DV systems: do they work?

News Extra

Diminished value, the amount by which a car's market price is reduced following a motor vehicle accident, is a hot to Around 100 lawsuits seeking class action status have recently been filed against US auto insurance companies, attempting to reclaim diminished value (DV) for policy holders, and a recent decision by Georgia Supreme Court will require major US insurer State Farm to pay out over $US250 million over the next six years, reimbursing claimants back to 1993.
Presently, debate is raging in the US, with insurance companies fighting litigation in many states (DV is judged in the US on a state-by-state basis). Bodyshop owners are concerned about the impact it could have on their industry, and the issue was a hot toWill bodyshop owners be sued by clients claiming DV on their vehicles for underdone repairs? Will insurance companies be forced to pay for correct procedures? Do cars automatically lose value when they are involved in an accident. And generally, will the effect of DV claims be good or bad?
What's the issue?
Exactly how and why cars lose value after an accident is a contentious issue, and it's important to understand the different types of DV. These are:
* Repairer DV, where the repairer does a shoddy job, reducing the value of the vehicle;
* Insurer DV, where the insurance company refuses to let the repairer use a necessary repair process, or insists on the use of inferior parts;
* Inherent DV, the focus of the State Farm lawsuit.
Inherent DV is the amount of value a car is perceived to lose as soon as it is involved in an accident. It does not matter if a vehicle has been restored perfectly -- if inherent DV is deemed by law to exist, its resale value will decrease automatically.
Inherent DV's status as a legitimate complaint is questionable, and this ambiguity was central to the State Farm lawsuit. Insurance companies will always claim that properly repaired cars should not lose value at all, especially with modern repair techniques, and conclude that they should not have to reimburse claimants beyond repair costs. This was the line taken by State Farm's lawyers in Georgia.
After a marathon 30 hearings, Georgia Supreme Court ruled otherwise, deciding that vehicles lose market value the moment they are involved in an accident, no matter how well they are repaired. The company was directed to reimburse claimants for this loss. State Farm chose not to appeal the decision, and settled.
US autobody repair expert Tony Passwater has seen DV become a huge issue in the US, and calls inherent DV a "fabrication of perception by the legal community".
"[Australia's] tort laws are very different to ours, and the ones who are making the money out of this are the lawyers, not the owners of the vehicles," he says.
"Here's an example of the ridiculous nature of inherent DV. Imagine that your house gets pounded in a hail storm, and the roof, gutters, siding and satellite dish require replacement. At the same time, the roof, bonnet and boot lid on your automobile need replacing.
"Your home probably increases in value. The house is in perfect condition again, and the satellite dish is working even better than before the storm. Why is your car now inherently worth less? If you look at it this way, the only reason DV should exist is from sub-standard repairs or insurer DV."
Be that as it may, inherent DV looks set to become an increasingly rich area for litigation in the US.
DV Downunder?
As Passwater points out, Australia has very different tort laws to the US, and it's pretty safe to say that we're an inherently less litigious country. But could a class action lawsuit regarding inherent DV, similar to the one launched against State Farm and so many others in the US, possibly be brought against insurers in Australia? If so, how would this affect the local repair industry?
Paint and Panel found a near universal lack of knowledge and concern among Australian insurers regarding the escalation of DV claims in the US.
An NRMA representative claimed that DV in Australia is a non-issue: "This is not relevant to what happens here. NRMA Insurance makes it explicit in our policy what customers can expect when a car is repaired, and we adhere to this policy and offer our customers a written lifetime guarantee. We can't speak for other insurers. You will need to consult the Insurance Council of Australia for further information."
The Insurance Council of Australia's executive manager for corporate affairs, Rod Frail, also drew a blank. Unaware of the State Farm case, Frail was not able to offer any real feedback on laws relating to DV and insurance policies in Australia. When asked if he knew of any lawyers who specialised in tort law for motor vehicles and insurance, Frail advised Paint and Panel to "look through the phone book".
Ralph Johnston, director of corporate affairs, AAMI, proved slightly more up to speed with DV. Aware of the State Farm case, Johnston did not believe such a lawsuit could or would be launched in this country.
"That's America. This is Australia," he said. "Perhaps you should speak to some of those 'money back if you don't win' law firms, and see if they're planning any of that sort of action."
Johnston took the tyRelating specifically to perceived DV, Johnston said AAMI does not believe a car loses value simply by being in an accident, and claimed the resale value of vehicles should not be adversely affected by an accident. "I don't think you need to disclose a vehicle's history [to a reseller] by law, and certainly no one does it anyway."
Repairer vs insurer
Paint and Panel has tried to find a lawyer willing and able to comment on the possibility of DV lawsuits in Australia, but after contacting insurance companies, the ICA, law magazines, and even random law offices found in the phone book, no such counsel has been forthcoming.
Without legal advice, it is difficult to know just how tort laws in Australia would handle such a case, or if precedents have already been set.
However, the repair industry locally still needs to look at the two areas of DV which are less disputable -- insurer and repairer-related DV.
Litigation in Australia has been on the rise in recent years -- consumers are more and more demanding about their perceived rights, and are more prepared to point the finger when they believe they are wronged. Though Australia is hardly on the same level as the US, there is a distinct possibility that insurance companies and repairers may have to fight disgruntled customers in the courts over DV.
Lawsuits in the US have already surfaced, says Shelia Loftus, editor of bodyshop magazine Hammer and Dolly. "There are already some lawsuits out there alleging that insurers omitted items necessary to repair the vehicle to pre-loss condition from the estimate. Most insurance policies state to pay for either actual cash value or pay for repairs to pre-loss condition. If shops did not perform work necessary to repair the car back to the best possible condition, the repairer may be dragged into these suits as well."
An article by Paul Bailey in US magazine Bodyshop Business (Feb 2002) discusses DV in relation to repairers, stating that the line between insurer and repairer-related DV is blurred, and that consumers and the courts may not care that an insurance company refused to pay for proper procedures. Bailey simply believes that shops should do top quality repairs every time, no matter what. Then, he says, they should have no problem with DV claims.
Bailey's article puts a positive spin on these type of DV claims, stating that they can only push up industry standards and discourage lazy or unskilled workmanship, and also pressure insurance companies into paying for correct procedures at all times.
There does not seem to be any reason why these sort of DV claims could not become an issue in Australia, and all who work in the repair industry would be well-advised to keep a weather-eye out for developments in this potentially controversial issue.

