How much an accident affects the value of your car

By Russ Heaps

What to know about diminished value estimations, and how to calculate them

Every reported accident, big or small, reduces your car's value in the marketplace, even if repairs return it to its pre-accident condition - and that reduction is in addition to the typical loss of value (depreciation) as your car ages.

The extra loss of value might be significant or relatively minor, but it's a fact of life. The automotive and insurance industries recognize diminished value after an accident to the point that nearly every state uses an established protocol for addressing the issue. Here's what you need to know to protect yourself.

What is the diminished value of a car?

Diminished value is an insurance industry term for the lost value a car sustains from an accident in its history. Even if repairs fully restore a car to its pre-accident condition, the accident still appears on its vehicle history report, lowering its Kelley Blue Book value. A car's value matters when or if you decide to sell your vehicle.

Plus: How to make your car last as long as possible

What is a diminished value claim?

In most states, a diminished value claim is filed against the at-fault driver's insurance company to financially compensate the aggrieved driver for the diminished value loss attributable to an accident. Although a substandard repair job is grounds for a diminished value claim, it isn't required. An accident appearing on a vehicle history report, like AutoCheck or Carfax, will reduce a car's market value.

PRO TIP: Although most states only allow a diminished value claim to be filed against the at-fault driver's insurance companies, some no-fault states permit you to file a claim against your own car insurance company if the other driver can't be identified or doesn't have sufficient insurance to cover the claim.

How diminished value is calculated

The blueprint for calculating the amount of a diminished value claim was outlined by a Georgia court in the case of Mabry vs. State Farm in 2001. Found in section c of the 17th paragraph of the finding, the 17c formula is the accepted standard for calculating diminished value. Knowing the market value of your car and its mileage at the time of the accident, you can estimate the approximate cash amount of your claim. Here are the steps to calculate the estimated amount of your claim.

Establish the book value of your car: The first step in estimating your claim is knowing the market value of your vehicle before the accident. You can use KBB's car valuation tool to determine its book value. You will need your car's vehicle identification number (VIN).Determine the market value's 10% cap: The 17c formula is applied to 10% of your car's market value. For example, let's say you determined the market value was $25,000 before the accident. $25,000 x 10% = $2,500.Apply a damage multiplier: Using the 10% cap value, insurance companies multiply that number by what is known as a damage multiplier ranging from 0.00 to 1.0. The multiplier further refines the diminished value based on the damage to the car from the accident.

   Multiplier   Damage Level 
   1.00         Severe structural damage 
   0.75         Major damage to structure and panels 
   0.50         Moderate damage to structure and panels 
   0.25         Minor damage to structure and panels 
   0.00         No structural damage or replaced panels 

Using our 10% cap example in an accident with moderate damage: $2,500 x 0.05 = $1,250.

Apply a mileage multiplier: Taking the number (product) from the damage multiplier equation, insurance companies multiply it by a mileage multiplier to arrive at the final diminished value. This is why you needed your car's mileage at the time of the accident. Here's a table with the mileage multipliers and their corresponding mileage ranges.

   Multiplier   Mileage Range 
   1.00         0 - 19,999 miles 
   0.80         20,000 - 39,999 miles 
   0.60         40,000 - 59,999 miles 
   0.40         60,000 - 79,999 miles 
   0.20         80,000 - 99,999 miles 
   0            100,000 miles or more 

If our hypothetical car had 30,000 miles on the odometer, our mileage multiplier would be 0.80. Multiply the product of our damage multiplier equation by the mileage multiplier: $1,250 x 0.80 = $1,000. The at-fault driver's insurance company should offer to settle a diminished value claim for approximately $1,000.

Also on MarketWatch: 10 advantages of electric cars you probably haven't thought of

What you can expect from a diminished value claim

No matter how carefully you calculate a diminished value claim using the 17c formula, the insurance company may arrive at a significantly different amount.

For example, Kelley Blue Book advice editor Renee Valdes recently filed a diminished value claim with Liberty Mutual Insurance for an accident caused by one of its insured drivers. Here are the particulars:

Damaged vehicle: 2024 Hyundai Tucson SEL FWDKelley Blue Book value range: $26,000-$28,600Mileage: 2,780 (1.00) Cost of damage repair: $2,008.88 or minor damage to structure and panels (0.25)Airbags: Did not deploy

Using this information, we can estimate the range of the settlement by making two calculations from the high and low book value numbers.

10% cap of 26,000 is $2,600 x 0.25 = $650 x 1.00 = $650

10% cap of $28,600 is $2,860 x 0.25 = $715 x 1.00 = $715

Based on the results of these calculations, Valdes expected a settlement between $650 and $715. Not according to Liberty Mutual, which offered $400. Liberty Mutual used a market value of $28,600. It's unclear what calculations they employed to arrive at their offer. When Valdes asked, she was told each claim is evaluated on its own merits, and multiple factors are considered, including the severity of the damage. They called the $2,008 repair a cosmetic one.

Final thoughts

If you've been in an accident caused by another driver, in most states, you can make a diminished value claim with the other driver's car insurance company. Contact the claim department, indicate you want to file a claim and ask about their process. Be ready to provide photos of the damage and copies of the paperwork for the repairs. If you calculate an estimate for the appropriate claim settlement and the insurance company doesn't come close to it, your only recourse is going to small claims court or hiring an attorney. The difference may or may not be worth the time, trouble, and expense.

Be sure to read: If your car has a black box like an airplane's, it could save you big money

This story originally ran on KBB.com.

-Russ Heaps

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-19-24 0500ET

Copyright (c) 2024 Dow Jones & Company, Inc.