Different Types of Claims
Please note: Nothing in the following should be construed as legal advice. We are not attorneys and cannot perform as such. Since insurance law is complicated and varies state to state the information on this page is a generalization of your rights and how the two types of claims are different. If you have questions of a legal nature, please consult an attorney.
You’ve had the misfortune of an accident and you need to file a claim (or you’ve already filed one). Who controls the repair process? What “rules” govern the claim and the insurance company?
Before discussing the differences, let us first make it perfectly clear that you are entitled to a first rate, high quality repair regardless of which insurance company is paying. Another thing that doesn’t change based on the type of claim is that it is YOU decide whether or not the repairs are acceptable. DO NOT fall prey to an unscrupulous shop or unethical insurer’s claim that the repairs have been done to “generally acceptable industry standards”. (there is no such “standard”)
Generally, when a motorist is involved in a collision and there is damage that needs to be repaired, they have two choices:
1) File a claim under their own policy (presuming they have proper coverage, most commonly known as “collision coverage” or “complete coverage”). This would be a first party claim. Filing a claim with your own insurance company does NOT mean you were at fault.
2) The consumer can pursue payment from the at fault party and/or their insurance carrier – a third party claim.
First Party Claims:
First-party claims are where the owner uses their own insurance coverage for the repair. This type of claim is controlled by the contract of insurance (more commonly called an insurance policy), which is governed by Contract Law and gives both you and the insurance company specific rights, and it is vital that you understand these rights when you have a claim.
If the vehicle owner was not at fault, it is possible to have the repairs addressed by the vehicle owner’s insurance company – (in some cases this may be preferable) – and still file with the other person’s insurance company for the diminished value. While the owner’s policy might exclude a DV claim, having the repairs done through their own coverage doesn’t absolve the at-fault driver (and subsequently their insurer) from being responsible for the loss of value.
Actually, in some cases it might be a good idea to go through your own coverage to have the repairs done for several reasons:
1) Your insurer is obligated (via the insurance contract) to treat you fairly whereas the other person’s insurance company has to look out for their insured’s best interest;
2)* Going through your own insurance coverage preserves the policy funds from the other person’s insurance policy;
3) Using your own coverage may expedite the repair process because the you don’t have to wait for the other person’s insurance company to investigate and accept liability.
* If the other driver was responsible for the accident and the damage to your vehicle was $15,000 and the rental cost was $2,000 and they only have $20,000 worth of liability coverage you would most likely be limited to a $3,000 recovery for the diminished value – rest assured, after $15,000 in collision damage, the DV would be much more than $3,000. Using your own collision coverage preserves the adverse driver’s policy funds.
IMPORTANT: If you were not at fault and you have the repairs done under your own insurance it is highly advisable to immediately prohibit the insurance companies from subrogating the claim.
If the vehicle owner was at fault or if the accident was an act of nature (a deer ran into the side of the car or a rock slide caused the damage) it would be a first-party claims and most likely would not be eligible for a diminished value claim – however, there are some exceptions – please feel free to contact us to discuss your particular situation.
The good news is that this only applies to “First-party” claims – a claim where you are using your own insurance coverage and there wasn’t anyone else at fault; it does not govern “Third-party” claims (where someone else was at fault).
Third Party Claims:
In third-party claims the other person’s insurance has accepted liability for their insured’s negligence. Please understand that your claim is actually against the at fault party/person and not their insurance company.
In third party claims, Tort Law is the controlling law (instead of Contract Law as in the case of a first party claim). Although overly simplistic, Tort Law basically protects the “victim” of an accident. A person does not have the right to make you suffer, whether physically or financially (the law is much more complicated).
The reason the other persons insurance becomes involve is because of the liability portion of their Contract of Insurance.
If someone causes damage to your property due to negligence, they are personally responsible to the injured party (Tort Law). If they have an insurance contract that covers the loss, the insurer must protect them financially and pay for the damages (Contract Law).
An accident “victim” claimant has the right to have their vehicle restored to pre-loss condition – AND VALUE.
This is where Diminished Value comes in.
The basic concept of a tort is that the negligence of one or more individuals has led to loss or damages of another. It is a general rule that the law of torts attempts primarily to restore the injured party to as good a position as he held prior to the tort.
If, after the repair, the vehicle is not worth what it was before the loss, the victim can file a claim for the diminishment.
Since everyone knows that a vehicle that has been damaged is worth less than one that has not, the at-fault party (and subsequently their insurer through the contract of insurance that guarantees them protection) owes for the loss of value resulting from the at-fault driver’s negligence.
In a third-party claim, where the other person was at fault, the diminished value is almost always a recognized (and collectable) element of the loss.
A monetary diminished value settlement is the ONLY way to make the injured party whole because the repair process cannot undo the fact that the vehicle has been in an accident and it’s the accident HISTORY that causes inherent diminished value.