CALA CALA Rental Vehicle and Diminished Value Claims 2 — Questions and Answers
Question 1: What is diminished value (DV) in an auto insurance claim?
- The reduction in a vehicle's fair market value after it has been repaired following a collision (Correct answer)
- The depreciation applied to parts replaced during a repair
- The difference between ACV and replacement cost
- The cost to repair damage not covered by the policy
Correct answer: The reduction in a vehicle's fair market value after it has been repaired following a collision
Diminished value represents the loss in market value a vehicle sustains even after it has been fully and properly repaired, because buyers will pay less for a vehicle with a damage history.
Question 2: What are the three types of diminished value typically recognized in auto claims?
- Immediate, deferred, and total diminished value
- Inherent, repair-related, and immediate diminished value (Correct answer)
- Market, structural, and cosmetic diminished value
- Physical, mechanical, and cosmetic diminished value
Correct answer: Inherent, repair-related, and immediate diminished value
The three types are inherent DV (stigma from accident history), repair-related DV (from improper repairs), and immediate DV (loss before repairs are completed).
Question 3: Under which coverage can a first-party insured typically NOT claim diminished value under their own auto policy in most US states?
- Collision coverage
- Comprehensive coverage
- Both collision and comprehensive coverages (Correct answer)
- Uninsured motorist property damage coverage
Correct answer: Both collision and comprehensive coverages
Most state courts and insurance policies have held that first-party collision and comprehensive coverages only obligate the insurer to repair or replace the vehicle, not to compensate for residual diminished value.
Question 4: In a third-party liability claim, who can assert a diminished value claim?
- Only the insured under their own collision policy
- The vehicle owner whose car was damaged by the at-fault party (Correct answer)
- Only the lienholder or leasing company
- Diminished value cannot be claimed in third-party liability claims
Correct answer: The vehicle owner whose car was damaged by the at-fault party
In a third-party claim, the vehicle owner damaged by the at-fault driver can demand diminished value as part of the total damages owed by the at-fault party's liability insurer.
Question 5: What method do many insurers use to calculate inherent diminished value, though it is often criticized as undervaluing claims?
- Uniform Diminished Value Assessment (UDVA)
- 17c formula developed from State Farm v. Mabry (Correct answer)
- Blue Book residual value method
- NADA adjusted market comparison
Correct answer: 17c formula developed from State Farm v. Mabry
The 17c formula, originating from State Farm v. Mabry, uses a percentage of ACV reduced by damage and mileage modifiers, but critics argue it systematically underestimates actual market value loss.
Question 6: Which type of vehicle would most likely have the highest inherent diminished value as a percentage of its pre-loss value?
- A 10-year-old high-mileage economy car
- A low-mileage luxury or exotic vehicle with a strong resale market (Correct answer)
- A fleet vehicle owned by a corporation
- A salvage-titled vehicle being repaired for the second time
Correct answer: A low-mileage luxury or exotic vehicle with a strong resale market
Low-mileage luxury and exotic vehicles command premium resale prices that are highly sensitive to accident history, so a damage record causes a greater proportional loss in market value.
CALA CALA Rental Vehicle and Diminished Value Claims 2
What is diminished value (DV) in an auto insurance claim?