Lessons Learned about Farmers Insurance Diminished Value and Rental Car Reimbursement

Or, How Not to End Up Like Me Losing Thousands of Dollars

FIRST: I AM NOT A LAWYER. DO NOT TAKE ANYTHING SAID HERE AS LEGAL ADVICE. The information provided on this site does not constitute legal advice and must not be used as a substitute for the advice of a qualified lawyer. It is provided solely for use as a reference. If you need legal advice, you may wish to consult an attorney

About a year ago, my wife was hit by a careless driver, putting her brand new Mercedes CLK Convertible in the shop for over a month. I expected that since the accident wasn’t our fault, we would be reimbursed for all our rental car expense (while the car was getting repaired) and be reimbursed for the Diminished Value associated with the car now that it’s been tainted in the marketplace. I also expected that since this case was pretty cut-and-dry, and we had all our facts straight, so it shouldn’t be much of a hassle.

I was completely wrong.

I hope to help others avoid a similar fate. However, I am not trying to cover any Personal Injury-type damages, the web is already littered with information about handling these claims. However, the web is not so littered with painful lessons learned trying to recover property damage. Unlike Personal Injury claims, where a victim can stand to get a decent payout (although not without suffering for it), Property Damage claims are about recovering what you’ve already lost and it is very easy for one to lose money if you don’t know how to handle them. And the nicer the vehicle you were driving, the more you have to lose.

But before I begin, there are two persons I would like to thank tremendously for their help and input. One is “Dr. Settlement” who maintains the fantastic website SettlementCentral.com . The other is David Williamson who maintains a wealth of knowledge at SafeCollisionRepairs.com. I owe them both very deeply for their help and insights. My losses could have been prevented had I discovered them earlier. Spend some time on those sites and you will not be the unknowledgeable person the insurance companies are hoping you to be.

Let’s get started. There are two aspects of property damage which I became painfully familiar with: rental car reimbursement, and Diminished Value.

First, let’s knock out rental car reimbursement. I didn’t have the coverage on my policy because I believed that if I didn’t cause an accident, the at-fault driver’s insurance company should pay for the rental. In a perfect world, I am right. But bridging to reality, a couple of things to be aware of here….

In a perfect world, you would be put into a vehicle exactly like the one that the other driver wrecked. In fact, lots of internet research seemed to back me up on this theory – you will see all over the net that the not-at-fault party is entitled to a “similar vehicle”, “comparable vehicle”, “vehicle of comparable quality”, etc. I wrote the Texas Department of Insurance (TDI) and asked them what THEY believed the “similar vehicle” standard meant, because if they said anything like similar value (i.e., MSRP) then I was going to hold it in the insurance company’s face. However, the TDI replied that they only interpret it as a vehicle of similar FUNCTIONALITY – i.e., you had a sedan and you get a sedan, you had a coupe and you get a coupe, etc. The value or prestige of the wrecked car is irrelevant. DON’T RENT A HUMMER JUST BECAUSE YOUR ESCALADE GETS WRECKED.

Note that just because the TDI took that position does not mean that you would never see any reimbursement if you rented on your own a truly similar cost vehicle. Under the principle of Tort law, the at-fault driver has the obligation to put you back to the exact same position you were had they not caused the wreck, and under that principle you may have a good case. The TDI opinion just means don’t expect the TDI to fight for you if you file a complaint with them against the at-fault insurance company, which was my original plan if they didn’t pay my full rental cost (we rented a G35). You would have to recover the cost of your rental in court (either small claims or a full trial), and even there you would be subject to a judge or jury who might not feel very sorry for you if you were driving an expensive car.

What I recommend instead: If you don’t have rental reimbursement on your insurance policy, as soon as the accident happens, QUICKLY get on the phone with the at-fault insurance company and see what they will do for you regarding a rental. The key here is that this will mitigate your exposure to losses, because if you pay for a rental yourself (as I did) then the only way to recover more than what they are willing to give you for it is to recover it through a lawsuit.

