Insurer failing to compensate me for reduced value of car after crash

My vehicle was hit by another vehicle causing significant damage (about €18,500 in repairs). The other party admitted all fault and the vehicle has been fixed.

However, my query relates to the compensation for depreciation. The other party's insurer is offering only €1,500 as depreciation compensation while saying that, technically, they do not have to offer anything at all. My vehicle is worth €45,000-€50,000.

I believe the damage sustained has devalued my car by far more than €1,500 when it comes time to trade-in or sell. From research and seeking external expert advice, the diminished value compensation is typically 10-20 per cent, which would be €1,874-€3,748.

The cost of repairs equals about 40 per cent of the vehicle value, which is considerable. An agreeable amount would be to meet in the middle, which is 15 per cent, I believe (€2,811).

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The other party’s insurer has said that this is their final offer and, if I do not agree with it, to bring it to the financial services ombudsman. However, the ombudsman has said that as I am not the consumer of the insurance company (being the third party), they cannot deal with my complaint.

Could you advise on who I can speak to regarding my complaint?

My preference is to avoid the legal route due to the time and costs involved and to seek fair and agreeable compensation for both parties.

Mr BM, email

Ah, the vagaries of insurance. As a sector, they are not blessed with popularity, partly, I suspect, because of a serious problem with transparency.

The issue of compensation for devaluation is not an area that crops up regularly in this column, and I have to admit I was not fully across before your letter. It comes under other names too, most often called diminished value compensation.

However, as a concept, it certainly makes sense. While it is great that the insurance company has put your car back together, inevitably the fact that it has been involved in a serious collision will affect its resale value.

You are in an invidious position here. Through no fault of your own, your vehicle was involved in a collision that required not far short of €20,000 worth of repairs. Even after repair, you will be out of pocket in the longer term when you go to sell on the vehicle.

This is where a diminished value claim comes in. The idea is that it should pay out to cover you for the difference in the value of the vehicle before the accident and its value after it has been fully repaired following the accident. However, incongruously to me, it is not actually calculated against the actual value of the vehicle but as a percentage of the bill for repairs (before VAT is added).

No man’s land

You are looking for the insurance company to stand over what you understand is industry practice in terms of compensating you to some extent for the inevitable devaluation in the value of your vehicle.

But, as you have discovered, you are in a bit of no-man’s land when it comes to querying what you consider an unfair offer of compensation.

Having spoken myself to people in the industry, it is clear that the rules on such diminished value claims can vary widely depending on the country concerned. But, in Ireland, they confirm the general feedback that you have received – that such compensation is generally calculated at 10-20 per cent.

However, this depends on a number of factors – particularly the insurer involved and, critically in your case, the age of the car.

Fundamentally, the older the car, the less generous the insurer’s assessment of diminished value is likely to be. Worse still, once they get past four or five years old, insurers might not entertain a claim at all.

This would seem to be reflected in your case, where you say the insurer has told you that, technically, they do not have to offer you anything at all under this heading.

I can see why you are bridling at this. It is clear from the costs involved here that your vehicle is not a common-or-garden saloon but one at the luxury end of the market. The fact that is is five years old does not alter the fact that it is a valuable asset. You say that it has a resale value close to €50,000. It is not unreasonable to think that a history of being involved in a serious accident might knock 10 per cent off this – close to €5,000.

Consumer protection

Insurers are bound by the consumer protection code of the Central Bank, which regulates them, to ensure that any offer they make in settlement of a claim is fair, takes account all the relevant factors and represents its best estimate of the claimant's reasonable entitlement.

In general, where someone disputes their insurer's assessment, the path available to them – once they have exhausted the company's internal appeals system – is the financial services and pensions ombudsman but, as you have discovered, this is only available where the dispute is between the individual and their own insurance company – not third parties such as yourself, even where the insurer is representing the person who caused the damage to your vehicle.

The bad news is that, if all negotiation with the insurer fails, you are left only with the prospect of suing them. Given that, at the lower end, you are talking about a difference of €375 here, it is hard to see how going the legal route makes sense. Even at your proposed midpoint, the amount at issue is just €1,300. Meaningful to you it may be but, in terms of legal costs, it isn’t and there is no guarantee of you winning.

And as you have told them you’d rather avoid the legal route, it rather puts the insurer in a position of strength.

However, before giving up entirely, it might be worth getting one of the independent experts you have consulted to put their opinion of the loss down formally on paper. Even if the insurer rejects the claim and sticks to their guns, an official estimate of diminished value might help your case if you do decide to go legal. But bear in mind that the cost of any such expert’s opinion would also have to come out of any compensation agreed.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into