Diminished Value Claims in Texas

When you get into a car accident in Texas, sometimes you suffer a personal injury or bodily injury. If you own the car involved in the car accident, you also usually have a property damage claim. As part of the property damage claim to your car, you may experience a total loss. In a total loss, the auto insurance company pays you the market value of your car instead of repairing it. If the auto insurance company repairs your car, it may experience diminished value, or a loss of value, due to the accident history. You can recover for a diminished value claim in Texas when another person causes the accident and damage to your car.

Texas fault rules and liability insurance in a car accident

Texas law on car accidents looks at who caused the accident to determine who is liable for paying the property damage and bodily injuries. In Texas, liability for a car accident is not always 100% one person or the other. Texas follows a liability system knows as modified comparative fault. That means liability for the car accident is shared by the parties involved to the extent each one shares responsibility.

Generally, each party may recover the amount of harm suffered minus the percentage that person caused their own losses. For example, if you are 20% at fault for a car accident, you can only recover 80% of your damages. In a modified comparative fault system, a person can only recover if that person is less than 50% responsible for the wreck. In a pure comparable fault system, any person who suffered losses can recover from all the other parties to the extent each person is responsible for the wreck. Under Texas law, you can only recover in a lawsuit or an insurance claim if you are less than half responsible for a car wreck.

Because Texas is a fault state, you must carry a minimum amount of liability insurance to pay for damages you might cause somebody else. This includes $25,000 in property damage coverage and $60,000 in bodily injury coverage per car accident. You might also carry types of insurance that protect you from other people as well, such as collision coverage or underinsured motorist coverage. If you are 50% or more liable for a car accident, your auto insurance will pay up to your policy limits in liability coverage.

What is a diminished value claim in Texas?

A diminished value claim is a type of property damage claim to recover the lost value of a car due to its accident history and any imperfection in repair work. A property damage claim for your car is worth the market value of your car before the collision. If your car is unrepairable or the cost to repair exceeds the value of the car pre-accident, the insurance company will declare your car a total loss. The insurance company will write a check in exchange for the car. If the car is repairable, the auto insurance company will pay for repairs. A repaired vehicle is not worth the same as a vehicle with no accident history. The car may not operate or look exactly as it did before the wreck. Future buyers may not pay the same for a car with an accident history as one without, so the market value of the car is less after the wreck. The difference in the value of the car before the wreck and the value after is the measure of a diminished value claim.

Although diminished value claims in Texas date back 100 years, it is easier than ever for buyers to discover accident history on your car. Carfax and other services are often made available when buying a used car and you can buy a report cheaply online. That gives car buyers an easy way to check whether your car has been in a car accident and skip over cars with potential underlying problems. Even if today you have no plans to sell your car in the near future, you have the right to sell your car and the loss of value may impede your ability to find a buyer when you need one.

Types of diminished value claims in Texas

Primarily there are three types of diminished value claims in Texas. You may have one or multiple diminished value claims to pursue. These include:

  • Inherent diminished value;
  • Repair-related diminished value;
  • Immediate diminished value.

Inherent diminished value claims are claims for the loss of market value to your car without actually selling your car. This is the loss of value that affects your ability to sell the car if you wanted for the same price as your car the day before the accident. An inherent diminished value claim, on its own, is the loss of value purely based upon the car obtaining an accident history.

Repair-related diminished value claims occur when the repair shop performed repairs but your car is not in the same condition as before the wreck. Sometimes cosmetic repairs cannot restore the car to the exact condition. With modern unibody cars it is hard to perfectly restore a paint job without repainting the entire car. Older cars, especially vintage and collectible cars, may be difficult to repair cosmetically especially when OEM parts are no longer available. Mechanical and structural problems may linger as well. A repair shop may perform poor work or good work may simply not get the job done. If the car does not look or work the same, then there is a recoverable loss of value to the car.

