Diminished Value Claims Explained

Diminished Value Claims Explained

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A diminished value claim helps you recover the drop in your car’s value after an accident. The diminished value can typically be collected from the insurer of the at-fault party and should be claimed when you’re in an accident that you didn’t cause.

Understanding how insurers calculate diminished value will help you negotiate for optimal compensation.

What is diminished value?

Diminished value—also known as diminution of value—is the difference in market price for a vehicle before and after an accident. Even a car that has quality repairs with original manufacturer’s parts will have a lower value than prior to the accident.

Diminished value is different from depreciation, which refers to a drop in value over time.

For instance, assume you’re selling a used car that was previously involved in an accident for $20,000. A buyer is willing to purchase your car until they learn that the car was in an accident, and then the buyer lowers their offer to $16,000.

In this scenariom the diminished value of your car is $4,000. In other words, your car is worth $4,000 less simply because it was involved an accident.

How to calculate diminished value

Most car insurance companies in the United States calculate diminished value using a formula called 17c. The name is derived from a Georgia court case that established the concept. While there isn’t a diminished value calculator that's applicable in every instance, insurers typically use the 17c formula or a modified version of it.

Below are the steps to calculate your vehicle’s diminished value estimate:

Step One: Check your car’s value. Use the National Automobile Dealers Association’s (NADA) website to obtain an appraisal for your vehicle’s value. To get an accurate value, the website allows you to input specific information about your vehicle. Below are several vehicle options, features and details that impact your car’s value.

  • Year
  • Condition
  • Make
  • Model
  • Engine
  • Mileage
  • Wheel type
  • Color

Step Two: Calculate the base loss of value. Insurance companies commonly apply a 10% cap, also known as the base loss of value, to the sales value estimated by NADA. This simply means that the maximum amount for diminished value claims is 10% of the NADA appraisal.

Step Three: Apply a damage multiplier. Insurance companies use a damage multiplier to adjust the base loss of value. In other words, the cap established above is multiplied by a number ranging from 0.00 to 1.00. This results in an adjusted figure for diminished value based on the insurer’s determination of damage. The multiplier begins at 0.00 for cars with no structural damage or replaced panels, and can go as high as 1.00 for cars with severe structural damage.

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

Step Four: Apply a mileage multiplier. The mileage multiplier functions like the damage multiplier. The mileage multiplier reduces the—now adjusted—base loss of value depending on how many miles the vehicle has on its odometer. An older car’s value will generally be lower than a newer car. The adjusted base loss of value from step three is multiplied by the appropriate mileage multiplier to arrive at the diminished value.

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

0.00 - 100,000 miles or more

Example of a diminished value calculation

First, go to NADA’s website to get a sales value. If the NADA value for your vehicle is $20,000, calculate the base loss of value by using a 10% cap. Simply multiply $20,000 by 10%. The result is $2,000, which represents the highest amount a car insurer will pay for a diminished value claim under formula 17c.

Insurance companies use damage and mileage multipliers to adjust the base loss of value. Assume the insurer determines "major damage to structure and panels". Multiply the $2,000 figure by 0.75 to get an adjusted base loss of $1,500.

Finally, apply a mileage multiplier based on your car’s mileage. If the vehicle had an odometer reading of 62,000 miles, the damage multiplier would be 0.40. Multiply 0.40 by $1,500 to determine the final diminished value of $600.

Here are the calculations made to reach our final diminished value.

Formula: Value of Vehicle x 10% Cap x Damage Multiplier x Mileage Multiplier = Diminished Value

Step One: Check your car’s value. $20,000

Step Two: Calculate the base loss of value. $20,000 x 10% = $2,000

Step Three: Apply a damage multiplier. $2,000 x 0.75 = $1,500

Step Four: Apply a mileage multiplier. $1,500 x 0.40 = $600

Final Diminished Value $600

The problems of diminished value appraisal

While insurers commonly use the 17c formula to calculate a vehicle’s diminished value, it has many flaws that could result in lower diminished value appraisals than a car’s actual worth. The fair market value of a car is dependent on the features of the car itself, but can also depend on the location of the vehicle.

Furthermore, the 10% cap on the base loss of value is arbitrary. It was simply the precedent set under the original use of the 17c formula. Under the 17c formula, the amount of mileage on a car impacts the diminished value twice, once under NADA’s market value and again when assessing the mileage multiplier.

The key to negotiating a higher diminished value is to get appraisals and inspections by reputable third parties.

Use websites other than NADA to supplement your vehicle’s fair market value. Websites—such as Kelley Blue Book—can present different results than NADA. Additionally, use a third party to obtain a physical inspection of the damage to your vehicle. A third party assessment of damage can be used to negotiate under step three of the 17c formula.

When and how to file a diminished value claim

You should file a diminished value claim when you’re in a car accident where the other party is at fault, to recover your car’s decrease in value. Most insurance policies prohibit filing a diminished value claim against your own insurance company.

Pursue a diminished value claim as soon as possible—ideally in the days following the accident—as states have statutes of limitations on property claims. While the statute of limitations is usually measured in years, it's easier to provide supporting documents for your claim soon after the accident. Additionally, consider that you’ll want to provide an estimated market value for your car during the claims process and the value will decrease as time passes.

Every state has its own laws regarding diminished value, and you can contact your state’s department of insurance about laws in your state. The following states allow drivers to recover diminished value from the at-fault party’s insurance company:

  • Arizona
  • Colorado
  • Florida
  • Georgia
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Louisiana
  • Maryland
  • New Mexico
  • New York
  • Oregon
  • South Carolina
  • Virginia

To file a diminished value claim, contact the at-fault party’s insurer. This is known as filing a third-party claim. Remember, an appraisal from a third party can help your negotiations with the insurance company.

Every insurance company has its own process for diminished value claims. Be prepared to go to small claims court if the insurance company of the at-fault party refuses to acknowledge your diminished value claim.

Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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