Will Insurance Companies Pay for Diminished Value?

The short answer to this question is – if you’re legally entitled to it and willing to take action to claim it, yes, they will. In the United States, diminished value is routinely paid out to accident victims by auto insurance companies. In fact, diminished value is recognized by the Insurance Information Institute, the insurance industry’s main educational and public awareness organization. The III even has a special web page dedicated to diminished value. Their page needs an update (in Michigan DV claims are now possible up to the state’s $3,000 mini-tort limit) but the page’s mere existence is quite significant because it shows that the insurance industry as a whole recognizes the legitimacy of the concept of diminished value.

And even more importantly, diminished value claims filed with the at-fault insurance company, also known as the third-party claims, are legally viable in 49 states (sorry, Nebraska!)

So if an adjuster employed by an insurance company ever makes a blanket statement that their company “doesn’t pay diminished value” or “there is no such a thing as diminished value” then it’s either a sign of poor training or a deliberate lie in an attempt to evade payment on your claim.

Am I legally entitled to diminished value compensation?

To be legally entitled to diminished value compensation your accident must satisfy the following conditions.

  • you cannot be at fault (with the notable exception of Georgia where you can be at fault)
  • your car is not totaled
  • car is not leased (financed OK)

Since diminished value claims are usually guided by tort law, you cannot be at fault for the accident, you must be the victim and the negligent driver must make you whole for your damages, including diminished value. If your car is totaled, there is obviously no diminished value because you just get a check for the pre-accident market value of the vehicle. And in the case of a lease, you’re not entitled to diminished value because you’re not the legal owner of the car – the leasing company is, and only they can claim diminished value.

An important distinction: first-party vs third-party claims

A first-party claim is a claim a person makes against their own insurance policy with their own insurance company. A third-party claim is a claim that’s made by an accident victim with the at-fault insurance, meaning the insurance company of the person liable for the accident.

First-party diminished value claims are only viable in Georgia. Third-party diminished value claims are viable in every state except Nebraska.

Is there such a thing as a “diminished value state”?

diminished value states

Despite outdated information that you can find on Google that’s been copied from one website to another without question there is simply no such a thing as “diminished value state”. Using this term is very misleading because an accident victim can claim diminished value from the at-fault insurance in every state except Nebraska.

So are there any states that are at all special when it comes to diminished value? There are currently only four.

  • Georgia – allows first-party diminished value claims in addition to third-party.
  • Michigan – third-party diminished value claims allowed but capped by the state’s $3,000 mini-tort limit.
  • Nebraska – an unfavorable legal precedent called Chlopek v. Schmall prevents all diminished value claims there.

That’s it! To sum up, first-party diminished value claims are only possible in Georgia and third-party diminished value claims are possible in every state except Nebraska.

Does the insurance company have to pay me diminished value if I don’t ask for it?

Only in Georgia. Georgia insurance regulations require your own insurance company to proactively offer you a check for diminished value regardless of whether you were at fault or not. But outside of Georgia, insurance companies are not obligated to voluntarily offer you diminished value or even tell you anything about it.

And why would they? Every auto insurance company in the United States is a for-profit enterprise. Every claim paid out literally means less profit for the company. The insurance companies are happy if you never ask for diminished value compensation and they are even happier if you have no idea such a thing exists. Outside of Georgia, you must be proactive about getting diminished value – you must file a diminished value claim. And filing alone isn’t enough to get paid. You must then properly prove the amount of diminished value you’re claiming.

So insurance companies pay out diminished value in general but will they pay me?

The answer to this question primarily depends on two things.

  • are you legally entitled to diminished value?
  • are you determined to get the compensation you deserve?

If you’re not legally entitled to it, you won’t get it. Insurance companies are not in the business of paying claims they don’t have to pay. They barely pay the claims they have to pay! So check first if you’re entitled. If you are then it simply comes down to your willingness to get what you deserve. The initial response to your claim may be a reasonable settlement offer, a lowball offer, or a denial.

