CAIA Rental Reimbursement and Diminished Value Claims 2 — Questions and Answers
Question 1: In most U.S. states, a first-party insured making a diminished value claim against their own insurer under a collision policy faces what primary obstacle?
- State law prohibits first-party DV claims entirely
- Most collision policies contain language excluding first-party diminished value (Correct answer)
- The insurer must pay DV only if the vehicle is a total loss
- DV claims are only valid for vehicles under 3 years old
Correct answer: Most collision policies contain language excluding first-party diminished value
Most standard collision policies contain exclusionary language — such as 'we will pay to repair or replace' — that courts have interpreted as barring first-party diminished value claims.
Question 2: A third-party claimant whose vehicle was repaired after an at-fault accident is seeking diminished value. The adjuster should first:
- Deny the claim because DV is not owed under liability
- Determine whether state law or case law supports third-party DV claims in that jurisdiction (Correct answer)
- Pay DV automatically as part of property damage settlement
- Require the claimant to file under their own collision coverage first
Correct answer: Determine whether state law or case law supports third-party DV claims in that jurisdiction
Whether third-party DV is owed depends on the law of the state where the accident occurred — some states mandate it, others do not recognize it.
Question 3: Which method is most commonly used by insurers to calculate diminished value?
- The 17c formula based on NADA values (Correct answer)
- A flat 10% reduction from the repair estimate
- The market comparison approach using auction sale data
- The replacement cost minus accumulated depreciation
Correct answer: The 17c formula based on NADA values
Many insurers use a version of the 17c formula, which applies a cap (typically 10% of NADA value) and damage multipliers to estimate DV, though its methodology is widely criticized.
Question 4: A rental car is provided to a third-party claimant while their vehicle is being repaired. The repair shop causes additional delay due to ordering incorrect parts. The liable insurer should:
- Terminate the rental immediately since the delay is the shop's fault
- Continue the rental for the duration of the reasonable repair period including shop-caused delays (Correct answer)
- Bill the repair shop for the excess rental days
- Require the claimant to choose a faster repair facility
Correct answer: Continue the rental for the duration of the reasonable repair period including shop-caused delays
The at-fault insurer is responsible for the full reasonable repair period, including delays that are a natural part of the repair process, not just the minimum possible time.
Question 5: Under which coverage does a claimant use their own policy's rental reimbursement when the at-fault driver is uninsured?
- Medical payments coverage
- Uninsured motorist property damage (UMPD)
- Rental reimbursement endorsement on their own policy (Correct answer)
- Gap insurance
Correct answer: Rental reimbursement endorsement on their own policy
When the at-fault driver is uninsured, the claimant must rely on their own policy's rental reimbursement endorsement to cover transportation costs.
Question 6: What documentation should an adjuster require to substantiate a diminished value claim?
- Only the repair estimate from the shop
- An independent appraisal or market analysis demonstrating the loss in resale value (Correct answer)
- The vehicle's original MSRP and current mileage only
- A written statement from the claimant describing their perception of value loss
Correct answer: An independent appraisal or market analysis demonstrating the loss in resale value
A credible DV claim requires an independent appraisal or market analysis demonstrating the actual difference in value before and after the accident.
CAIA Rental Reimbursement and Diminished Value Claims 2
In most U.S. states, a first-party insured making a diminished value claim against their own insurer under a collision policy faces what primary obstacle?