When a person is involved in a motor vehicle wreck in Kentucky due to the negligence of another driver, there are a number of potential harms and losses for which that person could make a claim for recovery, depending on the particular facts surrounding the wreck. The obvious potential claims to those who practice in personal injury may include, basic reparation or PIP benefits, pain and suffering, past medical expenses, future medical expenses, lost wages, impairment in power to labor and earn money, and property damage. However, there is another potential claim which is an element of property damage that some attorneys and claims adjustors alike may not be aware of, and that is the claim for diminution of value. Under the legal principle of diminution of value, a person may be entitled to recovery beyond the cost of the repairs to their vehicle, they may also be entitled to additional compensation for the loss in value that their vehicle has suffered as a result of the wreck. While not all attorneys who practice in personal injury represent clients with respect to their property damage claims, having knowledge of the diminution of value claim can only benefit an attorney, if for no other reason than it allows for the giving of more thorough information and advice to a personal injury client regarding their rights and potential claims.
Diminution is defined as the act, process or instance of becoming gradually less.1 As such, an auto wreck is little more than a motor vehicle diminution event where a vehicle’s value is X the moment just before impact. This value, X, begins to reduce as the impact occurs, it continues throughout the air bag deployment, the bending, twisting, and shattering of the vehicle throughout the entire collision. Post collision, the vehicle’s value is Y. The difference between X and Y is the total loss in value sustained by a vehicle in a crash. It is this difference, in tort, that creates the damages portion of a property damage claim. In a typical motor vehicle collision situation, the insurance company and a repair facility work together to convert the condition Y vehicle, back into condition X. Unfortunately, in many instances, condition X cannot be achieved, leaving the vehicle in condition Z, which is greater than Y, but less than X. The difference between X and Z is a recoverable loss as diminution of value.
While it may not be a widely known or utilized claim, the validity of the diminution of value claim has been long established in Kentucky. The legal principles that define diminution of value evolved out of the case of Ecklar-Moore Exp. v. Hood, Ky., 256 S.W.2d 33 (1953). In Ecklar-Moore Exp., a vehicle damage case, it was determined that “[t]he measure of damages, in this state, for injuries to personal property is the difference between the reasonable market value immediately before and immediately after the injury.”2 It was further determined that “[e]vidence as to the cost of repairs is admissible as bearing on the question of difference in value3; but where there is competent evidence that the difference in value exceeds the cost of repairs, the recovery is not limited to the cost of repairs.”4
This issue was again addressed in 1993 in the case of Wittmer v. Jones, et al., 864 S.W.2d 885 (Ky. 1993). In Wittmer, the Kentucky Supreme Court established that in order to prove a diminution in value claim, a plaintiff must put forward supporting documentation or proof from a reliable source as to a vehicle’s loss in value.5 While the Court found that it is possible that the fair market of a vehicle, even if repaired perfectly, can be diminished by a wreck, the burden of proof lies with the plaintiff to present reliable evidence of the loss in value.6 Such proof can include, but is not limited to, cost of repair, which is also recognized by a Kentucky Administrative Regulation with respect to unfair claims settlement practices for property and casualty insurance.7 That regulation, 806 KAR 12:095, Sec. 7(2), states as follows:
The measure of damages in a third-party motor vehicle loss shall be the difference between the fair market value of the motor vehicle immediately before and after the loss, proportioned by the third party’s contributory negligence, if any. Repair estimates or appraisers’ reports may be used to indicate the difference in fair market value. The measure of damages in a first party vehicle loss shall be governed by the policy of insurance issued to the first party and shall not include any measure of damages not specifically provided for in the policy.8
The Kentucky Court of Appeals has ruled that expert testimony by one familiar with a damaged vehicle is not necessary for a plaintiff to sustain his/her burden of proof and that “[e]vidence in the form of a repair bill standing alone and unassailed is not only probative evidence of the difference in fair market value of personal property, it is sufficient to sustain a verdict for damage to same.”9 However, in practice, while a repair estimate may satisfy the minimum threshold of proof required to bring a diminution of value claim, providing more will greatly strengthen the claim. In addition to the repair estimate, it may be advisable to obtain an appraisal of pre-accident fair market value and post-accident fair market value from an independent Kentucky licensed and certified automobile appraiser, as the insurance company will invariably have their own self-serving appraisal performed. With more detail and methodology described in the appraisal, and the more qualifications of the appraiser, an attorney will be better equipped to rebut a lower diminution of value estimate from the insurance company’s appraiser, as a diminution of value claim at its core may come down to a “battle of the experts.” In advising or representing a client, the costs involved with obtaining an expert appraisal and potentially expert testimony should be considered.
