Diminished vehicle value denotes the reduction that occurs in the second-hand market value of a vehicle taken in for repair following a traffic accident. However carefully the repair is carried out, this loss cannot be avoided; vehicles with a Tramer (Traffic Insurance Information Centre) record both fetch a lower sale price and become harder to sell.
The offer made for a vehicle that has been in an accident and repaired is consistently lower than that made for a vehicle with similar features but no damage record at all. That difference is a real loss out of the owner’s pocket and its compensation may be sought in law.
Below we examine who may claim this compensation, who bears liability for it, the conditions required, how the loss is calculated, the procedure for applying to the Insurance Arbitration Commission and the route of court action.
Who May Claim Diminished Value?
Where a traffic accident occurs, the owner of the vehicle who bears no fault in the accident may seek the assessment of the material damage to the vehicle and compensation for the diminished value that has arisen. Making good the loss occurring to the vehicle of the party without fault is the obligation of the party whose fault caused the accident.
For that reason, an owner whose vehicle has lost value even though he bore no fault in the accident may apply to the company that issued the compulsory traffic insurance policy of the vehicle at fault.
As a rule, the party at fault cannot make such a claim. If, however, the comprehensive motor insurance policy of the vehicle provides cover for diminished value irrespective of fault, that person may also claim compensation.
Who Is Liable for the Compensation?
The party at fault in the accident is obliged to make good the loss of the vehicle owner who bore no fault whatsoever in the incident. Claims relating to diminished value are accordingly directed both against the party in the wrong in the accident and against the insurance company that issued his traffic insurance policy. These claims must be communicated to the insurance company concerned in writing.
The Limits of Insurers’ Liability
Diminished value forms a separate heading in insurance practice. Liability takes shape as follows, according to the position of the parties.
As regards owners of vehicles at fault
- The Compulsory Financial Liability Insurance policy for motor vehicles held by the party at fault covers the losses caused by his own vehicle and the damage arising to the other vehicle.
- By contrast, the diminished value occurring in the vehicle of the party at fault falls outside the cover of the traffic insurance; such persons cannot claim diminished value on the basis of compulsory traffic insurance.
As regards owners of vehicles not at fault
- The traffic insurance policy of an owner who bears no fault covers the repair costs of his own vehicle and the losses arising to other vehicles.
- If a diminution in value connected with the accident has arisen in the vehicle of the owner not at fault, the party obliged to make good that loss is the traffic insurer of the vehicle whose fault caused the accident.
- Owners not at fault may therefore bring a diminished value claim through the traffic insurance.
As regards comprehensive motor insurance policies
- Any vehicle owner, including those at fault, may claim compensation irrespective of fault if he is covered by comprehensive motor insurance and the policy includes cover for diminished value.
The Conditions Required for a Claim
Compensation for diminished value can be recovered only where a number of conditions are met together.
The period for application. The claim must be raised within 2 years at the latest from the date on which the accident occurred.
The degree of fault. The party bringing the claim must not be 100% at fault in the accident. The proportion in which fault is shared is decisive for the validity of the claim.
The previous condition of the parts. The parts damaged in the accident must not have suffered any earlier damage; the claim rests on the new and additional loss arising with the accident.
The severity of the damage. The vehicle must not be regarded as so badly damaged as to be beyond repair. A claim for diminished value rests on the assumption that the vehicle is still in a repairable condition.
The position of the claimant. Where the above conditions are satisfied, the party bringing the claim must be without fault or less at fault. In that case both a claim for compensation may be made and an action may be brought on account of the diminished value.
The elements listed are the basic conditions forming the legal basis of a claim for compensation. Making the application in conformity with this framework increases the prospect of a result.
Determining the Diminished Value
In accordance with the decisions of the Court of Cassation, the loss is calculated by reference to the market rate prevailing at the time the accident occurred. The logic of the method is essentially simple: the market value of the vehicle before the accident is compared with its market value once the repair has been completed, and the difference between the two is determined as the loss. Other methods of calculation are also used alongside this. The formula that has become widespread recently is as follows:
Total Diminished Value = Base Diminished Value x Damage Extent Coefficient x Degree of Prior Use of the Vehicle
Insurance loss adjusters assess a large number of criteria together when determining the loss. These include the year of manufacture of the vehicle, its mileage at the time of the accident, its current value on the second-hand market, the damage recorded in the past and the significance of the damaged parts within the vehicle.
