Inaccurate Diminished Value Formulae

There have been a myriad of formulae used to settle individual diminished value property damage claims in the past. In the past, individual claims were handled on a case by case basis with the consumer receiving a trade-in quote from a local dealer, and the insurer making a lower counteroffer. The Federal Government does not recognize a dealer’s assessment of "trade in" value as a viable method for claiming a tax deduction for an uncompensated property casualty loss on an automobile. The biased motivations and conflict of interest in both the dealer’s opinion, as well as the insurance adjuster’s opinion, would render both useless as biased for any determination or evidentiary proceeding.

The State of Georgia Insurance Commissioner’s Office has been providing insurers in that state with a formula for calculating Diminished Value since at least 1996. It appears that the formula was produced in 1991. This formula was used by Hartford Insurance on an insured’s vehicle on September 18, 1998.

The most recent use of this formula was in 2001, Mabry vs. State Farm Mutual Auto Ins. Co., No. SS-99-CV-4915 in which gave the formula its name:

The Georgia 17-c Diminished Value Formula

The Formula is as follows:

10% of ACV x Damage Modifier x Mileage Modifier = Loss of Value

Consumer Collision Services Inc. analyzed the formula provided by the State of Georgia, and has found numerous flaws, inconsistencies, and inaccuracies. The Formula itself states "While the formula provides a good figure on which to base a loss of value claim, there are many circumstances that will require additional consideration in determining the loss of value if any." This statement apparently acknowledges the inaccuracies of the formula provided by the State of Georgia. For a complete Diminished Value formulae to be fair or accurate, it must take into consideration all known causes of loss in value attributed to a damaged and repaired vehicles. While the 10% of retail price may be a legitimate starting point for Inherent Diminished Value, it is in the area of the Damage Modifier, and Mileage Modifier where inaccuracies occur.

Damage Modifier :: There are numerous problems which exist with the Damage Modifier as applied using the formula provided by the State of Georgia Insurance commissioner’s Office. The following examples are all possible using the methodology introduced using this Damage Modifier.

Example 1 :: A 1998 Mercedes Benz E320 W with 8,000 miles has driven up an embankment at 40 MPH and gently rolled over on its roof. There is no structural damage yet the entire right side of the vehicle’s exterior sheetmetal must be replaced along with the roof, sunroof panels, front bumper assembly, etc. etc. etc. The repair requires welding in a new roof and rear quarter panel and refinishing two thirds of the automobile.

Applying the above formula as described:

According to this formula, this vehicle would suffer no loss in value from having sustained approximately $22,000 in damages!

Example 2 :: A 1996 Corvette is stolen and vandalized. The convertible top is ripped, seats are damaged, dash has been vandalized, and it has sat exposed to the rain for over three weeks in police impound causing water damage in the interior. The car has 2,300 more miles then it had previously (total 21,000), has key scratches over several panels, and has been abused mechanically as evidenced by the bent shifter mechanism and worn rear tires.

According to this formula, this vehicle having suffered approximately $9,000 in damages, and untold hidden damaged, has suffered no diminished value. The premise being that consumers in the market for used cars would be just as willing to purchase this vehicle for the same price as one which had sustained no damage whatsoever. The formula also does not take into consideration he collectible status of a Corvette automobile.

Example 3 :: A 1997 Buick Park Avenue is involved in a violent storm and sustains hail damage over two thirds of the vehicle. The hailstones are small, and all panels are repairable, but each requires extensive body repair and filler. The entire vehicle will require new paint. The insurer refuses to pay for removal of moldings and trim, sanding and buffing, and numerous other procedures, which may dramatically improve the quality of the repair. The car is used for real estate sales and has high mileage (43,000).

According to this formula, the vehicle in this example would have no Diminished Value. The finished product had multiple flaws and defects caused by the insurer’s refusal to pay for all procedures such as paint on molding and trim, flaking paint near the handles and locks, and minor imperfections in several surfaces which could have been eliminated by sanding and buffing. The vehicle itself has been painted all over, and now has filler in two thirds of its panels. The premise of the formula is that once again that consumers in the market for used cars would be just as willing to purchase this vehicle for the same price as one which had sustained no damage whatsoever.

Mileage Modifier :: There are obvious flaws in the Mileage Modifier as well which would render the formula useless for any pattern settlement consideration. In the formula provided by the State of Georgia Insurance Commissioner’s office there is the obviously incorrect statement that "when a vehicle reaches 100,000 miles it no longer has a realistic market value." The formula then provides that any vehicle with over 100,000 miles could not possibly sustain any loss in value. This is obviously incorrect as the following examples will illustrate.

Example 1 :: A 1996 Ford Crown Victoria LX is used to commute between college, work and home each day over 100 miles, plus weekend trips. The car has 84,000 miles, but has been maintained perfectly, has never been damaged, and looks to be in excellent condition. It is then rear ended causing over $8,500 in damages with severe structural damage and panel replacement. The insurance company insists on imitation parts such as taillights, rear bumper parts, and trunk lid, and refuse to replace the trunk floor and frame rail, instead specifying they be bent back out and painted.