Types of Diminution of Value
Diminution of value can be reduced into three (3) distinct types, one or more of which may comprise a diminution of value claim. These types include Immediate Diminution of Value, Inherent Diminution of Value, and Repair-Related Diminution of Value.
Immediate Diminution of Value
Immediate Diminution of Value is the difference in fair market value of a vehicle immediately prior to a wreck and immediately after a wreck, before any repairs have been made to the vehicle. This type of diminution of value comports with Kentucky’s standard of the proper measure of damages for personal property, which is the “difference in fair market value of the property before and after the accident,” and would be applicable in cases where there has been no repair to any damage to the vehicle.10 A common example would be where a vehicle has been deemed a total loss pursuant to KRS 186A.520(1)(a), which occurs when the total estimated costs of parts and labor to restore the vehicle to its pre-accident condition exceeds seventy-five percent (75%) of the retail value of the vehicle. In such situations, many vehicle owners opt to not retain possession of the vehicle and do not make any repairs in exchange for payment of the vehicle’s pre-accident fair market value plus scrap value.
Inherent Diminution of Value
Inherent Diminution of Value is loss in value to a vehicle after it has been completely and professionally repaired and results from the inherent fact that the vehicle has a damage history. This type is also referred to as “stigma damage.” The reality is, after a vehicle is repaired properly, in many instances, primarily in higher valued vehicles and/or newer vehicles, a loss in value still exists. This loss is primarily due to the history of the damages sustained by the vehicle and is based upon a public awareness that a repaired vehicle, even if repaired to the best of human ability, still has remaining deficiencies and inconsistencies it did not have in its pre-accident condition. The “damaged goods” mentality, and fear of the unknown by a prospective buyer, affects a damaged and repaired vehicle in such a manner that it commands a lower fair market value than the same vehicle without a damage history.
Repair-Related Diminution of Value
Repair-related diminished value is the vehicle’s loss in value due to the repair work performed on the vehicle after the wreck, juxtaposed to the vehicle having a wreck history. Obviously, working with the repair facility to ensure proper repair mitigates the repair-related diminished value. However, depending upon the type of damage, some repairs cannot replicate factory conditions, welds, seams, sealers and finishes. These irreproducible repairs prevent the wrecked vehicle from being in the same condition it was before the wreck. As such, the vehicle’s fair market value is negatively impacted.
Practical Use of DV in Practice
Diminished value claims can be valuable as stand-alone causes of action, but depending upon the value of the loss, may best be suited as accessories to personal injury claims. Some personal injury attorneys tend to disregard the property damage portion in an auto accident case, allowing it to work itself out. However, with diminished value claims, we can provide a value added service where we assist clients’ repair of their vehicles, obtain personal injury settlements and provide them with diminution of value dollars.
According to the 2016 Kentucky State Traffic Collision Facts report, there were 165,273 collisions in 2016 and 161,393 in 2015.11 Of those, 38,246 and 36,460 were injury accidents, respectively.12 In 2016, 91, 929 of those collisions resulted through impact with another moving vehicle, indicating there is the potential for 2.4 times more property damage claims than potential injury accident claims. With untapped potential in property damage claims, there may be added value in incorporating these claims into practice.
