Are Third-Party Diminished Value Damages Claims Covered in Canada?

When a vehicle is involved in an accident, even if fully repaired, it often loses value simply because it has a collision history. This decrease in market value is known as “diminished value.” While it’s a well-recognized concept in some jurisdictions, many Canadians are left wondering: Are third-party diminished value damages claims covered in Canada?

The answer isn't as straightforward as one might hope. Coverage for diminished value claims—especially third-party claims—varies across provinces and depends on several factors, including the type of insurance coverage, fault determination, and the specific circumstances of the accident. In this blog post, we'll explore what diminished value means, whether you can recover it as a third-party claimant in Canada, and how to go about it if you believe you’re entitled to compensation.

What is Diminished Value?

Diminished value refers to the reduction in a vehicle's market value after it has been damaged in a collision and subsequently repaired. Even with top-quality repairs, potential buyers may view the vehicle as less valuable due to its accident history.

There are three main types of diminished value:

1. Inherent Diminished Value

The loss in value due solely to the fact the vehicle has a history of damage, regardless of how well it was repaired.

2. Repair-Related Diminished Value

Occurs when the repairs made to the vehicle are substandard or incomplete, reducing the car’s value further.

3. Immediate Diminished Value

The difference in value between the vehicle's pre-accident condition and its value immediately after the accident, before any repairs are done.

In most cases, third-party claims involve inherent diminished value, which is considered the most widely recognized and the most contested in legal and insurance frameworks.

Understanding Third-Party Claims

A third-party claim is filed against the at-fault party’s insurance company, rather than your own. In Canada, auto insurance is governed on a provincial level, and liability coverage is mandatory across the board. This liability coverage is designed to compensate third parties for damages, including bodily injury and property damage, caused by the insured individual.

But does "property damage" include diminished value?

This is where things get tricky.

Are Third-Party Diminished Value Claims Recognized in Canada?

The short answer is: not typically, but it’s not impossible.

Most insurance companies in Canada do not voluntarily offer compensation for diminished value—whether first-party or third-party. While your car may be repaired under the at-fault driver’s liability policy, the loss in value due to its accident history is not automatically recognized or compensated.

However, there have been cases where claimants have successfully argued for diminished value compensation through small claims court or with legal representation, especially when strong evidence is presented that the vehicle’s market value has decreased as a direct result of the collision.

Here’s how diminished value claims are generally treated across Canada:

• Ontario: There is no explicit provision in the Insurance Act requiring insurers to pay for diminished value, but courts may consider such claims valid under tort law.

• British Columbia: Under ICBC’s current framework, diminished value is not covered for first-party or third-party claims.

• Alberta, Quebec, and Others: Similar to Ontario, there is no formal coverage, but individual legal actions may yield compensation.

Factors That Influence a Successful Diminished Value Claim

Several conditions must typically be met for a third-party diminished value claim to have a chance of success in Canada:

1. Fault Must Be Clearly Established

You must be able to prove the other driver was 100% at fault. If you're even partially liable, the chances of recovering diminished value significantly drop.

2. The Vehicle Must Have Suffered Significant Damage

Cosmetic damage is unlikely to support a successful claim. Structural damage or replacement of major parts is usually more compelling.

3. Evidence of Diminished Value Must Be Presented

You’ll need to obtain a professional appraisal or valuation that compares your car’s pre-accident and post-repair values.

4. The Vehicle Must Be Relatively New and in Good Condition

Older vehicles with high mileage are less likely to qualify for a meaningful diminished value claim.

Steps to Take if You Want to File a Third-Party Diminished Value Claim

If you believe you’re entitled to compensation for diminished value after an accident, here’s how to approach the situation:

1. Gather Documentation

Keep detailed records of the accident, repair invoices, photos before and after repairs, and any related correspondence.

2. Get a Diminished Value Appraisal

Hire a certified vehicle appraiser who specializes in post-accident valuations. They will assess your vehicle and provide an official report.

3. Submit a Claim to the At-Fault Driver’s Insurer

Provide the appraisal along with a formal request for compensation. Be prepared for pushback, as most insurers will deny the claim.

4. Negotiate or Take Legal Action

If the insurer refuses, you may consider taking the matter to small claims court or hiring a legal expert to assist in negotiations.

5. Consult a Legal Professional

This is especially important if your claim involves substantial financial loss. A lawyer can help build a stronger case, navigate provincial laws, and represent you in court if necessary.

For legal expertise tailored to insurance disputes and personal injury cases, consulting a Mcnally Gervan insurance lawyer can be an essential step toward achieving fair compensation.

Challenges in Claiming Diminished Value

There are several roadblocks that claimants often face:

• Lack of Legal Precedent: Canadian courts don’t have a long-standing tradition of awarding diminished value compensation.

• Insurer Resistance: Insurance companies are motivated to minimize payouts and may reject your claim unless presented with strong legal justification.

• Out-of-Pocket Costs: Hiring an appraiser and potentially a lawyer can be expensive, especially if the diminished value isn’t substantial.

Is It Worth Pursuing a Diminished Value Claim?

That depends on your situation. If your vehicle is new, high-end, or rare, and suffered significant damage, the diminished value could be thousands of dollars—well worth pursuing. However, if your vehicle is older or the damage was minimal, the cost and effort of pursuing a claim may outweigh the potential recovery.

Final Thoughts

While third-party diminished value claims are not automatically covered under most Canadian insurance policies, that doesn’t mean compensation is entirely out of reach. With the right evidence, expert valuation, and possibly legal support, it is possible to recover the loss in your vehicle’s market value following an accident.

If you’ve recently been in a collision and believe your vehicle has lost value—even after repairs—it’s important to explore your legal rights and consider speaking with a knowledgeable insurance lawyer. Your financial recovery should not end at repairs alone; your vehicle’s long-term value matters, too.