When an automobile is damaged in an accident and then repaired, the resale value may be less than a comparable automobile that has not been damaged. In other words, the damage results in a reduction or ‘diminution’ in the resale value of the automobile.

An insured’s claim for this reduction in value may be made against a third party that negligently caused the damage to the insured’s automobile, or it may arise from a first-party claim against the insured’s own physical damage coverage.

The term ‘diminished value’ can be confusing. There are three types of diminished value:

Immediate Diminished Value: This is the loss of value which results immediately after an accident before any repairs are made. It is the difference in market value immediately before and after an accident caused by a negligent tortfeasor.

Inherent Diminished Value: Also known as ‘residual diminished value,’ this refers to the loss of value of an automobile that remains after it is completely and professionally repaired. It is the loss of value that results from the simple fact that the vehicle has been in an accident.