Understanding Inherent Diminished Value (IDV)

Posted November 9, 2021

A recent Massachusetts Supreme Judicial Court (SJC) decision found in favor of plaintiffs seeking damages for inherent diminished value (IDV) to their automobiles from another driver who was at-fault for the accident.  The case establishes that an accident can decrease the value of a vehicle and coverage could be provided under the Property Damage (Part 4) coverage of the standard Massachusetts automobile insurance policy.

The SJC Case

There were three suits involved in this decision.  In all three cases, the plaintiffs were involved in not at-fault accidents where the individual who hit their car was identified, and a claim was submitted to the insurance company of the at-fault driver under their Property Damage coverage.  All three claims were paid to repair the damage but did not include IDV.

Key policy language in question:

“the amounts that person is legally entitled to collect for property damage through a court judgment or settlement”

“made whole and compensated for what he or she has lost”

The Court found there was no policy language limiting recovery for a third-party property damage claimant to “merely repair or replacement costs”.  In fact, the Court went further and stated they must compensate a claimant for the loss of value.  The Court summed up its decision:

“In short, if a third-party claimant’s vehicle suffers IDV, even after it is fully repaired, then under Part 4 of the standard policy, the insurer may be liable to the claimant for IDV damages so that he or she may be ‘made whole’ once again.”

Establishing IDV

The Court also clarified not every vehicle involved in an accident will have suffered IDV or that damages must be paid in every case.  It stated every claimant would need to individually establish that the value of the vehicle has been diminished after repairs have brought the vehicle back to its pre-accident condition.

There are two points the claimant must establish:

1. The vehicle has suffered IDV
2. The amount of the IDV

While it is too early to understand the exact impact of this case, IDV damages are common in other states.  Most states and insurance companies calculated the IDV using the 17c Diminished Value Formula.  There are four steps in this calculation:

1. Determine the value of your car. A commonly used an accepted place to calculate is: https://www.nadaguides.com/.
2. Establish the base loss of value which is 10% of the value of the car.
3. Apply a damage multiplier:

1.00        Severe structural damage
0.75        Major damage to structure and panels
0.50        Moderate damage to structure and panels
0.25        Minor damage to structure and panels
0.00        No structural damage

4. Apply a mileage multiplier.

1.00        0 – 19,999 miles
0.80        20,000 – 39,999 miles
0.60        40,000 – 59,999 miles
0.40        60,000 – 79,999 miles
0.20        80,000 – 99,999 miles
0.00        100,000+ miles

For example:

A $20,000 vehicle with major damage and 50,000 miles would have an IDV of $900.

1. Value                                                        $20,000
2. Base IDV $20,000 x 10%                         $2,000
3. Damage Multiplier $2,000 x .75             $1,500
4. Mileage Multiplier $1,500 x .60                 $900

As of the writing of this article, there has not been a response by the MA Division of Insurance or the state legislature to determine the exact impact of this ruling.

Contact Us today at 781.444.3050 or 781.784.2461 with questions on your insurance or a claim situation.

It is important to note different policy language can be written into a contract.  Nothing in this court case on in this article should be read to guarantee coverage.