All of the elements mentioned are taken into account when determining the values of the vehicle before and after the accident that are to form the basis of the calculation.
Application to the Insurance Arbitration Commission
Insurance companies sometimes refuse payment for diminished value and sometimes offer an amount below the actual loss. In such cases the question of taking the dispute to the Insurance Arbitration Commission arises. The process consists of the stages set out below.
The insurance company’s assessment. On the claim of an owner without fault, the insurance company is obliged to make payment. The company may, however, refuse payment or put forward an offer lower than the sum claimed.
Application to the Commission. Where payment is refused or falls short, an application is made to the Insurance Arbitration Commission. Before applying, it must be checked whether the insurance company concerned is a member of the Commission.
The period for a reply. The company to which the application is made is obliged to give a written reply within 15 working days following the date of the application; for traffic insurance this period is 15 days. If no reply is received, the Commission stage is reached.
The form and documents. For an application to the Commission the relevant form must be completed in full and submitted together with the necessary documents, either online or by post.
Appointment of an arbitrator. If the application is accepted, the Commission assigns an arbitrator. The assessment is made within the framework of the Insurance Act and the Regulation on Arbitration in Insurance, and the report drawn up is submitted to the arbitrator.
The decision stage. After assessing all the information and evidence submitted to the file, the arbitrator assigned must give his decision within 4 months pursuant to Article 10 of the Regulation on Arbitration in Insurance.
As regards compulsory insurance. In compulsory traffic insurance, an application may be made in respect of disputes arising after 18.04.2013 without regard to whether the company is a member of the Commission.
This route offers vehicle owners an effective option for protecting their rights and claiming compensation on an equitable basis.
The Action for Diminished Value Compensation
Pursuant to the Highway Traffic Act, the party at fault and the insurance company that is party to the traffic insurance relationship are jointly and severally liable for the damage arising to the vehicle not at fault. That the insurance company is also liable for the diminished value arising as a result of the accident has been established by the case law of the Court of Cassation referred to above. The action may therefore be directed both against the insurance company and against the driver.
Limitation and the Time Limit for Bringing an Action
Owners of vehicles who bear no fault in the accident may take the route of an action against the insurer in order to secure compensation for the loss they have suffered. This right is not, however, open-ended: the action must be brought within 2 years of the date on which the accident occurred.
The Court with Subject-Matter and Territorial Jurisdiction
In an action for compensation brought by an owner whose vehicle has lost value, subject-matter jurisdiction lies with the Commercial Court of First Instance.
As to territorial jurisdiction, the court of the place of the respondent’s residence or of the head office of the insurance company has jurisdiction.
For an assessment of the possibility of objecting to traffic fines or to decisions banning a vehicle from the road, our note entitled "Annulment of an Administrative Fine" may be examined.
The Independent Legal Assessment
Although the sums involved appear relatively limited, diminished value claims are one of the areas in which rights are most often lost in practice. The principal reason is that the first offer put forward by the insurance company is usually taken as a final outcome. Yet the calculation in the loss adjuster’s report is open to argument as regards the vehicle’s mileage, its model year and the significance of the damaged parts; where payment falls short, the route of arbitration or court action remains open.
The second critical point is time. The 2-year period running from the date of the accident can easily be consumed in the months taken up by repairs and correspondence with the insurer. Since the content of the accident report is also decisive in determining the degree of fault, the record made at the scene affects the whole process.
It is appropriate to bear the following matters in mind when preparing a diminished value claim:
- Checking that the accident report accurately reflects the apportionment of fault
- Establishing by documents that the damaged parts have not previously been repaired
- Making the application to the insurance company in writing and with the 2-year period in mind
- Following the company’s 15-day period for reply and moving to arbitration in the event of delay
- Examining whether the comprehensive motor insurance policy includes cover for diminished value
- Comparing the calculation criteria in the loss adjuster’s report against an independent assessment
Independent Legal provides services throughout the whole process in diminished value claims arising from traffic accidents, from the application to the insurance company through the Insurance Arbitration Commission procedure to the conduct of the compensation action.