.
- If DV is paid and a vehicle owner sells the car without a loss of market value, does the DV payment have to be returned to the insurer?
Over a dozen, high-profile cases have been decided by courts nationwide over the last 18 months. Most of the cases have resulted in the courts dismissing DV as a legitimate area of coverage, but there has been a notable exception. In November, 2001, Georgia’s Supreme court ruled that DV should be considered whenever a loss occurs to a vehicle, so insurers will have to include DV in any settlements they make.
What To Do About DV
The only thing that is really important to you is your unique coverage situation. Depending upon the age and value of your cars, you may or may not have a concern over this issue. If you do, your best bet is to discuss your concerns with an insurance professional. You can find out what coverage options may be available or, at the very least, gain a better understanding of your existing coverage. Please be sure to read our companion article, "What Is Diminished Value?"