Immediate diminished value claims occur when you actually sell the car shortly after the wreck. You might sell it before or after repairs, but unlike an inherent diminished value claim, you don’t lose value if you sell it. You sell it and discover the actual lost value in the market. The difference between the sale price of your car and an equivalent car for sale at the same time indicates a loss of actual market value you absorbed in the sale due to the car accident.

Can I pursue a diminished value claim in Texas if a third party did not cause the damage to my car?

The general rule in Texas is that you can only recover diminished value when another person is responsible for the car accident causing damage. This is a third-party diminished value claim. Generally you cannot recover for diminished value if you are 50% or greater liable for the car accident. Texas law generally says you cannot recover on a first-party diminished value claim when you are majority responsible for a car accident or damage occurred due to nobody’s fault, such as sliding on ice and striking a pole.

There are two exceptions to the general rule. First, if a third party caused a car accident but lacks auto insurance (or enough auto insurance) you can file a diminished value claim on your own policy if you have uninsured/underinsured motorist property damage (UMPD) coverage. UMPD coverage pays like the responsible person’s liability coverage. It is your policy but it works like third-party liability coverage. That coverage will then pay any type of diminished value claim as though the at-fault driver’s insurance paid on the claim.

Second, if you have collision coverage and repair your car through your own coverage, you can recover for repair-related diminished value on your own policy. Collision coverage requires the insurer to repair the car to the condition from before the wreck or replace the car with the cash value before the wreck. When repairs do not restore the car, the insurance company has not fulfilled its obligation under your auto policy and it must make up the difference in cash. Collision coverage is no-fault coverage so it does not matter who caused the property damage. If there is damage covered by the policy, the insurance company must pay. It does not pay for inherent or immediate diminished value.

How to file a diminished value claim in Texas

You can file a diminished value claim in Texas with the auto insurance company responsible for the property damage claim. That may be the at-fault driver’s insurance company or your insurance company (for a repair-related claim under your collision coverage). The property damage adjuster will not volunteer to pay your claim. You can bring up diminished value as soon as the decision is made to repair your car but you may want to wait until the repair shop completes work. That will let you know if you have an inherent diminished value claim and a repair-related claim.

Often insurance adjusters will offer low amounts to resolve a diminished value claim. You might get offers of $300, $500, or $800. If you want the insurance company to pay more you will need to present evidence to show the loss of value. For inherent diminished value claims you need to show the difference in sale prices between cars with and without an accident history. Often it is not easy to locate a car like yours for sale advertising a car accident history. A used car dealership may be willing to write an appraisal for you and a comparison without an accident history. Appraisers online can prepare a report for you supporting the diminished value of your car, often using cars for sale in your area and a formula (often the one discussed below). Having an expert on your side can give your claim credibility with the adjuster.

Unless your car is an expensive luxury vehicle or a vintage car, expect any offer to underwhelm. Most diminished value claims represent a very small amount of the value of your car. Usually if your car suffered significant damage, the insurance company will total it, so most diminished value claims represent minor to moderate damage and the diminished value claim will reflect that.

What if the insurance company denies or lowballs my diminished value claim?

Property damage adjusters do not always negotiate diminished value claims or do not offer a reasonable amount under even their own formulas. Auto insurance companies know most attorneys do not take diminished value claims unless they represent the injured party for a bodily injury claim. The auto insurance company may deny your claim or lowball you to get you to drop the claim or accept a small amount. It may take several phone calls and even talking to a supervisor to get them to discuss the claim in good faith. If you hired a personal injury attorney for a bodily injury claim, talk to your attorney about your diminished value claim. Your attorney may be willing to assist you or discuss ways to improve the offer.

Ultimately, you will have to make a decision on how to resolve your diminished value claim. You can accept the last offer, receive a settlement check and move on. If the adjuster denies your claim or fails to agree to a reasonable amount, you may need to file a lawsuit. Most diminished value claims are within the limits of small claims courts in Texas so you can represent yourself if you desire. Keep in mind that if you hired a personal injury attorney for a bodily injury claim, you need to talk to your attorney before you file a lawsuit.

What is the 17c diminished value formula?