Most accident victims will simply accept whatever they’re told by the adjuster as holy gospel. If they’re offered a lowball, they’ll take it. And if their claim is denied, they’ll take the “no” without question. And that’s exactly what insurance companies are counting on. Don’t be like them. Insurance companies lowball and deny many legitimate claims as a matter of industry practice. Don’t let your claim be one of these claims. You can read more about it in a classic book called “Delay, Deny, Defend: Why Insurance Companies Don’t Pay Claims and What You Can Do About It.”

If you want to maximize the amount of diminished value you recover you must be willing to go all the way if needed. Note, I didn’t say “you must go all the way” – I said, “you must be willing to go all the way.” And all the way in most cases means filing a claim against the driver who hit in your local Small Claims court. Small Claims is a “Judge Judy”-type of environment designed for everyday people to represent themselves in relatively low-dollar matters such as car accident property damage. An average person should have no problem handling their claim in Small Claims. I always say: “if you can follow what’s going on on Judge Judy, you can ace your Small Claims!”

No attorney is needed and everything is sped up and simplified for everyday people. The willingness to go all the way is what forces an unfair adjuster to become much more reasonable as they handle your claim. Without the threat of Small Claims, there may be little motivation for an unethical insurance company to offer you a fair amount for diminished value. The company knows that if you go to Small Claims your chances of victory and getting the full amount you’re demanding are very high – so most likely they will lose and have to pay 100% of your claimed amount, plus, they will spend money, time and resources providing legal assistance to their Insured driver who hit you. Insurance companies are required to provide legal assistance to their Insured because they have a contractual “duty to defend” them.

I read online that State Farm (or another company) has a bad reputation for handling diminished value claims, is that true?

No. The truth is that due to inconsistent training and internal procedures diminished claims are handled so inconsistently that the handling can vary drastically even within the same company. And even within the same office of the same company! The level of initial cooperation your claim will get depends mostly on the individual adjuster your claim will get assigned to, not the company you’re making the claim with. And you can’t control that. Claims are assigned to adjusters randomly. What you can and should control is how you respond if the adjuster is not treating you fairly.

How soon will I get my diminished value check?

This primarily depends on the level of initial cooperation you will get. If you get an ethical and fair adjuster, you can have a check you’re happy with on the way within a week. If you get an adjuster who’s not very ethical or fair, getting what you deserve can take months.

Can I get diminished value after a flood, hurricane, fire or a collision with an animal?

Only in Georgia. Outside of Georgia, all of these circumstances are classified as first-party claims and first-party diminished value claims are only viable in Georgia. The problem with all of these circumstances is the lack of a negligent party. If the deer had insurance, you could make a diminished value with his insurance but unfortunately, he does not.

The driver who hit me has no insurance or not enough insurance. Can I use my Uninsured Motorist coverage for a diminished value claim?

uninsured motorist

This is a highly technical legal question and depends on your state and the specific language of your UM policy. For example, in Washington and Texas, you can but in Florida, you cannot. The following table is an approximate state of affairs. Make sure to check your specific UM policy and consult a local attorney if necessary.

DV under UM Possible

  • Alaska
  • Arkansas
  • California
  • Delaware
  • District of Columbia
  • Georgia
  • Hawaii
  • Illinois
  • Indiana
  • Louisiana
  • Maryland
  • Mississippi
  • New Jersey
  • New Mexico
  • North Carolina
  • Ohio
  • Oregon
  • Rhode Island
  • South Carolina
  • Tennessee
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington
  • West Virginia

DV under UM Not possible

  • Alabama
  • Arizona
  • Colorado
  • Connecticut
  • Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Maine
  • Massachusetts
  • Michigan
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • Nevada
  • New Hampshire
  • New York
  • North Dakota
  • Oklahoma
  • Pennsylvania
  • South Dakota
  • Wisconsin
  • Wyoming

Does an insurance company have to pay diminished value?

