What do you think?
Does your car have to be sold in order to prove that it has lost value?
To the surprise of me and my client’s attorney, we recently had a Judge that said YES. Insurance adjusters are trained to say YES to the title question, too. But what do you think? The graphic with this article sorta sums up why the law does not agree with the Judge or the insurance adjusters, but I’ll go a little further to drive the point home.
Does Your Car Have To Be Sold To Prove Diminished Value?
Am I richer when the prices of my stocks go up?
Am I poorer when my stock values are down?
If average home prices around the home I own rise, am I richer?
If I trade my Lamborghini even for a Toyota Corolla, am I richer, or poorer?
If the doctor says I need a $10000.00 surgery to save my foot, am I richer if I don’t get the surgery?
If I lose my foot, and then use a prosthetic, is the cost of maintaining and replacing the prosthetic, along with the future medical costs I will incur part of the value of my claim, or does it only count when I actually go and pay for the care?
If everybody in your neighborhood paid $500 for a grill from the hardware store, and you found an identical one on Craigslist for $325.00 and still in the box, what is the market value of the grill?
If I have a Rolex valued at $22,000.00 by a well known Rolex appraiser, and I sell it for $18000.00, did I change the value of the Rolex?
If a sell price dictates market value, then there is no such thing as a “good deal”.
When property is not sold, the way the value is determined is by conducting market research and using repeatable methods to get averages. It’s called an appraisal! It is nothing new, but in my experience, education about what an appraisal is has eluded the majority of insurance company adjusters. It is not really a laughing matter, it is a true reality. Market values fluctuate, and they are frequently measured by tracking trends. Guess what…the trends are molded by consumer perception, education, and access to data! Who’d of thunk it? Insurance adjusters are typically trained in a manner that forces them to accept the view of their superior, and they simply don’t logically think of the fact that an appraisal is the method for determining value when a sale is not available for reference.
If value could only be determined by a sales transaction, then insurance companies would be in a pretty good pickle when they decide to deem a vehicle totaled. I mean, how the hell can you determine the value of a car you can’t sell? Not to be outsmarted, one of the insurance adjusters said, “I know, I know! Let’s go back in time to BEFORE it was wrecked and sell the vehicle; it’s the only way to prove the value!” I mean, mention diminished value and adjusters forget there is such a thing as an appraisal!
As tough as some insurance company adjusters want you to think they are, they cannot go back in time.
How it is really done, they seem to forget so easily when diminished value is the subject. What they do is hire out a third party “yes man” to put together a “valuation report”. Somehow, the insurance company has found some specialists that can determine the value of vehicles without actually selling them! It is a truly stupendous and magical thing. Oh, and guess what. . . when the valuation company gets involved and finds out the vehicle has a salvage title, the valuation service reduces the value of the vehicle by 35%, and sometimes by as much as 50%, all because of an accident history reflected on the title! In fact, when pushed hard enough on diminished value claims, many companies are now resorting to hiring “yes men” to try and support their supposition that a wrecked and repaired vehicle loses no value so long as it is repaired properly. Typically, these “yes men” are measuring a retail market, which is not the right market for a privately owned vehicle. The largest market for privately owned vehicles is the dealer trade-in market, by far. I trust most people agree there are very different market factors at work between a retail sale and a trade-in sale. It is the trade-in market the consumer is faced with as the largest market segment, and thus measuring any other market for inherent diminished value effectively excludes the majority of market data making the results irrelevant to the true value change on trade.
But forget it real quick because we’re talking about YOU making a diminished value claim against the big ‘ole smart and rich insurance company and they don’t play by their own rules.
One of the things they like to say is that they don’t owe YOU any diminished value because of an accident history unless you sell the car and prove it is worth less (remember, if it were totaled, they would determine the value without selling it).
How about if you total your Volkswagen Diesel car (before the diesel emissions scandal), but the insurance company wants to investigate you for fraud and they legally delay the claim as long as they can while they investigate. Finally, 6 months later (after the diesel emissions scandal), they clear you of any fraud and agree to settle your claim. When they determine the value of the vehicle, all the sources reflect a much lower value after the scandal than the value before the scandal.
Does the insurance company owe you the value at the time they decide to pay, or when it was totaled?
Wouldn’t that be a terrific incentive for insurance company’s to delay payment of claims? The longer they delay payment, the more the damaged property will naturally depreciate (and maybe something else will damage it), so their liability and risk will be the lower the longer they wait to pay. Especially in the case of an automobile. Most automobiles naturally depreciate in value over time, quickly when they are new, and then more gradually over time. (see the graph above) The value is greater at the beginning of an auto’s life, right? But if it is wrecked when it is new and the insurance company waits a year to agree to pay, and then they calculate the value, the vehicle will be a year older, not considered new, and of course, less valuable. Do they owe for the value when they agree to pay, or when it was totaled? What about if you get rear ended and everybody agrees it is totaled, but drive-able. Then, while driving it to the garage while the claim gets settled, you get rear-ended a second time (it has happened). The second one totals the car even worse. Is the first person that hit you now off the hook?
Below, I have pulled the relevant text out of the property damage section of the Texas Jury Instructions (it is very similar all across the US):
“ . . if Plaintiff suffered less than a total loss of the property, then the measure of damage is the difference in the fair market value of the property immediately before [the incident forming the basis of the law suit] and the fair market value immediately after [the incident forming the basis of the law suit].”
Further, The American Law Institute’s Restatement of Torts, section 928 (which is widely recognized and adopted by State and Federal Courts across the Nation) states:
”Where a person is entitled to a judgment for harm to chattels not amounting to a total destruction in value, the damages include compensation for (a) the difference between the value of the chattel before the harm and the value after the harm, or at the plaintiff’s election, the reasonable cost of repairs or restoration where feasible, with due allowance for any difference between the original value and the value after repairs.”
In Texas, a recent case memorialized the default rule for measuring partial property damages as the difference in the market value immediately before and immediately after the damage to such property at the place where the damage was occasioned. J&D Towing, LLC v. Am. Alternative Ins. Corp,l 478 S.W.3d 649 (Tex. 2016). In other States, the principles of law are the same. At the moment the vehicle is damaged, that is when we measure the loss amount. These common laws form the basis for the guidelines used by most professional appraisers. The effective date of the appraisal has to be identified and utilized in order to define the value and market properly.
In the context of inherent diminished value, there is no exception. Judges have been known to get it wrong, but nevertheless we measure the loss of value at the same time we measure the extent of the repairable damages, immediately after the damages occurred. Repairs DO NOT even have to be completed before an accurate estimate of inherent diminished value can be produced.
But what if there is more damage than estimated, you say?
Well, this is a common problem and the recommended solution is to negotiate or pay for a “tear-down” or disassembly of the vehicle to look behind the fascia and surface metal to see if there is any unibody or other hidden damage. Also, it is suggested that your shop of choice gets the car on a lift to inspect from underneath. Once the tear-down / inspection is complete and the shop of your choice has given you their best estimate, you have to decide whether to authorize repair on the vehicle or not. Keep in mind that there is almost always a supplement, even if a tear-down is performed. Something like a parts price change can cause a supplement even if the shop hasn’t made any mistake in their estimate, and true supplements that increase the cost will be the responsibility of the negligent party. If you don’t trust the shop, find another place to help you.
Now, as a final word, I must say that this article is meant for educational purposes only and is not meant to be legal advice in any way shape or form. If you need legal advice, you need an attorney. I am not an attorney, so don’t be actin’ all crazy like I tol’ you to do somethin’ and stuff.