The 17c diminished value calculation formula has become an unofficial but widely accepted formula for insurance companies to calculate diminished value claim offers. It comes from a Georgia case (Mabry v. State Farm) which came up with this formula to settle a class action against State Farm. It is not the law in Texas but it is an easy formula for insurance companies and used by them in most states. The basic idea behind the 17c formula is that a car is going to lose no more than 10% due to diminished value with adjustments down for the extent of damage and the mileage on the car. Here is the actual formula:

Step 1: Obtain the NADA or Kelly Blue Book Value of the car before the accident.

Step 2: Multiple the pre-accident value by 10% to determine the base loss value.

Step 3: Determine the damage multiplier based on:

  • 1 for severe structural damage;
  • 0.75 for major structural or panel damage;
  • 0.50 for moderate structural or panel damage;
  • 0.25 for minor damage;
  • 0 for no damage.

Step 4: Determine the mileage multiplier:

  • 1 for less than 20,000 miles;
  • 0.80 for 20,000-40,000
  • 0.60 for 40,000-60.000
  • 0.40 for 60,000-80,000
  • 0.20 for 80,000-100,000
  • 0 for more than 100,000 (with a small upward adjustment for cars that tend to remain on the road for far more than 100,000 miles).

Step 5: Take the base loss value, multiply it by the damage multiplier.

Step 6: Multiply the result for step 5 by the mileage multiplier. That is your 17c formula result.

Here is an example. Let’s say you drive a 2019 Honda Accord with 30,000 miles that NADA values at $25,000. The base loss value is 10% so $2500. Let’s say we agree the car has moderate damage so the damage multiplier is 0.50. At 30k mileage the mileage multiplier is 0.80. We multiply the $2500 base loss value by 0.50 which gives us $1250. We then multiply $1250 by 0.80 which gives us a 17c diminished value of $1000. We can expect the adjuster’s top offer will be right around $1000.

Problems with 17c formula calculations

The 17c formula for diminished value claims does not fairly value the claim for several reasons. First, the NADA or Kelly Blue Book value already assumes a mileage adjustment so the claim value takes a hit twice for mileage. Second, there is no particular reason why 10% is the correct maximum for a diminished value claim. There is no adjustment to that number for local sales or the type of car. Accidents affect the value of different cars in different ways. Third, there is no specific meaning to the levels of the damage multiplier which allows adjusters to pick a less severe level of damage at their discretion. Fourth, the mileage multiplier assumes people don’t care about the condition of a car after 100,000 miles which is not true. There is also no particular reason why the mileage breaks out in this manner.

Beating the 17c formula for your diminished value claim

In Texas the 17c formula is not the law and you do not have to take a 17c calculated offer. You should understand how adjusters come up with these offers and understand that they are likely following this formula or a close variation. If you want to beat a 17c offer, you need to present evidence and an alternative formula for a higher amount. Often this requires you to present alternative values for your car pre-accident and what actual buyers in your area would pay both pre and post-accident. A used car dealership may help you with an appraisal for free or you may need to hire an appraiser to prepare an appraisal. An appraiser will charge a fee but many will prepare thorough reports that reflect a better value on your claim. An appraiser may also explain why the adjuster’s adaptation of a damage multiplier is wrong and give you arguments to negotiate with the adjuster.

You will have to decide whether hiring an appraiser is worth it for your diminished value claim. Unless your car is fairly new, low mileage, or expensive, you may not move the offer much even with a good report. Keep in mind that if you decide to file a lawsuit, even in small claims court, you will have to present some evidence of what you think the claim is worth.

Should I hire a personal injury lawyer for a diminished value claim?

Unfortunately, most personal injury attorneys do not represent people in diminished value claims. If you have a car worth six or seven figures, you may find an attorney to take your case. Otherwise, the case is likely not worth enough for the law firm to dedicate time to your diminished value case. You might also put a lot less in your pocket after paying attorney’s fees and expert fees, so hiring a personal injury lawyer for your diminished value claim may not help you, either. If you have a personal injury attorney, you should talk to your attorney about your claim and what they can do for you.

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