Have You Been Fully Compensated by Your Insurance Company for Diminished Value After a Collision?

(Requires paid member status to access.)

This article deals with insurance in Ontario, but you may well find that its content applies for the most part throughout Canada and the USA. 

Dateline – Toronto, Ontario

May 9, 2017

by Ron E. Folkes, Folkes Legal Professional Corporation
and
Dean Renwick, President & CEO,  Professional Association of Vehicle Evaluators Inc.

 

Motorists find that if their vehicle is damaged in a collision, even when properly repaired, its value is diminished, or worth less than that of an identical vehicle which has not been damaged.  This is due to the “stigma” attached for a damaged vehicle.  Diminished Value is becoming important because the vehicle is worth considerably less at trade-in time.  Leasing companies are now claiming back diminished value from lessees when they turn in their vehicle at the end of a lease term, even if the vehicle has been properly repaired, and looks good.  Diminished Value has become a significant cost to Ontario’s motorists.

Diminished Value is also referred to as “Accelerated Depreciation” and is a widely accepted component of a claim for collision damage.  It is a type of “economic loss” arising as part of the cost of damage caused by a collision.

It is undisputed that a vehicle that has suffered damage is worth less than a similar vehicle that has had no damage.  That difference in value can amount to thousands of dollars.  In many Canadian and American jurisdictions that difference in value – or Diminished Value / Accelerated Depreciation is an undisputed component of claim settlements.  In Ontario, insurance providers continue to deny payment to consumers for Diminished Value claims.  Their policy interpretation enabling a denial of payment by insurance companies means consumers themselves are forced to cover the value diminution applicable to their damaged vehicle.

The insurance industry ensures there is a paper trail documenting vehicle damage through reporting agencies such as “CarFax”, “CarProof”, and others involved in the collection and sharing of damage information.  This information is easily available to consumers for a fee and knowledgeable consumers now request a damage history report before considering a used vehicle purchase.  New and used car dealers are reluctant to sell vehicles that have a paper trail documenting a prior damage stigma, further reducing market value.

Clearly it is unfair that a vehicle owner, lessee, or lessor should be responsible for the payment of what could be thousands of dollars resulting from a totally Not-At-Fault accident.  In Ontario, a No Fault insurance scheme is in place so the ability to sue a third party for Diminished Value has been removed.

The only avenue of recovery is against the vehicle’s insurer.  The Courts are just now recognizing the validity of Diminished Value claims.  These claims can assist motorists who are injured in the same accident.  They need all the help they can get because the insurance industry has persuaded the Ontario Government to impose a Deductible of $37,400.00 on most motor vehicle personal injury claims as a result of insurance legislation “reforms” adopted in 2016.

To be successful, a motorist needs to have proper legal advice and a Diminished Value report from a recognized appraiser who is skilled in assessing Diminished Value.  Otherwise, the motorist will likely be defeated by the “maze” which the Ontario insurance industry has put in place to resist these claims.  One can only wonder how many millions of dollars of benefit the insurance companies realize each year through these denial tactics.

The insurance industry in Ontario has closed ranks in mounting a united refusal to acknowledge the very existence of Diminished Value claims in spite of overwhelming evidence across Canada to the contrary.  The most relied upon defense presented by insurance companies when presented with a claim for Diminished Value is that “it is not covered under the Ontario standard auto policy”.  Until recently that defense has worked to their favour since the implementation of No Fault insurance in the numerous claims brought about by consumers who have seen their vehicle’s value diminished as a result of Not-At-Fault collision damage.

An exceptional departure in court opinions was achieved in late November, 2016 with the case identified as (Renwick v. Allstate Insurance Co.).  This case has been documented in weekly issue Number 132 of the Ontario Reports review of significant judgments published by the Law Society of Upper Canada.  In this case Plaintiff Renwick’s Jaguar car was damaged by a reversing Penske rental work van resulting in a broadside collision occurring in December, 2014.  Both vehicles were insured by separate insurance companies at the time of the accident.

Mr. Renwick retained Brampton-based solicitor Ron E. Folkes of Folkes Legal Professional Corporation after an immediate denial of his Diminished Value claim by Renwick’s insurer – Allstate Insurance Co. of Canada.  Mr. Folkes presented Renwick’s Diminished Value claim on the basis the amount claimed was part of the claim for damage from the collision, and not a separate claim for Diminished Value.