With DV claims on the rise in the US, post-repair inspection of vehicles has become an important consideration, and some repair shops have set themselves up as independent vehicle inspectors by purchasing automated DV evaluation systems.
Wreck Check (www.wreckcheck.net), Accident Check (www.accidentcheck.com) and ClaimCoach (www.claimcoach.com) all purport to offer fair, standardised systems which repairers can purchase in order to set themselves up as independent inspectors of repaired vehicles.
For somewhere between $US150 and $US250, consumers can have their car examined post-repair, to make sure their vehicle has been properly fixed and that all DV has been accounted for.
ClaimCoach president Bill Geen says DV systems simply put the tools of insurance companies into the hands of consumers, ensuring a fair and equitable process.
"Since 1981, my partner and I have been instrumental in the building of automated valuation systems used by insurers throughout the US for total loss claims," he says.
"In 1999, we founded ClaimCoach to offer consumers some of the tools used by insurers for years. We have provided diminished value services to insurers since the mid-1990s and were used as expert witnesses in much of the DV litigation going on today.
"Our system is automated to analyse the components of the repair estimate and, based on the severity of the damage (parts, labour, frame, etc), establish a diminished value without the need of a physical inspection."
However, reports on ClaimCoach and its ilk are not uniformly positive. US repair expert Tony Passwater believes that DV systems are not all they're cracked up to be.
"The concept was good, but what has happened is not. Most [bodyshops] that are involved are looking for a club to beat up insurers for their own gain, not to protect consumers.
"Granted the insurers take advantage of the system, but as an industry we do little to stop the problem. We are very quick to criticise what we feel is the only problem (lack of fair pricing) and quickly forget we do little about cleaning up the industry and taking care of our people.
"Wreck Check and the others quickly see that the money is not in inspecting the vehicles, but in participating in lawsuits for DV.
"I have always been an advocate of post-repair inspections -- it would certainly stop a lot of garbage going on. The problem is this -- if the government controls it, it will be a joke; if insurers control it, likewise; and if repairers control it, it becomes a vendetta against insurers."