Some insurance companies try to be cheap as possible and will only reimburse you for a car of similar functionality, i.e., the cheapest one they can. Others try to do a little better and attempt to get you into something reasonably similar. If the insurance company is willing to do the latter, I highly recommend working with them on it instead of getting a nice rental yourself and exposing yourself to the risk of not getting fully reimbursed.
The additional benefit of having them cover the rental costs is that it will keep your total claim amount down, which makes it easier to use Small Claims Court later on.

MAKE SURE YOU GET A POLICE REPORT, AND MAKE SURE IT CLEARLY STATES THE OTHER DRIVER WAS AT FAULT. Sometimes, even in a case where the fault is clearly the other persons, if the police report doesn’t state it as such unequivocally, the at-fault insurance company won’t admit full fault and having to sue the other driver is guaranteed. The way insurance companies make money is by following a very simple mantra – “Delay, Deny, Defend.” Unless the fault is clearly shown on the report as the other person’s, the door is wide open for them to deny fault. In my case, even though anyone could see the other driver was totally careless, because it happened on private property (a shopping mall parking lot) the police refused to write a report, so it was our word against theirs and the insurance company took advantage of that and only would admit to 70% fault. Under a case like this, the insurance company might offer you a rental but want you to pay for the other 30% that they say was your fault (called “Comparable Negligence”). As long as you don’t have to sign a release saying that you waive all right to sue the at-fault driver for property damage if you accept the rental, I’d say go ahead and use their rental because the amount you would need to sue for would be less, and since your best chance of recovery is in small claims court, it is imperative to keep the total claim amount as low as possible. Save it for Diminished Value!

By the way, the simple ease at which the at-fault insurance company can simply put some of the blame on you no matter what the facts are makes it ABSOLUTELY IMPERATIVE that you get the name and contact information of as many witnesses as possible immediately after the accident. Phone numbers definitely but email addresses are key since email ranks fairly low on the intrusiveness-scale and that makes it more likely the witness will respond. Either way, write or call them as quickly as possible after the accident, to avoid the insurance company trying to claim the witness’ memory is cloudy, and get a short statement from them in writing. Having that makes it much harder for the insurance company to place fault on you, and will make your recovery much better.

At the end of the day, the motivation for the at-fault insurance company to work with you and pay what they truly owe you comes down to one simple question they ask themselves: If the victim files a lawsuit, is their case strong enough that they we would have to pay what they are asking. So the more evidence you can show the insurance company upfront to make them realize that they will lose, the more likely they are to admit realities such as fault. Plus, showing a judge or jury that you showed this evidence to the insurance company but it was ignored it helps paint the insurance company as being unreasonable, and that will win you sympathy which can sometimes be more valuable than facts, especially if you can demonstrate “bad faith” dealings on their part.

One other thing: If you have your own alternate means of transportation while your car is in the shop, speak with the at-fault insurance company and get a clear answer on whether or not, if you do not use their rental, you will be reimbursed for “loss of use.” The reasons for this is, if you can find your own means to get around, if the insurance company will pay for “loss of use” then you can collect that cash whether you rent something or not. Make sure of this up front though because some insurance companies will only reimburse you if you actually paid for a rental.

If you get your own rental, I highly recommend against getting any of the optional coverages, such as Loss Damage Waiver. The reason for this is that 1) your insurance company should cover the rental under your normal coverage when the rental is replacing your normal car, and 2) you will likely not recover any of that expense even in court, and definitely not from the insurance company. I’m out almost $600 for that alone because I didn’t fully think it through.

That’s about it for rental reimbursement. Whoever would have thought it could be so tough. Now let’s get on to the truly hard topic: Diminished Value (DV).

