CALA Rental Vehicle and Diminished Value Claims Flashcards
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What is diminished value (DV) in an auto insurance claim?
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.
What are the three types of diminished value typically recognized in auto claims?
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).
Under which coverage can a first-party insured typically NOT claim diminished value under their own auto policy in most US states?
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.
In a third-party liability claim, who can assert a diminished value claim?
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.
What method do many insurers use to calculate inherent diminished value, though it is often criticized as undervaluing claims?
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.
Which type of vehicle would most likely have the highest inherent diminished value as a percentage of its pre-loss value?
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.