Simply stated, Diminished Value (DV) is the loss in market value of a property (chattel) due to it having a history of damage. Diminished value may be attributed to various types of properties.
The following are real event examples to enable a more thorough understanding of the mere concept of diminished value.

“Ship Shape”:

One of the oldest recorded instances of a diminished value claim is between Samuel Giles vs. Eagle Insurance in 1840 concerning a cargo schooner that was blown onto a rocky shore during a storm. While the ship was recovered, subsequently repaired and placed back into service, it never sailed as true as it had before because of the damages sustained to its hull and keel. The owners sought compensation, were awarded and obtained full recovery for the resultant diminution in value due to the loss in the ship’s handling, performance and value.

“A Horse of Another Color”:

Another example, which occurred in the late 1800’s, was an incident whereby a motor vehicle making a turn on the city streets of Brooklyn lost control and struck a horse drawn milk wagon in the process of making its daily deliveries. The impact damaged the delivery wagon and severly injured the horse which was pulling it.
Due to the injuries sustained, the deliveryman’s horse had to be put-down. The at-fault driver’s insurance company paid the milk deliveryman to make necessary repairs to the wagon and the value of another horse to replace the one which was lost as a result of the accident.

The milk deliveryman eventually sued the driver because while perhaps the replacement horse may have been younger, bigger and likely stronger, and trained to pull a wagon, it didn’t know the delivery route as did the previous experienced horse. It was found, whereas the deliveryman’s original horse knew, merely by the sound of the empty bottles clanking in the wire milk baskets (as they were loaded on the wagon) to move to the next delivery where, once again, it would come to a halt and wait for the delivery. This was repeated throughout the day, every day.

The younger replacement horse didn’t know the delivery route or the sounds and indicators thus requiring the milkman to lead the horse to each delivery stop, halt and tie the horse repeatedly. By the loss of his original horse, the milkman was made to repeat this step for each and every delivery throughout each day.  This loss required the delivery man to take two or more days to perform the same number of deliveries he had previously accomplished in one day or less with his old horse. The driver was awarded compensation of the diminution in value he suffered at the loss of his original horse’s experience and knowlege.

Diminished Value or Depreciation?

Diminished Value should not be confused with Depreciation!

Depreciation is defined as: An anticipated decrease or loss in value sustained over time due to age, wear, or market conditions.

Diminished Value on the other hand is: The result of a sudden and unexpected loss in economic value resulting from a sudden and unexpected loss or occurrence.

Who’s Entitled To Diminished Value?
Entitlement would depend upon the particular circumstances and need. A diminution, or loss-in-value assessment may be needed for corporate or personal and/tax related issues.                                                                                Should your damages be the result of another’s negligence, you may be eligible to collect your remaining loss from the at-fault party or their insurance carrier, if applicable. Most, if not every state, recognizes the loss in value as supported in the following examples:   

According to a November 4, 1997: Legal Memorandum by John R. Dunphy, Florida Department of Insurance: Diminished Value is defined as: “The difference between the value of the chattel (personal property) before the harm and the value after the harm or, at the plaintiff’s election, the reasonable cost of repair or restoration where feasible, with due allowance for any difference between the original value and the value after repairs, and the loss of use” 

As per the State of Oregon, Division of Insurance, Diminished Value is defined as: “After an accident, and after repairs have been made, if a vehicle is worth less than it was before the accident, its value has diminished. That difference in market value is called diminution of value. Most auto insurance policies exclude coverage for diminution of value.”

“If your damages are being paid by the “at-fault” driver’s insurance, you may be owed compensation for diminution of value. You must prove that the value of your vehicle diminished as a result of the accident. Evidence might consist of photos, Blue Book estimates, appraisals, a receipt for the fair market value sale of the vehicle, etc.”
Source: http://www.cbs.state.or.us/external/ins/consumer/auto-insurance/dim_value.html

In a “Fact Sheet” prepared by the Washington State Insurance Commissioner, Diminished Value is defined as: “The difference in the dollar amount of what your car would have sold for without damage, and the amount it will likely sell for with the repaired damage.”

Because many laws vary from state to state you are suggested to contact your state’s Department of Insurance: http://www.naic.org/state_web_map.htm

There are Three Basic Types of Diminished Value.

During the past 20 + years, Auto Damage Experts operators have been researching, investigating, and inspecting vehicles to determine Diminished Value and its causes.  This research has identified three separate areas of Diminished Value as;
Inherent Diminished Value
Insurance Related Diminished Value
Repair Related Diminished Value.

The following explanations are provided to enable a better understanding of each.

Inherent Diminished Value

“Inherent Diminished Value” in motor vehicles is based upon a widespread belief whereas:”Once damaged, it will never be the same again”. This stigma is attributed to the common instances over time whereas “inherent” appearance and operational deficiencies often times remain, even after proper and thorough repairs have been performed. The old saying, “Perception Becomes Reality” never rang so true as it does in the straight-forward, yet oftentimes misunderstood and controversial issue of Diminished Value.

Additionally, inherent diminution of value occurs at the precise time of the loss and sustaining the resultant damages.  The true measure of a damaged vehicle’s inherent loss in value can be measured as the difference in the value of the property before the loss to that after the loss, prior to or after repair.

