American Bar Association

Authors: R. Tyler Bryant, Rodrigo Garcia Jr., Meghan C. Moore

I. Defining Diminished Value

When property is damaged, a policyholder generally expects to be “made whole” by its first-party property insurer. With respect to the physical loss or damage, frequently, repair or replacement of the damaged property is sufficient to return the policyholder’s property to its “pre-loss” condition. But sometimes it is not enough. There are times when property is fully repaired or replaced but is perceived as less valuable. For example, if you are buying a used car and you see two identical cars on the car lot, one damaged but properly repaired and one never damaged, which one would you prefer? The reality is that whether or not the damage has affected the appearance or function of the vehicle, people choose the never damaged vehicle.

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