Your car may be worth less after an accident: Learn about diminished value

This article has been updated from a previous version.

When a car goes through a major repair or rebuild after a collision, its resale price will inevitably take a hit in value, even if the repairs were done perfectly and the car is restored completely.

Unfortunately, that loss is not covered by car insurance providers in Canada.

In the U.S., some states allow car owners to claim, “diminished value,” also known as “accelerated depreciation” from the at-fault party’s insurance company. However, in Canada, it’s more restrictive.

No province or territory in Canada officially offers direct coverage for diminished value under standard auto insurance policies.

Insurance rules vary by province, complicating attempts to seek compensation. For instance, Ontario’s no-fault insurance system prohibits suing the at-fault driver for losses tied to a vehicle’s diminished value.  

Provinces like Alberta and British Columbia allow diminished value claims under specific legal conditions, but these cases often require significant evidence and are typically resolved through lengthy and costly negotiations or court proceedings.  

Related: Don’t get scammed: How to avoid buying a flood-damaged car 

What is diminished value?

Diminished value refers to the loss of a vehicle’s market value after it has been in an accident, even if it’s been repaired to excellent standards. The accident history alone can make buyers hesitant, and that can translate into a lower resale price.

Types of diminished value

There are three types of ways the value of your car goes down.

Immediate diminished value: The difference in resale value immediately after the accident but before repairs are completed.

Inherent diminished value: This is the most common form of diminished value. It’s the permanent stigma attached to a vehicle’s accident history, even if it has been repaired to its original condition. This is because buyers often perceive an accident-damaged vehicle as less reliable.

Repair-related diminished value: This happens when repairs are low quality or use non-original parts instead of original equipment manufacturer (OEM) parts. 

Examples include mismatched paint or lingering mechanical issues like rattles that didn’t exist before the accident. In these cases, the quality of the repair leaves a definite loss in value to the vehicle beyond the perceived loss that already exists from a collision.

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How would people know my vehicle was in an accident?

In Ontario, failing to report a car accident within 24 hours can lead to serious legal and financial consequences. The Highway Traffic Act requires drivers to stay at the scene until the necessary procedures, including reporting and assessment of damages, are completed.  

As of January 1, 2025, this includes notifying the police if the damage exceeds $5,000 (previously $2,000) or if there are injuries. Not reporting within the required timeframe can result in criminal charges, license suspension, and potential civil liability for damages.  

Plus, when you sell or trade your car, buyers will usually check its vehicle history or accident reports. Tools like Carfax or Carproof give potential buyers detailed information about past damage or repairs to a used vehicle.

Read more: Can you negotiate the price of a used car in today’s market? 

How to determine diminished value

Getting a clear understanding of your car’s diminished value requires planning and the right tools:

• Get a professional appraisal 
  Hiring an independent appraiser will provide you with an accurate evaluation of your car’s post-accident worth. Services like Carfax or third-party evaluators are reliable options.
• Use online tools 
  Diminished value calculators give you a basic idea of how much the accident has affected your car’s market price. They’re a good starting point but may not account for regional variations in Canada.
• Consult your insurance company 
  While Canadian policies generally exclude diminished value, it’s worth discussing your options with your insurer. Some companies have been known to settle claims on a case-by-case basis.

Related: What to do if you hit an animal and need to file an insurance claim 

Your car insurance policy only covers direct losses

Car insurance in Canada only covers direct losses. That means your policy will pay to fix your car and restore it to its pre-accident condition or declare it a total loss if repairs cost more than the car’s value.  

But there’s a catch – the drop in your car's resale value because of its accident history (known as diminished value) isn’t included. This is considered an indirect loss, so it’s not covered.

Even if repairs are done well, just having a repair history can hurt your car’s value. Using generic or aftermarket parts or poor-quality repairs can make things even worse. Trying to get compensation for this loss is tricky.  

For example, in Alberta, you can file a claim against the at-fault driver, but you’ll need strong evidence, like an appraisal. And even then, there’s no guarantee. These cases often come with legal fees and are rarely simple, as courts don’t usually award diminished value compensation. Most claims end up being settled out of court, but for many, the hassle and cost make it hard to justify pursuing a claim.

Related: What can void your car insurance in Ontario

Fighting for compensation

While diminished value coverage isn’t officially available in Canada, there are steps you can take to pursue compensation.  

Drivers in provinces like Alberta, which allow at-fault claims, may have the option to sue the at-fault driver’s insurance company for the loss. However, these claims require a solid foundation of evidence, including expert appraisals, repair records, and vehicle history documentation.  

Even with strong evidence, outcomes are not guaranteed as courts in Canada remain hesitant to award diminished value compensations. For instance, cases are often resolved through negotiations rather than going to trial, and insurance companies may settle to avoid drawn-out litigation.

Before advancing a claim, consider the factors that impact your car’s diminished value, such as the severity of damage, age and model of the vehicle, and the quality of repairs. If repairs involve generic or aftermarket parts, or if cosmetic issues persist, this can further reduce the car’s value. Legal costs may outweigh the potential compensation for older, lower-value vehicles, making these claims more viable for newer or luxury cars.

If you’re considering legal action, it’s wise to consult a personal injury lawyer to evaluate the strength of your case before proceeding. They can guide you on gathering evidence and negotiating with insurance companies while helping you weigh the costs and possible outcomes of a claim.