If you’re reading this, you already have a good idea what Diminished Value is. For those who don’t, essentially it is the loss of market value a vehicle sustains as a result of having been in an accident. There are two subcategories of Diminished Value:

“Repair-Related Diminish Value”: This is the loss in value of the car because the cosmetic or structural repairs were less than optimal. Generally, this type of DV you can see – paint colors not matching, the frame is still a little crooked, there is now air flow noise where there wasn’t before, etc. This kind of DV is less contentious compared to the other category, because Repair-Related DV everyone can touch and see.
“Inherent Diminished Value”: This is the tricky one, and also the one which hurts the most when you go to sell your car. This is the loss in value of the car solely due to the car having been in an accident, even if the car was repaired to the best of human ability. The reason this exists is a combination of rational concerns as well as simple market psychology. Simply put, a buyer will be willing to pay less for a car that has been in an accident, even if the repairs make it appear good as new, because of the additional risks and unknowns (be they rational or not) inherent with purchasing a car that has been in a wreck – even one that appears to have no frame damage.

Specific, rational concerns behind Inherent Diminished Value:

Are there now warranty issues that weren’t there before (the warranty may apply to only the original parts)?
Even though the car looks fine now, what problems may arise in the future that I’ll be stuck with? Did the impact jar the electronics enough to set them up for premature failure down the road? What if I hit a bump that a normal car would be fine with, would that cause problems in this car?
Has there been metal fatigue? Will the car still “fold” in the same manner during a future crash the same predictable way a virgin car straight out of the factory would?
Will the aftermarket paint age just like the original factory paint, or will there be fading differences visible to the eye?

Market Psychology concerns: Essentially a buyer’s thought pattern of, “I’m paying big money for this car. If I’m spending that much, do I really want to take a chance on one that is wrecked? Either I’m going to have to get a big price discount for taking that chance, or I’ll just find one that hasn’t been wrecked.”

Now that we know the forces causing Diminished Value, let’s talk about starting to recover it. First, in order to recover it, you first need to estimate it. There are two methods available:

Hire an expert appraiser to assess it. Do this QUICKLY after the accident so they can inspect the damage to the car before repairs start if he wants. Also, make sure they break out on their report the Repair-Related DV and the Inherent DV separately, it will provide you with more flexibility later. It is absolutely best to use an appraiser who is local to you and can actually go visit the car. There are some internet sites out there offering to do the DV appraisal without ever having seen the car; however, even if their appraisal is accurate to the penny, submitting that as that evidence would look pretty weak to a judge or jury.
Another way to determine Diminished Value is, very simply, to sell your car after it’s repaired. The value that comparable cars (similar year, options, mileage) are trading at and the price you sold yours for could be argued as the amount of Diminished Value.

Obviously, Option B above sucks if you really like your car. However, it is a much more objective data point than any appraisal and will help bolster your case if things get nasty. If your car suffered any frame damage, I HIGHLY RECOMMEND selling it if you want any hope of collecting because 1) the amount of DV will be so high that the insurance company will fight tooth and nail any DV estimate based on just the appraisal, which guarantees no possibility of them settling and 2) you don’t want to be driving that busted thing around. So having a hard data point (i.e., value determined through a real sale) is gold. Also, if it was anything more than a fender-bender, if you were ever thinking about trading in your car for something else this would be an opportune time to do it.

Once you get your appraisal of the DV amount, either:

Hope that the DV amount is so high, and your case against the other person so good, that when you add in all your other claims as a result of the accident (i.e., Personal Injury) your recovery net of your attorney’s fees will still be decent because there’s no hope of getting a reasonable payout short of filing a lawsuit. Note that if you include (normally highly contentious) Personal Injury claims in with the DV claim, if you settle at all it will likely be on the steps of the courthouse.
Hope that the DV amount is within the boundaries of Small Claims Court. In Texas, where I am, the maximum claim amount is $5,000 but it varies from state to state. Also, if the total amount of DV exceeds the limit, hope that just the Inherent portion (which is usually the largest) comes in under the limit, because you could decide not to collect on the Repair-Related DV to ensure your case falls within the boundaries of Small Claims (in this case, you would say that you are taking up the quality of repair issue with the repair shop and not the at-fault driver.)

