She refused to pay diminished value – here’s why you should, too

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.

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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.

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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.

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She played it like an insurance boss, refusing to line the pockets of the rental car company – and won.

Should rental car companies be allowed to collect diminished value when they oversee their own repairs?

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Jessica Monsell

A writer and natural advocate, Jessica joined our consumer advocacy effort following a decade of work on behalf of air crash victims at one of the nation's largest plaintiffs' law firms. She has lived in Europe and Asia, but now calls Charleston, S.C. home.

  • sirwired

    Independent of regulations in each individual state, diminished value, as a concept, certainly is valid. During a wholesale auto auction of late-model cars, one thing professional bidders do is poke the car on every panel with a paint thickness meter looking for accident damage repair. If a car has had any paintwork done to metal body panels, the resulting bids are almost certain to be less.

    Certainly if I was buying a used car, I’m going to offer less if the car has been in an accident; it’s completely impossible to bring the car up to “pre-accident” condition, because a paint job done in a body shop simply cannot be done to the same standards as the factory. (The higher-quality factory paint requires curing temperatures higher than a complete car can be subjected to.)

  • The Original Joe S

    Which is to say that the best judge money can buy ruled in favor of Porcupine Motor Werks [ OH, BMW – I keep confusing the two ] when they sold a guy a car that had been smacked and repaired. Judge said it was good as new. It’s NEVER good as new. Once you break the paint, it rusts.
    Write on the contract you execute to buy a car: NO SMACKED UP CAR WILL BE ACCEPTED. Have a LAWYER write up the words to protect you. Even then, you might get scrood……

  • And what in hell is “Add on”?

  • jim6555

    Good question, I was wondering the same thing.

  • Pat

    Diminished value is not a questionable concept, it is the law in Georgia. The insurance companies have a formula they have to follow in calculating diminished value. When you attempt to sell a car, the Carfax will show the car was in an accident. I was t-boned I got a check for diminished value and when I traded in my car, the trade in value was reduced because of the accident. The OP got lucky in having it reduced and eventually zeroed out. In Georgia, she would have gotten nowhere with her complaint.

  • taxed2themax

    I have to go against the majority here.. I DO think it’s valid.. I say this because when I as an individual consumer go shopping and see an item that’s marked down as repaired/refurbished EVEN IF that repair/refurbish was done by the original manufacturer and has the exact same specs as traditional new item AND carries the exact same warranty, I expect it to be priced at a discount.. because in the end it IS a damaged/defective item.. but.. yes, has been repaired… but again, that does not and should not obscure the fact that the item was previously damaged/defective and/or repaired.

    As cited by sirwired, the reality is that the perceived economic value of a post-accident repaired vehicle IS lower.. True, not all repairs are of the same value; by that I mean a broken and repaired/replaced door handle versus a broken and repaired/replaced transmission I think will have radically different economic deductions — but in the end there is, and in my book, should be an economic adjustment made for this.

    Now, I will say that i think it’s very tricky to pin down to a fixed number, exactly how much that discount is or should be, but to the larger question as to it’s ‘legitimacy’ if you will – for me, I think it’s legit in that a previously damaged, but later repaired item is, to me at least, not the same in terms of economic value, to one that was not/has not been damaged and later repaired.

  • DChamp56

    The opposite of an “Add Off”? *chuckling*

  • Byron Cooper

    This was a large enough claim to notify the insurance company, unless the OP had too many accidents. The auto insurance would have settled the claim with the car rental and the credit card would have covered the deductible. Some credit cards offer primary car rental insurance and you can buy primary car rental insurance from American Express for a pretty low fee.

  • Daddydo

    Let’s face it. Renting a car is the #1 highest complaint in my industry. Shakespeare once quoted ” let’s kill all the lawyers,” was stated by Dick the Butcher in ”Henry VI,” Part II, act IV, Scene II, Line 73″. In travel please substitute “car rental companies for lawyers”.

  • MarkKelling

    So, it is OK for an individual to collect diminished value but not a company? Help me understand this. Was the diminished value amount collected by the individual OK because of the time it took to get the car repaired? Or was it OK because the loaner car was not up to that individual’s standard?

    And diminished value is real, especially if the wreck was reported to a company such as Car Fax and can be found by potential buyers. Let’s say you see 2 identical cars on a used car lot priced exactly the same. Same make, model, color, year, mileage, etc. But one has been in an accident and repaired to the original factory finish Which one are you buying?? If diminished value is not real, then it doesn’t matter which one you buy. But I bet everyone will choose the one that has not been damaged. I might buy the repaired vehicle, but only at a significantly lower price. Therefore, diminished value is real. What I might have issues with is how it might be calculated and who does the calculation.

  • Lindabator

    I think she misunderstood – the lease company could not collect for HER, as she was the one who collected. But diminished value is a legit claim, and the law in some states

  • Rebecca

    I once had a car repair bill for nearly $17k. Someone crossed the center line and hit my husband head on. The car was only a few months old and had less than 4k miles. The car was cursed, it was in 3 additional accidents (all 3 of which I was at a complete stop, twice at a light and once in line at the drive through – so 4 accidents total that were unavoidable and not our fault) AND it was in a flood. Our underground parking garage flooded. Fortunately, we leased it.

    My point is, the thought that the vehicle didn’t lose value due to these incidents, despite the fact it was repaired at the dealership, is ridiculous. In fact, I think anyone that would buy the car is an idiot, quite frankly. So, yes, diminished value is definitely valid.

  • pauletteb

    Porcupine Motor Works . . . one of my favorite jokes!

  • pauletteb

    Doesn’t Carfax only report repairs paid through insurance?

  • PsyGuy

    Yes, but that quote is often quoted erroneously out of context. The Butcher was attempting a major scheme that if there were no lawyers there would be no one to pursue justice for the wronged through the courts, in essence eliminating the defenders of virtue.

  • The Original Joe S

    So, you DO know the difference, hah? {:>)

    Yeah, BMW makes CARS, too!

  • joycexyz

    Good point. How else would they know?

  • just me

    Usually AmEx is pretty good dealing with the car rental companies. On the other hand which AmEx card has so limited cover anyway?

  • michael anthony

    Most comments aren’t looking at it from the OPs problem, but if they were buying a used car. So, that means you’d willingly pay a diminished value charge, almost equal to the repair costs. If insurance companies don’t pay, why should a consumer? It’s completely arbitrary, meaning you could get hit hard, with no reason for the amount. Talk about bogus!

    Not all states have these laws, but if they do, the law should include diminished value charges, like say $500.00 for every $2000 in damage. (Just an example). I would refuse to pay, since insurance doesn’t pay. Let them take me to court. There is no way anyone can predict the value of a car, even a few years down the line. If a rental car had a number of repaired fender benders, collecting this charge could bring them more profit than the same car could bring on a sale a few years from now, if the market turned away from that model. Generous readers today.

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