Ellen Roseman: Insurance won’t cover reduced value after a crash — unless you ask or sue

I was driving into an underground parking lot a while ago when my wheel got caught on a raised barrier outside an unused booth. The car veered to the right and hit a concrete wall on the passenger side. 

I was fine, the wall was fine (just a small dent), but my car was a mess and had to be towed away. The repairs cost more than $17,000 and required five weeks to carry out. The labour alone was 65 hours. 

Luckily, my insurance company paid for everything, including an extra $800 bill when the car’s computer system had to be reset at a branded dealership. 

That collision showed me I’d picked the right insurance coverage. My policy had a car rental clause with a $5,000 limit, which easily covered my $2,069 rental bill. I also had first accident forgiveness coverage to protect me from a rate increase after an at-fault collision. (That is now gone.)

Newer cars can fold like accordions when hitting moving vehicles or even stationary objects, I learned. They’re engineered with “crumple zones,” intended to reduce the crash energy on impact and leave the rest of the vehicle – and the occupants – reasonably unscathed. I’m still driving my 2009 Toyota Venza, which has low mileage. My previous car, a Toyota Sienna minivan, lasted 15 years. I like to drive my cars into the ground.

But there’s another thing I learned from my awkward accident on a down ramp. When a car undergoes a big rebuild after a collision, its resale price takes a hit – and the loss is not covered by insurance providers in Canada. 

What is diminished value insurance?

In the United States, many states allow car owners to claim “diminished value,” also referred to as “accelerated depreciation” from an at-fault party’s insurance company. In Georgia, for instance, insurers have to pay the diminished value even if the insured driver doesn’t claim it.

Steve Kee, spokesman for the Insurance Bureau of Canada, says he knows of no province or territory in Canada that offers coverage for diminished value or accelerated depreciation. (The terms are used interchangeably.)

Auto insurance policies are designed to cover direct losses. This means insurers have to pay for repairs to your vehicle to restore it to its pre-collision condition — or write off the car if that is the lower-cost option. But any reduction in the car’s value after repairs is considered an indirect loss and is not covered under the policy.

“Diminished value refers to the belief that vehicles that have been damaged and repaired are not as valuable as those that have never been damaged,” Kee says. “It is difficult – if not impossible – to accurately calculate diminished value. Identical vehicles with similar damage and repairs could command different resale prices.”

In Ontario, diminished value claims have been hard to win since the law was changed to bring in no-fault insurance in 1990

Still, when you go to sell the car, you may find it’s worth less than others of the same make, model and year, simply because it’s been in an accident. The law requires sellers to disclose structural damage over $2,000. Meanwhile, used car dealers and private buyers can order a vehicle history report to see where structural damage has been reported.

“Having detailed, accurate, third-party information on the accident history of a car can help you negotiate a fair and accurate price,” says CARFAX Canada, a vehicle history supplier that recently took over CarProof.

“If there are no damage or accident records on the report, that’s great. This could be the perfect car for you. Even if there is a history of damage or accidents, it could still be a reliable vehicle as long as it was repaired properly. And you might even get a better deal!”

Diminished value rules differ from province to province

There’s a stigma against cars that have had massive collision repairs, because buyers fear they may be more trouble than a car that hasn’t been in a crash. This can add up to a difference of thousands of dollars. 

Take Ray Signorello, a B.C. resident whose $200,000 Mercedes-Benz convertible was damaged by an airport valet parking employee and required $26,000 in repairs. Signorello won $16,000 to cover its diminished value – what he’d asked for – after hiring a lawyer and suing the Insurance Corporation of British Columbia (ICBC) in 2010.

Signorella took his case to B.C.’s Supreme Court to make a point, he told Rosa Marchitelli of CBC News Go Public. 

“If I ask you, which car would you rather pay more for? A car that had no accident or a car that had, in this case, a severe accident – I think most people’s answer would be, ‘I’d take the car that didn’t have an accident,’” he said.

In Ontario, diminished value claims have been hard to win since the law was changed to bring in no-fault insurance in 1990. Before then, you could sue the at-fault driver whose negligence caused the damage to your car. Now you can recover damages to your vehicle only from your own insurance company.

While at the scene of the accident that is not your fault, ask the other driver to pay for your car’s diminished value since it’s not covered by insurance

In a 2019 case, Ontario resident Jinna Zheng sued her insurer, Certas Home and Auto Insurance, after sustaining damage to her car in a not-at-fault accident. She provided expert evidence that the vehicle’s value had been diminished by $9,750 because of the collision.

She lost in small claims court and in Superior Court. Both courts said the standardized Ontario Automobile Policy (sect. 6.6) gives insurers a choice: Repair the vehicle or pay for the damage. Once Certas elected to exercise its right to repair Zheng’s vehicle, it was responsible only for the cost of repairs and not the diminished value damage.

“In some but not all provinces, an individual can sue the at-fault driver for diminished value. However, that is not the situation in Ontario,” says Patricia Forte, a partner with law firm Miller Thomson, who has written blog posts about this topic.

How likely are you to be reimbursed for diminished value?

Ontario motorists involved in car accidents are not allowed to sue each other for damages sustained to their vehicles. They must go to their own insurers.

But there are a few limited exceptions, Forte points out:

• Your car is damaged in a single-vehicle accident. Suppose someone steals your car and gets into an accident. You must show you didn’t consent to the negligent driver’s possession of your car and there was no other car involved in the crash.
• Your car is damaged while at a mechanic’s shop and driven by a staffer. There’s an Ontario case where an owner sued for diminished value and won.
• Your car is damaged in an accident with an uninsured driver. Since your own insurance policy automatically includes protection for you in the form of uninsured automobile coverage, you can ask for diminished value coverage on top of the repair cost.

Can you improve your chances of getting reimbursed for a vehicle’s lost value after accident repairs? Forte has a few suggestions.

While at the scene of the accident that is not your fault, ask the other driver to pay for your car’s diminished value since it’s not covered by insurance. If you get an agreement, put it in writing and get it signed.

Ask your car insurer about diminished value at renewal time. In response to consumer demand, some insurance providers may start offering this coverage for an extra cost as part of your policy. 

Get rid of your damaged vehicle immediately after collision repairs are done. This will help if you hope to make a claim for diminished value, since you can easily compare the difference in value before the accident and afterward. 

Finally, check out MyCarIsWorthLess.com, where you can get access to a diminished value calculator for $45. There’s also a free step-by-step guide on how to claim for diminished value. The site is maintained by Viraf Baliwalla, owner of Automall Network in Toronto. He provides a template for sending a demand letter to the other driver asking for payment after informal attempts to settle have failed.

Threaten to start a lawsuit if you don’t get a satisfactory offer within a certain period, he advises. And if the demand letter has no effect, support your claim by gathering trade-in prices before and after the accident.

“Your insurance company will cover repairs and rental, but not loss of value. It won’t make you whole afterward,” he says. “So, you have to go after the other side, not your own company.”