“Good as new!” That’s what you want to hear when your car is repaired after being in an accident. And while that might make you feel warm and fuzzy inside, the reality is that ‘good as new’ is a nice way of saying ‘damaged goods’ (be that perceived or actual). The same is true for jewelry, art or any item that has a resale value. All is not lost though; in insurance lingo, there is a term ‘diminished value’ which describes a type of claim that seeks to compensate the loss in value of an insured asset after an accident.
What is diminished value?
In the simplest terms diminished value is the difference in what something is worth before and after an accident. There are three different versions of diminished value and they are not interchangeable.
- Repair Related Diminished Value – as the wording indicates, this type of diminished value is the result of erroneous or incomplete repairs that significantly reduce an item’s appraisal.
- Immediate Diminished Value – this term is least often used; it describes the change in an item’s worth immediately before and after an accident before any repairs are made. This assumes that repairs will not be made before resale occurs.
- Inherent Diminished Value – this is the most common form and refers to the difference in value from before an accident to after repairs have been made.
So, what does diminished value claim mean? It means someone is trying to recoup a loss in an investment that cannot be made whole again.
When you come to own a new item (by purchase or gift) you know with fair certainty up front if something has a finite value or a collector value. For instance, a standard vehicle that you use regularly depreciates everyday through normal use but an antique car can appreciate in value over time. For that reason, not every article or scenario makes sense to file a diminished value claim on.
How do diminished value claims work?
You might be wondering, “How do I claim diminished value?” or “How do you calculate diminished value?” For scheduled items like jewelry, artwork, antiques, grand tourer vehicles, etc., there will be an agreed or stated value at the time that you purchase your insurance policy. This can be established with an appraisal and/or a sales receipt depending on the item. After a qualifying event occurs a diminished value appraisal will have to be done to set the new value. A qualifying event may be something obvious like a car accident or a fire. But, it may be something that happened unbeknownst to you.
Let’s say that you take your engagement ring to be cleaned and the jeweler notices that there is a chip in the diamond; this can obviously not be fixed or made whole. In this case you would want the ring reappraised to see what the ring is now worth with a chip. The difference in what it’s value before and after may be the amount you seek to make a claim for.
We say may be because there can be other factors we take into consideration. There isn’t a predetermined percentage or a diminished value claim calculator to definitively tell you the amount you may recoup. Using the ring example again – let’s assume that you’ve been wearing the ring a long time. The jeweler notices not only that the diamond has chipped but also that the platinum band has thinned out. Both events decrease the ring’s appraisal. The insuring company may determine that they can cover the depreciation caused by the chip but not the depreciation caused by normal wear and tear.
Other factors that may affect the outcome of diminished value claim include things like state regulations, the language or terminology of the insurance policy and who is deemed to be at fault.
It is best to have an insurance agent advocating for your rights and advising you on your options. At Daigle and Travers, we pride ourselves on representing our clients’ interests. Give us a call today at 203-655-6974.