Unless you are trying to cash in on a huge settlement related to Personal Injury, pray you get an amount under the Small Claims limit. This is because 1) it’s more informal and therefore you can truly focus on preparing your argument, evidence, photos, etc. without having to navigate things like Rules of Evidence, 2) if for some unforeseen reason you lose, you are only out the filing fees and not the cost of a full court case, and 3) You avoid attorney’s fees.

There is one potential issue that I have been unable to determine. If the amount your Inherent DV claim exceeds the Small Claims limit, can you waive or “write-off” any amount above the Small Claims limit solely in order to qualify the claim for Small Claims Court? I’d be very curious to know the answer.

So now that you know your options, what needs to happen in order for you to recover? Before answering that, it is important to understand that your claim for damages is against the other DRIVER, not the other driver’s insurance company. It is the at-fault driver who you will sue. The at-fault insurance company is under no obligation to lift a finger to help you or even to talk to you. Their duty is only to represent and defend their insured once a lawsuit gets filed against the insured. Most of the time the insurance company will talk with you partly because they are smart enough to know that if they don’t, you will quickly file a suit, but mainly they are simply hoping that if they string you out long enough and make you think that you wouldn’t win very much, you will simply decide it’s too much hassle and go quietly away. And every time a person with a legitimate claim to damages just walks away, the cash register at the insurance company rings because they just effectively made money off that person.

Easily, the best way to ensure you get a complete and speedy recovery is to file a suit against the at-fault driver. In fact, you can argue your case to the other party’s insurance company all you want to in an effort to avoid filing, but the simple fact of the matter is that until you actually DO file a suit, the insurance company has no incentive to take any DV claim of yours seriously. Why? Because they know that 1) filing the suit will take up a lot of your time, so you might never do it, and 2) they can always settle for what you’re asking before the trial. So if there is no additional cost to them, but you have to expense time and energy to get the same payout, why would they even offer you a dime before you file? Until you actually file, there’s always the chance that you just might say “screw it” and simply go away, and that’s as good as you writing a check to them for the amount you’re due.

All that being said, there is one good reason to try and talk to the insurance company about recovering your Diminished Value even though you won’t be taken seriously until you file suit. Although this won’t get you anywhere (unless MAYBE you actually did sell you car and took an appreciable loss due to the accident, a data point they can’t argue with), talking to them before filing will definitely help your case in court (be it Small Claims or otherwise) because it will show that you made a “Good Faith” effort to avoid a lawsuit, but the insurance company ignored you and forced you to file. As stated earlier, this helps portray you as the helpless victim (who tried everything he could) who is being bullied by the big bad insurance company, and that will carry weight with both judges and juries. If you have a very expensive car, you will likely NEED to show this effort at resolving the dispute out of court, because the deck could be stacked against you if the judge/jury doesn’t feel sorry for you because you have a nice car.

If you decide to involve the other party’s insurance company, I recommend a two-phased approach. First, talk to them on the phone and get them to clearly state to you that they do not believe Inherent Diminished Value exists in your case. Argue with them a bit if you want, and ask to speak to a supervisor (they all have them, and they’re used to it), but at the end of the day make SURE they clearly state that they do not believe you are due ANY Inherent Diminished Value. Once you hear that, say thank you and hang up. Getting something in writing stating that is even better. Then, compose a letter stating why you believe their conclusion is wrong and mention that if they aren’t reasonable in an offer you will be forced to file suit. Now you have something to submit to the court as evidence of your good faith, where the first thing your letter starts off with is their unwillingness to even entertain your position. That carries weight.