To answer this question we must again differentiate between first-party and third-party claims. So we need to know which insurance company? Your insurance company or the at-fault insurance company, meaning the insurance company of the person who hit you? If we’re talking about your insurance company then, unless you’re in Georgia, the answer is no, they don’t have to pay it. And the reason is that your insurance policy contract explicitly excludes payment for diminished value. On the other hand, if we’re talking about the at-fault insurance company, yes, it does have to cover the diminished value that happened as the result of bad driving of their Insured.

Let’s go deeper into why the at-fault insurance must pay. Why do they have to pay? People at the insurance are not the ones who crashed into your car. They have to pay because their Insured has crashed into your car and they have a contract with the Insured whereby they promised to indemnify the Insured for liability claims arising from the Insured’s driving. This is why you submit your claim to them.

Theoretically, you could just demand payment directly from the person who crashed into your car and that would be 100% legal. But usually, that’s not the most convenient or the fastest way for you to get paid. That’s because insurance companies have set up streamlined systems to deal with claims more efficiently than a random person off the street would. Additionally, what would likely happen if you went after the person directly is they would contact their insurance and have them cover their liability and again, you would end up dealing with their insurance.

To sum up, at-fault insurance companies pay diminished value not because they caused you economical harm but because the driver they have insured has caused you economic hard and by contract, they’ve agreed to indemnify this driver of liability in an auto accident.

Can an insurance company not pay a valid diminished claim even though they have to by law?

claim denial

They can try. But this is why we have state insurance regulators and a robust legal system in the United States. Let’s say you have a 100% valid diminished value claim. The other driver was 100% at fault and liability has been established in your favor by the insurance company. Your vehicle is neither totaled nor leased… and you’re not in Nebraska (again, sorry Nebraska but I didn’t rule on your court cases!) You have submitted a valid diminished value claim and have backed it up with a USPAP-compliant and certified Diminished Value Appraisal. Your adjuster was charming and sounded like your friend… but for some reason sent you a nasty denial letter saying he doesn’t think you’re owed any diminished value and your claim is denied. Oops! How could this happen and what can you do?

When any claim comes to the insurance company they have a legal right to investigate it, negotiate it, offer a settlement, or issue a denial. So they have a right to deny any claim. The problem is that insurance companies routinely abuse this right and deny claims they know are legally valid. This happens because the management and the shareholders of the companies are profit-oriented and a dollar saved on claims is a dollar directly added to the bottom line.

It would be extremely unfortunate if this is where the story ended. Fortunately, the U.S. has state insurance regulators and more importantly, a robust legal system designed to correct illegal and unfair behavior. So you have effective options to avoid taking an unfair “no” for an answer.

Each state has either an Insurance Commission, Department of Insurance, or a similar agency that regulates the insurance industry in the state. And each such agency accepts consumer complaints. If you feel your diminished value claim wasn’t treated fairly you have the option of making a complaint to your state’s insurance regulator.

A complaint can usually be made electronically on the regulator’s website and it only takes a few minutes. The regulator will then assign a free advocate to your claim who will attempt to mediate on your behalf with the insurance company. Sometimes this helps. But not always.

And that’s OK because your most powerful tool against insurance company abuse is the same tool that attorneys use – the U.S. legal system. And you don’t even need a lawyer! The average diminished value claim is $5,000 so the Small Claims Court system is perfectly suited for diminished value claims as a fast, cheap and easy option for car accident victims to represent themselves and win a judgment without the expense of hiring an attorney. Everyday people like you successfully represent themselves every day in Small Claims and get settlement offers for the full amount before the trial or win judgments at the trial. My own mother had to sue Allstate’s Insured in Small Claims because they were playing dumb and denied her claim without a valid reason. Guess what? Two weeks before the trial date, a new Allstate adjuster appeared out of nowhere and started emailing settlement offers. First a lowball, then 50%, then 100% of the demanded amount. Unfortunately, that’s how rotten business practices of major U.S. auto insurers are. They often simply hope car accident victims will go away and won’t put up a fight!

To see how big your diminished value claim is get a free diminished value estimate.

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