Five hearings took place in Toronto Small Claims Court spanning a period of almost two years and at each hearing the Judges agreed with Mr. Folkes’ “novel position that Diminished Value is a cost of repair” and ruled there was “enough evidence to proceed”.  Mr. Folkes’ submissions stated “calculation of damage should include both physical and economic damage”.  An out of court resolution was reached between the parties in late 2016.

Diminished Value claims in Ontario appear most appropriate for vehicles less than five years of age that have incurred in excess of $5,000.00 damage.  It is generally accepted that newer and lower kilometerage vehicles will incur higher rates of value diminution than older vehicles with high kilometerage.  High valued and/or low production vehicles are particularly vulnerable to value diminution as a result of damage.  For older and/or high-use vehicles the actual value diminution may be nominal and therefore it would not be cost effective to pursue a Diminished Value claim.

Consideration of a Diminished Value claim would not normally be appropriate for a restored antique, or collector vehicle.  A Diminished Value claim for this type of vehicle may however be appropriate where the damaged vehicle was considered as a “Preservation Class” vehicle of any age that was completely original and un-restored.  Due to Not-At-Fault collision damage requiring repainting of a substantial portion of the body of the vehicle, it would no longer be considered in the “Preservation Class” because a significant part of the vehicle’s value and desirability were lost as a result of the repair of the damage.  A diminution of value in that event could result.

 

DIMINISHED VALUE TERMINOLOGY

There are three distinct categories of Diminished Value that can result in accelerated depreciation recognized by the legal system. Those three categories are known as:

(1) Inherent Diminished Value – occurs when a vehicle has been collision damage repaired with details of the damage, repair, and possible warranty revocation being reported by the insurance industry to CarProof, CarFax, and/or the Ontario government, the resultant paper trail and stigma makes that vehicle worth less than a similar vehicle that has not been collision damaged.

(2) Repair-Related Diminished Value – occurs above and beyond Inherent Diminished Value when the damage repair was completed improperly or in a substandard manner.

(3) Insurance-Related Diminished Value – occurs above and beyond Inherent Diminished Value when an insurance company reduces the cost of damage repair by insisting on the use of non-OEM parts, and/or non-industry standard procedures.

An Alberta Superior Court has ruled that while there are three distinct categories of Diminished Value, they are not viewed by courts as being separate categories but merely “factors that may inform the quantum of an award for Diminished Value”.

Inherent Diminished Value in the context of a damaged vehicle has been defined by the Professional Association of Vehicle Evaluators Inc, (P.A.V.E.) and others as being:

“the difference that occurs in the Inherent Actual Cash Value of a vehicle immediately before damage occurs, and immediately after damage repairs are completed”.

Actual Cash Value in the context of a damaged vehicle has been defined by the Professional Association of Vehicle Evaluators Inc., (P.A.V.E.) and others as being:

“the highest price expressed in terms of money, that the vehicle would bring in an open and unrestricted market, between a willing buyer and a willing seller, who are both knowledgeable, informed, and prudent, and who are acting independently of each other”.

 

CLAIMING FOR DIMINISHED VALUE

A damage repaired vehicle owner or lessee must consider the costs that will be incurred to bring about an action to recover Diminished Value damage against the probability of achieving a successful award for damage.  It is strongly recommended a vehicle owner or lessee speak with a licensed and insured appraiser member of the Professional Association of Vehicle Evaluators Inc. (P.A.V.E.) who is experienced in the handling of Diminished Value appraisals before making the decision to proceed with a claim.

A Diminished Value appraisal requires considerable research before presentation to a Judge.  The burden of proof remains with the vehicle owner/lessee Plaintiff to quantify their claim of inherent Diminished Value.  The concise collection and presentation of reliable evidence and research data through a professional appraisal report will assist the court in making its decision.  Appraisal formulation is an area of a Diminished Value claim that is more effectively handled by a P.A.V.E. professional rather than a novice.

An individual can claim for Diminished Value damage up to $25,000.00 in Ontario Small Claims Court.  Where Diminished Value damage exceeds $25,000.00 a claim will be heard in an Ontario Superior Court of Justice.

Diminished Value cases at all financial levels are complicated.  Claimants are encouraged to retain a lawyer with Diminished Value experience to navigate the court system and respond forcefully and effectively to insurance company defense lawyers.  Claimants who choose to self-represent against an experienced insurance company lawyer place themselves at a severe disadvantage.    

 

Ron E. Folkes can be reached at: ronefolkes@folkeslaw.ca

Dean Renwick can be reached at: deanrenwick@trustpave.com