Imagine losing $4,000 overnight. If your car is an accident, that figure is the average amount in value a vehicle drops, even if it is repaired to perfect condition by your insurance company.

After a car accident, the difference in your car’s value reflects its reduced or diminished value in the marketplace. The accident appears in the vehicle report history, which results in a dealer or private party perceiving the vehicle as having less value than before the accident.

Fortunately, you can often recover this dollar amount by filing a diminished value claim. The question becomes whether you should file a third-party insurance claim or a first-party insurance claim. This article explores the difference between the two types of insurance claims so that you can figure out the route that’s best for you (and your wallet).

What Is Diminished Value?

The diminished value is the amount by which the value of your vehicle is reduced after an accident. There are three types of diminished value:

1.     Inherent diminished value {link to GS427.1.1}

2.     Repair-related diminished value

3.     Immediate diminished value

The gist of the situation is that your car is now worth less money because it has been in an accident. The theory is that a car buyer is not willing to pay the same amount of money for a car that’s been damaged in an accident, even if the vehicle is repaired to “good as new” condition. There’s a perception in the marketplace that the car is “damaged goods.”

First-Party vs. Third-Party Claims

When filing a diminished value claim, you may have the option to file a first-party claim or a third-party insurance claim. A first-party insurance claim is filed with your own insurance company (or the other driver’s insurance company), and the terms of the claim are based on what’s in your existing car insurance coverage.

We use the term “may” in the paragraph above because many insurance companies have done away with policy considerations that allow for reduced value recovery in liability claims. Several court cases have litigated this issue over the years, and the consumer has typically come out behind.

The theory from insurance companies in most states is that their insurance policies only require reimbursement for actual repairs or things like a rental car and medical bills. There is rarely any wording that grants a policyholder cash for a loss in value once repairs are complete.

Currently, only the state of Georgia requires an insurance contract to include a clause for diminished value claims. In the other 49 states, whether a first-party insurance claim be recovered is up to the insurance provider’s discretion.

A third-party claim, on the other hand, utilizes the concept of personal injury and tort law to recover the loss in value of a vehicle for the insured party. The rationale is that, by no fault of your own, you have been deprived of something of value, and you should be compensated via a third-party insurance claim.

First-Party Insurance Claims

As mentioned earlier, a first-party diminished value claim covers the vehicle’s loss in value after the repair and is paid out by the insurance company. You can begin the claims process with your own insurance company, and, assuming you are not at fault for the accident, your insurance company will seek compensation on your behalf from the other driver.

Complications can arise when an insurance policy specifically denies the benefit of diminished value claims. Other than the state of Georgia, courts have agreed that the insurance company’s only obligation is to pay for repairs that are necessary to restore a vehicle to pre-accident condition. Accordingly, there is no legal obligation in the rest of the states to pay a first-party diminished value claim.

Third-Party Insurance Claims

Despite the seemingly unfair outcomes of first-party claims, a driver can still recover via a third-party claim. Here, the idea is based on tort law, which aims to return a person to “whole” condition using third-party claims. Therefore, if covering the cost of repairs is not enough to restore a car to its original value, the driver who was not at fault for the accident may still have some recourse by using third-party insurance claims.

The general rule upheld by at least one state’s Supreme Court is that a loss in value that exceeds the repair costs can be recovered by the injured party through the insurance company.

How an Insurance Company Calculates a First-Party Claim

There is no industry standard for calculating first or third-party insurance claims, but an insurance company claims adjuster may use variety of formulas to devise a fair figure for the insured person. The formulas consider the actual vehicle damage, the vehicle’s mileage, and various other factors to come up with a final number.

Get Paid a Fair Settlement for Vehicle Damage

There’s no question that it’s unfair to suffer a loss in your car’s value just because it was in an accident that wasn’t your fault. Filing a claim with your insurance company can put more money in your pocket and ensure that you don’t lose out financially because of someone else’s negligence. To learn more, get in touch with Diminifaq.