This car is just three years old, and was in excellent condition. The vehicle now has weaker rear frame rails and substructure and will fold easier and crush deeper in the event of a subsequent accident, increasing the safety risk to the occupants. The imitation parts specified by the insurer as "just as good" as the Original Equipment Manufacturer (OEM) parts are defective, and don’t fit properly. Additionally, when you look under the carpet in the trunk, you can see where it had been damaged and pounded back out. Based on these facts, this formula assessed only $202.50 in Diminished Value on this car mainly because the Mileage Modifier views this vehicle as having only 20% remaining life expectancy.

Example 2 :: A 1965 Ford Mustang GT K series convertible has recently been restored from an original, undamaged, one owner, rust free car with 127,000 original miles. Over $10,000 was spent on the restoration, and it has been appraised at $24,750 in value. It has recently been struck broadside in an intersection just behind the rear wheel causing extensive damage to the rear of the car estimated at over $9,500 to fix with imitation parts because originals are no longer available.

Again with the "no realistic value above 100,000 miles" multiplier of 0.0 this formula would calculate zero Diminished Value on this vehicle. This of course would be far from factual under the above scenario.
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Absence of Flaw and Defect Base Diminished Value
None of the formulae currently used or offered by any insurer or governmental agency, including the Georgia formulae has any multiplier or method that takes into account the quality of the repair, or lack thereof. It is obvious to all parties that poor quality collision repairs would dramatically increase any vehicle’s Diminished Value. Conversely, a very high quality repair would restore a greater portion of the vehicle’s original value. This brings us full circle to the problems stated in the opening paragraph of this document, that insurers have been insisting on the installation of poor quality imitation parts, and refusing to pay for complete repairs.

The insurer is the only one contractually obligated to restore the vehicle to its pre-loss condition. This is evidenced by numerous court cases and decisions across the country. A recent example is the case of Smith vs. Superior Insurance from September 15, 1998 in the Thirteenth Judicial Circuit of Hillsborough County, State of Florida, issued an Order in that case stating "The rule in Florida which seems to be the majority rule in the United States, is that the obligation to "repair" in an automobile insurance policy includes a duty to return the vehicle to its pre-accident value. (hereto attached as exhibit "B") There are multiple similar rulings in Texas as well, including the following example:

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NORTHWESTERN NATIONAL INSURANCE COMPANY, Appellant,
v.
Virginia COPE, Appellee.

No. 518.

Court of Civil Appeals of Texas.
Corpus Christi.
Nov. 20, 1969.
Rehearing Denied Dec. 11, 1969.

[1] INSURANCE Words "repair" and "replace" in automobile insurance policy provision governing limits of liability mean restoration of automobile to substantially same condition in which it was immediately prior to collision; and it would not be restored to same condition if repairs left market value of automobile substantially less than value immediately before collision.
See publication Words and Phrases for other judicial constructions and definitions.

[1] The words 'repair' and 'replace' in the policy mean the restoration of the automobile to substantially the same condition in which it was immediately prior to the collision; and it would not be restored to the same condition if the repairs left the market value of the automobile substantially less than the value immediately before the collision. American Standard County Mut. Ins. Co. v. Barbee, Tex.Civ.App., 262 S.W.2d 122, n.w.h.; Smith v. American Fire & Casualty Co., Tex.Civ.App., 242 S.W.2d 448, n.w.h.; American Indemnity Co. v. Jamison, Tex.Civ.App., 62 S.W.2d 197, n.w.h.; Mutual Fire & Automobile Insurance Co. v. Muckelroy, Tex.Civ.App., 236 S.W.2d 555, n.w.h.; Calvert Fire Ins. Co. v. McClintic, Tex.Civ.App., 267 S.W.2d 568, wr. ref. n.r.e.; Standard Accident Insurance Co. of Detroit v. Richmond, Tex.Civ.App., 297 S.W. 879 wr. dism.; Roberdeau v. Indemnity Ins. Co. of North America, Tex.Civ.App ., 231 S.W.2d 948, wr. ref. n.r.e.; Stuyvesant Ins. Co. v. Driskill, Tex.Civ.App., 244 S.W.2d 291, n.w.h.

We copy as follows from smith v. American Fire & Casualty Co., supra: (p. 454)
'In Standard Accident Insur. Co. v. Richmond, Tex.Civ.App., 297 S.W. 879, 880, the court said: 'Appellant contends that it was only required to pay the cost of restoring the car to substantially the same condition it was in before the injury. That is true, if the words 'substantially the same' mean a condition which made the car equal in value to what it was before the injury."

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Since the law is quite clear that the insurer is responsible for "repairs", and "repairs" includes a duty to restore the vehicle to its pre-loss condition, including value, then no complete Diminished Value Formula would be accurate if it did not take into consideration the quality of actual repairs, or the lack thereof. This was brought to the attention of the Georgia Insurance Commissioner’s Office by Wreck Checks, Inc. and they have since withdrawn the formulae. The Georgia Insurance Commissioner’s office has since distanced themselves from the use and distribution of the "Georgia Formulae" by stating they were not responsible for its inception, but had in fact been given the formulae by a substandard insurance carrier operating in Georgia. Therefore, any offer of Diminished Value based on the inaccurate "Georgia Formulae" would have no validity, accuracy, or basis in fact or logic.
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