BodyShop Business
Another Leg to Stand On? Diminished Value

Jason Stahl
10/1/2007

I’m not sure if you paid any attention to a recent story about an Ohio court ruling that an insurer had to pay for the “diminished value” of an insured’s car after a wreck. You probably should have in cased you missed it.

Duke and Cheryl Rakich bought a GMC Yukon for $49,000 in 2003. A few months later, the Yukon was broadsided. Nationwide Insurance paid $8,000 for repairs, but when the couple decided to sell the car, fearing it was no longer safe, they received offers roughly $6,000 less than if the car hadn’t been in an accident.

The 10th Ohio District Court of Appeals in Columbus ruled that the couple could seek more than the repair costs, and could ask Nationwide for the car’s “diminished value.”

The feeling is that this ruling could have implications statewide, and consumers could make out to the tune of millions of dollars. Some feel it could make an even bigger ripple and influence other cases in other states.

So what does it mean for collision repairers? Phil Mosley, general manager of Mercedes-Benz Collision Centers in Ameila, Ohio and West Chester, Ohio, watched the case closely and feels that it could raise the bar for repairs.

“It gives [collision repairers] a strong leg to stand on with repair procedures and pushing back on garbage parts,” Mosley says. “If [the insurer] pushes for a crap repair, not only is it going to be exposed to the inherent diminished value, but also to further diminished value because of the substandard repair. So our argument will be, ‘To mitigate the diminished value period, it’s in everyone’s best interest to do the repair properly.’”

Erica Eversman, chief counsel for Vehicle Information Systems in Bath, Ohio, agrees, but says it will mostly benefit those shops that don’t have DRP arrangements with insurers.

“Those shops will be able to tell their customers, ‘I will make certain that I’m assisting you in recognizing that you have the ability to collect diminished value,’ thereby promoting their businesses and showing that they’re looking out for consumers. DRP shops, for obvious reasons, won’t tell their customers that,” says Eversman.

“Inherent diminished value,” as referred to by Mosley, is the automatic and unavoidable loss of market value simply due to the fact that a motor vehicle has been involved in an accident. Both he and Eversman, as well as others in the collision repair community, believe it exists, but insurers traditionally have not. Those who believe it exists argue that once a car has been in an accident, no matter how well it’s repaired, there’s a negative perception in the marketplace that brings its value down. Insurers generally have taken the stance that once a car is repaired, there is no diminished value whatsoever, inherent or otherwise. The court ruling seems to have cleared this issue up.

Another potential benefit this ruling could have to collision repairers besides allowing them to push for more quality repairs, says Eversman, is to curb insurers’ incentive to underwrite estimates. “This will ultimately encourage insurers to take into account what the true anticipated cost for repair is,” she says.

A potential negative consequence of the ruling is that insurers will start totaling even more cars to avoid being on the hook for diminished value.

“Eventually, insurers will be more likely to total cars that need to be totaled because they will have to factor in potential diminished value that they’ll have to pay to at least the third party,” says Eversman. “But it may take awhile to work its way into the marketplace before we see that.”

Nationwide had until September 8th to appeal to the Ohio Supreme Court, but a check with court records indicated it had not filed an appeal as of that date. According to Eversman, if an appeal was not filed, the decision would only be binding on courts in the county in which the case was originally filed.

“Still, this decision would be persuasive in other courts,” she says.

Jason Stahl, Editor
E-mail comments to jstahl@babcox.com



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