The folks who field these kind of calls at the insurance company are well trained at how to duck, dodge, redirect and avoid probing questions from pissed-off owners fuming about Diminished Value. It’s like they had a Teflon coating sprayed on them by Bill Clinton – nothing will stick. The claims reps have many tricks, but the biggest one they use is to try and get you talking about the quality of the repair. As soon as you say anything related to the quality of repair not being complete, then BOOM, you’re screwed. Why? Because then they will declare that your Diminished Value claim is with the body shop that fixed your car, not the driver who hit you, and dismiss your claim entirely. You will never recover from that mistake and will be forced to file what could become a contentious suit. Keep the discussion focused on the market value of the car related to the stigma of it having been in an accident.
There are three tricks to know if you want to have fun debating the insurance companies in setting the stage for your letter to them:

YOU MUST KEEP THE DISCUSSION FOCUSED ON INHERENT DIMINISHED VALUE ONLY. The easiest way to do this is to tell them upfront, and repeatedly, that you have NO ISSUE with the quality of repairs and that the repairs were performed TO THE BEST OF HUMAN ABILITY. It is critical to use a term like “human ability” and NEVER anything like “it was repaired perfectly” because it is impossible to know what additional risk you’re now exposed to and the market will hit you for that on price when you go to sell you car.
Another trick the insurance companies will pull on you is intentionally using the word “condition” every time you try to talk about “value.” As long as there wasn’t any frame damage, the insurance company will try to say that since all the damaged parts were fixed, the car is restored to the same pre-accident CONDITION. However, your Diminished Value claim isn’t trying to recover a loss in condition. Inherent Diminished Value is all about the loss in VALUE, and VALUE is defined as the willingness of a buyer to pay in the marketplace and it reflects intangibles like market psychology and the stigma that goes with buying a wrecked vehicle. Condition, which is more based on objective reasoning and repair examination, doesn’t capture these factors affecting value. Therefore, as soon as they start using the word “condition”, tell them your dispute is not with the CONDITION, your claim is regarding the loss in VALUE.
You’ll love this one. Get a pen and paper next to you and every time they talk about condition, value or price, count the number of times that the claims rep uses the word “Should” in lieu of facts. I’ve heard it so much I can hear it in my sleep: “If the car is restored to just as good a condition as it was before the accident, it should be worth the same”, “should have the same value”, etc. etc….the key here is the word “should.” The issue though, is not how SHOULD the market value a vehicle that has been in a wreck, the issue is how DOES the market value a vehicle that has been in a wreck. Talking about how the market “should” value an accident is nothing more than a blatantly biased opinion based on unfounded wishful thinking. The only thing that matters is cold hard facts about how the market has ACTUALLY valued accident cars. And since you’re not an expert in determining post-accident value, you hired an expert appraiser who was. As soon as you mention that, they’re boxed in because they are offering no information to counter what your DV appraiser determined, they are just repeating their unsubstantiated opinion. Note though: if they assigned your claim to their own DV “expert” appraiser and he reported back that there is no DV, you will never win a “my expert is more right than your expert” on the phone or on paper – the only way to resolve this is to file suit to get them to take you seriously, which you’re going to have to do anyway. Remember, most of the time the insurance company already knows they will have to pay, they just want to make sure you’re willing to go through the hassle of filing before they give you anything.

You won’t believe some of the garbage that comes out of these insurance people’s mouths when they are trying to defend not paying you any DV. I even had one guy tell me that my wife’s 5 month old car was worth MORE after the accident because it had brand new parts put in it that an un-wrecked car wouldn’t have. These people essentially read off a script and aren’t concerned with hearing the actual circumstances or facts of your case. You can’t persuade someone who is that detached from reality; what you’re trying to do by talking to them is establish a history of them denying your claim. Don’t waste your time getting angry, you will get the last word when they pay you out after you file suit against the driver.

One other thing. If you do sell your car after the accident, make a good faith effort in the negotiation to get the best price you can for it. However, let the facts of the accident stand on their own, don’t try to hide them or talk them down. Legalities aside, this is because 1) you want the other person to know what risk they’re accepting, which is just a good Christian thing to do, and 2) the sale price of the car is a hard data point as to the amount of diminished value. You can help make up for a lower sales price due to the accident through a nice DV recovery – in fact, that’s pretty much the definition of Diminished Value!

Good luck out there everyone. If one person reads this and doesn’t repeat my mistakes, then it was worth writing.

Sincerely,

R.W.

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