Earlier this year Shawn Farley and his wife, Sabrina, realized a dream. They bought a luxury car.
Both had grown up in families of modest means, and the $43,000 Lincoln LS was a new and delightful experience for the Alexandria couple.
But last month, as Sabrina was crossing the 14th Street bridge early in the morning on the way to her job in the District, another car crashed into the rear passenger's side of the Lincoln, grinding along the side of the car, damaging the sheet metal from back to front, both wheels and the suspension.
"It was not just a little fender-bender," Farley said recently.
The accident was not his wife's fault, he said, and the other driver was ticketed by police. And Geico, which was the insurer for both cars, agreed to repair the Lincoln.
But the Farleys are far from whole. In the era of full disclosure and Internet tracking firms like Carfax, they have come to realize that their Lincoln will now be forever a "wrecked" car.
When they seek to sell or trade it, they will have little choice but to disclose the car's history, and when they do, they can expect bad news.
"We talked to three or four dealers," Farley said. "One said the car had lost at least a quarter of its value." And $5,000 was the least amount of loss anyone cited.
"There's a financial time bomb ticking in my car that will go off at point of sale or trade," he said.
But when the Farleys put the question to Geico and to Virginia regulators, the answer was the same: Under the laws and regulations of the commonwealth, and indeed of most other states, "diminished value" of a vehicle resulting from an accident is not covered by normal automobile insurance.
The issue is, however, a hot topic in the insurance industry. As cars have grown more expensive, and tracking their histories has become easier, this kind of loss has become much larger for car owners. That in turn has prompted more car owners to seek compensation when their cars get banged up.
The result has been an explosion of lawsuits. The American Insurance Association, a trade group, counts more than 60 decisions in the past five years. Most have gone in favor of the insurers, but a few have not. In 2001, the Supreme Court of Georgia found against State Farm in a class-action suit that was later settled for about $250 million. And a similar suit is pending before the high court in Indiana.
Insurers and most state regulators take the view that an insurance policy is a contract, and the carrier is required to do only what that contract specifies.
"Our position is that a properly repaired vehicle does not usually lose value just because it's been in an accident. A skilled repairman can restore a vehicle to its pre-loss condition, which is what our contract calls for," said State Farm spokesman Dick Luedke.
Experts in used-car values, while they agree about restoration being possible, disagree about the loss of value.
"There is diminished value. It's something insurance companies don't like to admit to," said Charlie Vogelheim, executive editor of the Kelley Blue Book, the well-known used-car price guide.
But the amount of value lost "is a tough thing to get your arms around," Vogelheim added. "We've wrestled with it for years."
Some suggest that the cost of the repairs might be a good indication of the lost value, but Vogelheim said that doesn't work because people view different repairs differently. New seats or glass, he said, might be taken as an improvement, but repairs to "door panels, frame or underpinnings bring up serious considerations."
New luxury cars with damage to the underpinnings, such as suspension components, are likely to suffer the most, he said, whereas with a six-year-old Ford pickup a new fender might mean the paint doesn't exactly match but you got rid of six years' worth of rust.
Mark Perleberg, an auto expert with NADAGuides.com, noted that from "a dealer standpoint there's a need to be aware" of a car's history because "there could be certain liabilities from a car that's been in an accident."
For instance, a type of car may have passed the government's crash test but "are we sure that it [would] pass that same test when it's been repaired?" he said.
And the chances are today that a car's history can be discovered.
Firms like Virginia-based Carfax, which track down and sell vehicles' recorded histories, are gaining wider and easier access to such data. For example, Carfax noted that California has just enacted a law requiring disclosure of all police accident reports, and the company "is working with the DMV and police in California to develop computer systems to pull the data from their system to ours," said Carfax spokesman Larry Gamache.
"We see ourselves as consumer advocates. What we are really pushing for is an open exchange of information, so both buyers and sellers have access to the same information," Gamache said. This is making it "increasingly difficult for a seller of a used car to deceive a buyer," he added.
Insurers argue that even if even if they were to concede there is a loss of value it is very hard to quantify, so what amount would they be insuring and how would they price it? For example, if the owner doesn't sell the car for many years, the loss of value from the accident in effect shrinks until it becomes indistinguishable from the overall depreciation.
"The policy language that's used by most companies [now] is very clear. The coverage is repair or replace the vehicle and does not include any other economic issues," said David Snyder, vice president and assistant general counsel of the American Insurance Association.
"If you added something like diminished value, insurance costs would skyrocket. . . . You would have the same sort of unpredictability that you do for litigation in personal injury cases. It adds a degree of unpredictability and upward pressure [on prices] that doesn't now exist" in collision and related coverages.
In Georgia, though, the state insurance commissioner, John W. Oxendine, said the state Supreme Court decision "didn't have a huge, sweeping effect."
He said his agency figures that it has probably added less than 5 percent to the amounts insurers are having to pay out. He said also that his department allows carriers to offer a policy that excludes diminished value, but only if there is a discount of 7 to 10 percent from the regular premium.
Oxendine noted, though, that the concept of diminished value has long been recognized by the Georgia courts, and the recent decision mostly made it easier for motorists to recover it.
"If Georgia didn't have diminished value before the [court decision], then I think there would have been about a 10 percent increase in cost," he said.
Many state regulators, though, say it isn't covered.
"Insurance is a contract," said D.C. Insurance Commissioner Lawrence H. Mirel. And that contract "says nothing about diminished value. There is no case law [on the issue] in D.C., and we would uphold the contract."
"There is a concept in tort law of making people whole. That concept doesn't apply in contract law," Mirel said. Those trying to obtain compensation for diminished value are "importing into contract law something that doesn't have any business being there."
Randi Johnson, Maryland's associate commissioner for property insurance, said many policies in her state specifically exclude diminished-value claims from the policyholder. That "cuts off the issue altogether" in single-car accidents, she said.
Where someone else is at fault, the car owner can file a liability suit against the other driver, but Johnson said "diminished value is difficult to prove in Maryland. You'd have to put on expert testimony that value has decreased, and that is almost impossible to do."
Likewise, in Virginia, according to the State Corporation Commission's Bureau of Insurance, insurers "are not paying diminished-value claims to policyholders because it is either excluded specifically in the coverage, or the language in the collision coverage has been interpreted by the Virginia Supreme Court that diminished value is not covered."
So does this mean that owners of new and/or expensive cars are riding around with a potential loss that is not covered by insurance? "Absolutely," said Johnson.
And that, said Shawn Farley, is something motorists ought to be aware of.
"I'm not free to trade my car in anymore" because "I can't afford, or can't afford easily," to make up the difference, he said. "We are losing money at no fault of our own. We are being stuck with the whole fundamental risk."
"I think people ought to know that there's this danger is out there," Farley said. "You can be a victim just like we were."