Wrecked Car's Diminished Value Is an Issue

It sounds pretty straightforward, but under the surface of that statement looms a nascent battle between the insurance industry on one side and trial attorneys, advocacy groups and consumers on the other.

The issue involves whether millions of motorists are being shortchanged by the insurance industry because, even after a car is repaired, its resale value is reduced simply because it was in a crash. The buzzwords of this dispute are "diminished value," and the question is whether insurers should have to cover this type of loss in an accident.

Bernard Brown, a Kansas City, Mo., attorney with expertise in title, odometer and insurance fraud, believes that consumer losses could reach into the hundreds of millions each year. He cites estimates by the National Safety Council that nearly 19 million vehicles are involved in reportable wrecks every year.

With average claims ranging into the thousands of dollars, total vehicle accident damages reach into the billions. If even a small fraction of this damage is never recovered in repairs--in other words, the future resale value of a car is diminished--the economic consequences to the public are enormous.

"Insurers are petrified by the prospects here," Brown said. "You are entitled to be made whole. If they only repair a car, then you are not made whole."

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The issue of diminished value has gained credence as states have strengthened laws that require branding of titles for salvage vehicles. Under some state laws, damage well below the level at which insurance companies "total" the vehicle are branded as salvage. In addition, states are requiring ever greater disclosure of past damage when a car is sold.

Brown contends that insurers have opposed strong consumer laws that require title branding on salvage vehicles, because it will increase the industry's vulnerability to paying for diminished value on vehicles that are branded.

Meanwhile, insurers have warned that if trial attorneys and consumer groups open the floodgates on litigation over diminished-value claims, and such claims are eventually upheld in the courts, insurance rates are bound to go up.