When Peggy Smith rented from Budget in Salt Lake City last October, she had a little fender bender. As Smith admits, it was a single car accident and she wasn’t hurt. She reported the accident to police because she thought the rental car coverage provided by her American Express card would cover the damage.
As it turns out, her credit card only reimburses the deductible on her primary auto insurance policy, but Smith didn’t want to make a claim with her own insurer. Several months later, she received a bill for $3,392, broken down as follows:
- $1,692 for damages
- $139 for “loss of use”
- $135 for administrative fees
- $377 for “add on”
- $1,047 for “diminished value.”
That last pesky detail – diminished value – is what brought her to our doorstep.
Diminished value is a term used to describe the inherent economic loss to a vehicle as a result of having been damaged. The concept is questionable at best, and is only recognized under the law in some states. Smith refused to keep opening her wallet for what seemed to be a money grab — and here are some reasons you should follow her lead.
Though Smith accepted liability for the accident and wanted to pay for the repairs in cash, she simply couldn’t accept paying $1,047 for “diminished value,” in particular when she says the damage to the car was “purely cosmetic.”
“The car was fixed,” Smith recalls, “so $1,047 is an absurd diminished value amount. It should be zero.”
Often when a customer is charged for the costs of rental car repairs, insurance companies refuse to pay additional fees, such as diminished value. The reason, insurance experts say, is that the figure assigned to such a loss is completely arbitrary. Any loss of value to a vehicle can only be proven when the car is sold, and prior to sale, it’s too nebulous to pay out. By virtue of adhesion contracts, rental car companies are contractually allowed to collect many fees, which are a money maker for them.
Another junk fee called “loss of use” is also passed on to the rental customer following an accident, since insurance companies won’t cover it either. Loss of use is a fee designed to compensate the rental car company for not being able to rent the car while it’s in the repair shop. Insurance companies won’t pay this, because unless a rental location proves that they had no other cars available to rent to customers – something rental companies often can’t do – it’s not a loss actually sustained by the company.
Smith dug in her heels about the diminished value and began to argue with the Budget adjuster about the validity of the claim. The Budget representative told her that:
in the case of [her] Salt Lake City accident, four separate body panels were damaged. [She] rented a 2015 Taurus SHO which had a value of almost $30,000 at the time of the accident. Budget obtained an independent estimate of the diminished value for $1,047. This is about 3 percent of the value of the vehicle at the time of the accident and is a very reasonable calculation of the diminished value of the car.
This value is a best-guess figure, and for corporations, diminished value is pure profit. A few years ago, a driver rear-ended my leased Honda, resulting in some pretty significant damage to the car. In fact, repairs to the car took 89 consecutive days, during which time the liable party’s insurance covered the cost of an inferior rental car. There were no significant injuries in the collision, and although I’m not an attorney, I settled my own claim against the other driver’s insurance company, Allstate.
After 89 days in a poor excuse for an “intermediate” rental, I was pretty bent about the situation, and wanted to maximize my claim. I researched what claims are available under South Carolina law, and discovered diminished value. The figure is based on the severity of the car’s damage. In my case, on the basis of the car’s “frame time,” that is, how long it took for the car to be “uncrushed,” I was able to negotiate a diminished value of a few thousand dollars.
Yet I was weeks away from turning in my leased vehicle, so I didn’t really think I was entitled to that money. I had no plans to sell the car – and regardless of the fix, I really didn’t want to drive it anymore.
When I collected my settlement check, I disclosed to the leasing company that the car had been in an accident and repaired with OEM parts, and that I had collected diminished value funds. The leasing company told me that as long as the car is repaired to its pre-accident condition, the leasing company has no legal right to diminished value funds.
No legal right. It was a money grab, and I used the funds as a down payment on my new car, not long thereafter.
During the course of Smith’s negotiations with Budget, the company eventually reduced its diminished value claim by 50 percent, to $524. A few months later, Smith told me that her attorney had written a letter to Budget, which dropped its diminished value claim entirely.
Insurance companies are rental car companies’ biggest customers. Until rental car companies can play nice by providing timely documentation to substantiate claims and prove actual — not imagined — losses, customers should do exactly what Smith did, and just say no.
She played it like an insurance boss, refusing to line the pockets of the rental car company – and won.