Dealing with Diminution in Value Claims

When a negligent driver causes a motor vehicle collision by wrecking another car, the innocent victims suffer many losses. One of these losses is a loss suffered by the owner of the vehicle: the loss in the value of the automobile. This claim is called a diminution in value claim and North Carolina law allows for compensation for the loss. For newer cars especially, these claims can be important. The negligent driver’s insurance company is not going to remind the owner/victim about this claim, so it must be brought to their attention.

WHAT IS THE CLAIM?

The purpose of the claim is to replace what the car owner has lost. Under North Carolina law, the measure of damages in a diminution in value claim is the difference between the fair market value of the car immediately before the collision and the fair market value of the car immediately after the collision. The fair market value is determined by what a willing buyer would pay a willing seller.

WHY IS THIS NECESSARY?

The rationale for the claim is that if there were two vehicles that were exactly the same in all respects (make, model, year, mileage, etc.), and one of the vehicles had been involved in a collision and repaired and the other had not, then a willing buyer is going to pay more for the car that has not been involved in the collision. Furthermore, under North Carolina law, if a car has been involved in a collision and repaired, and the cost of the repairs exceeds 25% of the fair market value at the time of the collision, then the owner must disclose the damage to a potential buyer or be subject to criminal penalties. This law only applies to cars that are five model years or less old. In addition to this criminal penalty, in my opinion if a seller of a car is asked by the potential buyer about prior damage and the seller commits fraud, then there could be civil penalties as well.

HOW IS FAIR MARKET VALUE DETERMINED?

The fair market value should be determined by comparing the value of similar vehicles in the area with the current vehicle. This can be done through estimate websites (kbb.com or nada.com) or by talking with car dealerships about what value they would put on a car like the damaged car (without the damage of course) and the value they would put on the car with the damage. Sometimes, however, it will be necessary to employ an expert to do the comparisons and provide an opinion.

Under North Carolina law (N.C.G.S. 20-279.21(d1)), there is a designated procedure for an owner and an insurance company to request an arbitration-like procedure before going all the way to a trial. Under this procedure, the insurance company and the owner each hire an expert appraiser to determine the diminution in value suffered by the owner. These two experts get together and try to agree with each other. (This rarely happens because of the low value given to the claim by the insurance company expert due to the insurance company experts wanting to keep working for the insurance companies.) If they cannot agree, then the two experts appoint an umpire. The umpire reviews the basis for the opinions found by the two experts and either picks one or determines a value in between the two. The umpire cannot go above or below the two appraiser values. If either party is not happy with this procedure, they can then proceed to trial by notifying the other within 15 days.

CONCLUSION

When a negligent driver causes a collision, it is important that the innocent victims receive full compensation for all of the losses that are suffered. The diminution in value claim is often overlooked, but could be important to the owner of a vehicle. Insurance companies often give very low values for these claims, so it is important to be aware of the ability to hire an expert and to use the arbitration procedure allowed by North Carolina law before proceeding to trial.