What is Diminution of Value?

Rachel Burkot

Diminution of value, or diminished value, is the loss of financial worth of something because of damage. This concept often refers to vehicles, property, or other financial investments. With vehicles, the amount depends on whether inherent diminished value or repair-related diminished value was the cause of the loss. If the loss is inherent, this means that there is some problem with the vehicle that was not caused directly by an accident. Repair-related diminished value refers to the loss of value following repairs after an accident.

Diminution of value claims are most commonly recognized when a vehicle is damaged due to no fault of its driver.
Diminution of value claims are most commonly recognized when a vehicle is damaged due to no fault of its driver.

The amount by which the value was diminished also depends on the extent of damage that was done. One example is the difference in the amount someone would be willing to pay for two vehicles if they were exactly the same, except for the fact that one was damaged in an accident. Therefore, it is extremely important before buying a used car to ask whether it has ever been in an accident.

Diminution of value claims are usually recognized when another person was at fault. First-party claims are those in which the victim who is making the claim is at fault. Diminished value will typically not be recognized in these cases, and insurance agencies are quick to point that out. Insurance agencies will not always reveal that third-party claims are almost always recognized, however, and the damage can be collected by the victim from the other person’s insurance. This is governed by law, which typically states that the victim’s circumstances must be restored as much as possible by the person who was responsible for the accident.

A settlement that addresses diminution of value is the simplest way to sort through the aftermath of a car accident. The victim should file a claim for the diminished value of his or her vehicle. If, however, the victim was also the cause of the accident, it becomes a first-party claim. This is handled according to the vehicle owner’s insurance policy. If the insurance company refuses to pay the diminished value, the vehicle owner may be able to hold the company accountable.

When this term is used to discuss property, it refers to damages to the property that reflect a decrease in value. The consequences for diminishing the value of property are often spelled out in a contract for that piece of property. In building contracts, it means the difference between the value of the building at the time it was constructed and its value after the damages occurred.

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