The term "diminished value" refers to a vehicle's worth after an accident. It is most commonly applied to calculate damage to the vehicle. Although many insurance providers use a formula based on Rule 17c, named from a 2001 Georgia Supreme Court ruling, regulations vary by state and there is no official calculation. However, the 17c formula usually prevails in the insurance industry in determining diminished value.
Types of Diminished Value
Diminished value usually results from one of three situations. The first is the obvious reduced value of a vehicle immediately following a collision. In a second type of situation, the repair company might be unable to restore the vehicle to pre-accident condition. A third type of diminished value occurs when a vehicle's market value is reduced due to an accident being added to its history. Most consumers want to pay less for a vehicle with an accident history.
Insurance Providers and the 17c Formula
The insurance providers of at-fault drivers in accidents determine diminished value for vehicles belonging to drivers who are not at fault. Many insurance companies use the 17c formula for this process. In Step 1, the book value of the vehicle is adjusted based on mileage and any prior damage or upgrades to the vehicle. In Step 2, this value is multiplied by 0.1 to find the base loss. In Step 3, the base loss value is multiplied by a decimal/percentage based on the extent of the damage, as determined by the claims adjuster. For example, if the damage to structure and panels is severe -- involving multiple areas of the vehicle -- the base loss is multiplied by 1, or 100 percent. If the damage is major, involving more than half of the vehicle, the base loss is multiplied by 75 percent, or 0.75. The multiplier for moderate damage is 0.50, and for minor damage it is 0.25. For no damage to the structure, the multiplier is zero.
The final step in determining diminished value is to take the figure from Step 3 and multiply it by percentages based on mileage. For example, if the vehicle has less than 20,000 miles, the percentage is 100 percent. From 20,000 to 39,999, it is 80 percent. The percentage is reduced in 20 percent increments for every 20,000 miles up to 99,999. At 100,000 miles or more, the multiplier is zero.
Due to insurance providers' prevalent use of the 17c formula from the 2001 Georgia lawsuit, in 2008 the Georgia Insurance and Safety Fire Commissioner issued a clarification directive. In this official document, the commissioner declared that the state insurance department had never endorsed or stated in any way that the formula from Rule 17c was a definitive means of determining diminished value.
Many states use a simple formula to figure diminished value. The amount simply equals the market value of the vehicle before the accident minus the market value of the vehicle after the accident. Market values are determined by factors such as vehicle type, age, mileage, condition, accident history and geographic location. Laws vary by state as to how diminished value claims are handled.
- ASC of Kentucky: What You Should Know About "Diminished Value"
- Collision Claims Associates: What is Diminished Value
- Georgia Office of Insurance and Safety Fire Commissioner: Directive 08-P&C-2
- Kielich Law Firm: How Insurance Companies Calculate Diminished Value Claims
- MWL Law: Diminution in Value Cases in All 50 States
Vicki A Benge began writing professionally in 1984 as a newspaper reporter. A small-business owner since 1999, Benge has worked as a licensed insurance agent and has more than 20 years experience in income tax preparation for businesses and individuals. Her business and finance articles can be found on the websites of "The Arizona Republic," "Houston Chronicle," The Motley Fool, "San Francisco Chronicle," and Zacks, among others.