Repair activities (i.e. repair, replacement of parts, refinishing etc.) merely aid in the recovery of a vehicle’s appearance, function and value, relative to the quality and thoroughness of the performed repair.

Inherent loss or diminution in value is real and continues to exist simply because, for the most part, no reasonable and prudent buyer is willing to pay the same price for a vehicle with a history of damages as they would for one never having been damaged. Many offer discounts for scratches and dents on appliances, electronics and dented cans of beans, why then would the value of a once damaged motor vehicle not be negatively affected?

“Inherent Diminished Value” is based on public awareness that even if a damaged vehicle is repaired to the best of human ability, it will still exhibit remaining deficiencies and inconsistencies from the pre-loss condition of the vehicle.  These deficiencies include, but are not limited to:

• Weaker structural components that appear cosmetically sound
• Impossible to duplicate factory seams, sealers, and finishes
• Telltale signs of repair, such as paint missing off the heads of bolts etc.
• The unavailability of some factory decals, and markings (e.g. VIN labels)
• Undiscovered kinetic damage throughout the vehicle
• The increased likelihood of a mechanical failure due to direct and/or kinetic damage
• The effect that the repair will have on the future deployment of the SRS (air-bag) systems
• The unfeasibility of duplicating immersion and/or robotic applied rust-proofing techniques
• The loss of factory warrantees and eligibility of Certified Pre-Owned (CPO) vehicle warranty programs

Insurance Related  Diminished Value

“Insurance Related Diminished Value” is based upon and resultant from remaining flaws, defects, and damage, which, through their involvement, the insurer had failed or neglected to fully and/or properly address. Several examples of Insurance Related Diminished Value causing issues are as follows:

• The call and employment of inferior replacement parts
• Mismatched paint finish (e.g. whereas no consideration for paint matching activities were provided for)
• Remaining repair related residue, dirt, etc.
• The lack of replacement decals, labels and markings (i.e. belt routing)
• Overlooked or disregarded kinetic damage throughout the vehicle
• Overlooked or disregarded mechanical damages.
• Overlooked or disregarded safety issues (i.e. inspection-testing of belts, SRS systems etc.
• No allowance for application of factory sealers, sound deadening, rust proofing etc.

When an insurer negotiates the settlement of an automobile damage claim they will typically provide an estimate of repair which outlines the specific procedures, parts, and materials of which they are willing to provide for to the claimant or insured.  One of the following entities will generate this itemized listing of insurer-authorized repairs:

• An “in-house” appraiser, who is hired as a full time employee of the insurer, then trained to assess collision damage in accordance with the company’s policies and procedures.
• An “independent” appraiser who is hired as a subcontractor to assess the damage on behalf of the insurer and does so based upon the insurer’s mandates and/or guidelines.
• An employee of a “Direct Repair Program” (a.k.a. DRP) body shop, who agrees to prepare the repair estimates using the guidelines (parts, labor/material rates etc.) established by the insurer in exchange for the insurer’s direct referral of customers.

In some instances, the insurer will offer to pay based on the lowest of three estimates.
This may cause the level of compensation to be based upon the estimator with the least experience, inspecting the vehicle for the shortest period of time, using the poorest repair techniques, and/or overlooking the most damage. Additionally, there are those less scrupulous repairers who may intentionally underbid the repair to “seize the keys” only to submit a supplement for additional costs during the actual performance of repairs.

Auto Damage Experts’ appraisers are trained and experienced in providing accurate and comprehensive damage and repair assessments, providing for the necessary and recommended processes and procedures.
The employment of parts and materials, as needed to restore a damaged vehicle to its pre-loss condition in safety, function, appearance, and value to the best of human ability, has proven time and again to reduce claims for Diminished Value and other associated liabilities including, among others, costly re-repairs and avoidable ‘loss of use’. Let us ADE you in a proper damage assessment.

Repair Related Diminished Value

“Repair Related Diminished Value” is based primarily upon remaining flaws and defects resulting from improper and/or insufficient repairs for which the repairer had agreed and provided consideration to complete in a workmanlike manner.  Poorly performed repairs would cause the vehicle to be valued less than if it had been properly and thoroughly repaired.
A few examples of such repair related flaws and defects are as follows:

• Poor structural, and/or cosmetic welds
• Frame/structural repair listed on the insurance estimate, but not completed properly and/or thoroughly
• Telltale signs of repair, wavy body work, sand scratches, paint overspray etc.
• Damage and/or removal of irreplaceable factory decals, and markings
• Undiscovered, overlooked or disregarded kinetic damage
• Undiscovered, overlooked or disregarded mechanical/electrical damages.
• Undiscovered, overlooked or disregarded damages/testing SRS systems.
• The failure of duplicating factory appearing sealers, sound deadening, rust proofing etc.
• Remaining flaws (paint-runs) and defects (dirt, etc.) in applied finishes
• Mismatched color after “tinting” and “blending” processes were provided for
• Sanding scratches on moldings, glass, and trim

Many average consumers are perfectly capable of finding such remaining damage and/or repair related flaws and defects, as well as residual indicators as may be found in a high quality repair. In many instances, only the trained eye of professionals, experienced in the repair, purchase and/or sale of motor vehicles may find such remaining flaws and defects.