Stand Alone DV
The ideal stand-alone diminished value claim can be worked like any other personal injury auto accident case. This type of diminished value claim is one where the loss in value is substantial enough to find yourself in circuit court. This is important, as you need to be able to make it cost effective for the client and for you. Turn around time in circuit court may take several months if the insurance company decides to defend it. Arguably, you will want to have a vehicle of which the fair market value was greater than $25,000 before the wreck, sustained frame damage, was given a negative Carfax report and has visually striking images of damage.
Accessory to the PI Claim
The ideal accessory to the PI claim is one in which the diminished value of the vehicle is similar in value to the personal injury claim, this way they work together, rather than one being disproportionally unhelpful. For example, when you reach an impasse with an adjuster on a personal injury case, where he or she won’t negotiate any longer despite your best efforts, you bring the diminished value claim into the mix, increasing their potential exposure upon filing suit. This may change the tone of the conversation, allow you to begin negotiations again, and most importantly, give the adjuster a new opportunity to notate in the file why they gave the client more money.
Principle of the Matter DV
The principle of the matter diminished value case typically is a claim that has you in the lower end of the jurisdictional requirements for district court. In these situations, there is obvious diminished value, but the actual collision failed to procure frame damage. Regardless, your client is upset his or her brand new car sustained a loss in value of a few thousand dollars. In this situation, when the insurance company refuses to make a reasonable offer, small claims court is the option. As we are aware, small claims has jurisdictional limits of $2,500.00, however, you are permitted to prove damages above those limits, but you can only recover up to $2,500.00. The benefits of small claims court are multiple. Turn around time on the case is quick, you can often get a court date within several weeks. Further, it is a great way to hone your trial skills before judges. Of most importance, it gives you the opportunity to bring the defendant into the courtroom, in front of a judge, and admit fault—again—for the accident, and make him or her wonder why the insurance company couldn’t figure out how to resolve this without bringing him or her before a judge.
There are reasons why insurance companies tend to toe the line that diminution of value cases are not valid in Kentucky. It could be a lack of awareness of the claim and its validity by many people, attorneys included, or struggle with pursuing the claim in a cost effective manner. Disseminating information about diminution of value cases is a crucial step in assisting Kentuckians to be made whole following a wreck, and it is our job as civil attorneys to find ways of making these claims cost effective.
—D. Scott Harper is the founder of Harper Law Co., PLLC in Shelbyville, Ky. His practice primarily consists of personal injury and diminished value cases. Feel free to contact him with questions regarding diminished value cases in Kentucky at [email protected] or (502) 780.2226.
1 Diminution. In Merriam-Webster’s Dictionary. Retrieved from http://www.merriam-webster.com/dictionary/diminution.
2 Ecklar-Moore Exp. v. Hood, Ky., 256 S.W.2d 33, 34 (1953), (citing Louisville & N. R. Co. v. Lankford, 304 Ky. 192, 200 S.W.2d 297).
3 Id. (citing Gheens v. Bush, 258 Ky. 540, 80 S.W.2d 581).
4 Id. (citing Koltinsky v. Hollowell, 203 Ky. 218, 262 S.W. 6.).
5 Wittmer v. Jones, Ky., 864 S.W. 2d 885, 892 (Ky. 1993).
6 Id. at 891.
8 806 Ky. Admin. Regs. 806 12:095, Sec. 7(2) (1992).
9 McCarty v. Hall, 697 S.W.2d 955, 956 (Ky. Ct. App. 1985).
10 Id. at 955, (referencing Ecklar-Moore Exp. v. Hood, Ky. Ky., 256 S.W.2d 33 (1953); Hayes Freight Lines v. Hamilton, Ky., 257 S.W.2d 60 (1953); Howard v. Adams, Ky., 246 S.W.2d 1002 (1952)).
11 Kentucky Traffic Collision Facts. (2016). [ebook] Frankfort: Kentucky State Police, p. 12. Available at http://www.kentuckystatepolice.org/pdf/KY_Traffic_Collision_Facts_2016.pdf [Accessed 7 Nov. 2017].