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The real world meaning of the term accelerated depreciation

Everyone would agree that the value of a brand new car plummets as you drive it off the lot.

It’s not necessarily logical.  It’s still the same car.  It’s now just used instead of brand new.  The 8-900 kms you put on it has had zero impact on its mechanical condition.  You have been careful to ensure the interior is exactly the same as when you purchased it.  That “new car” smell is still there.  Try to sell a brand new car two weeks later, though, and you will take a huge hit no matter how elaborate your logical arguments might be.

Logical or not, that accelerated depreciation is a marketplace reality.

An insurance company tried to use similar logic to get out of paying for another type of accelerated depreciation in a recent court case.

The main issue in the case was whether the market value of a Mercedes SL65 AMG had gone down because it had sustained damage when the valet parker lost control and crashed it, causing damage costing $26,000.00 to repair.  The owner of the Mercedes was claiming for that loss of value.

For those of you, like me, who have no idea what an SL65 AMG is, I’ll refer to the language of the trial justice, who referred to it as “the stuff of a young man’s fantasy, and an older man’s crisis.”  In 2005, it was the fastest production motor car in the world.  It had cost $210,094.36.

We all know that, in British Columbia, a person wishing to sell a vehicle that has sustained damage in an accident costing $2,000 or more to repair must declare that to a buyer.

The insurance company had hired an expert in automobile appraising.  That expert tried to use logic to convince the court that so long as a vehicle damaged in an accident has been repaired properly, there is no loss due to accelerated depreciation regardless of the amount of the damage.  Logically, the expert asserted, a reasonable buyer would not think that a properly repaired vehicle is worth less than had the vehicle never been damaged.  The car should sell, in the marketplace, for exactly the same price as if it had never been in a crash.

Logically, that makes sense.  If all the damaged parts were properly replaced it’s effectively the exact same car it was before the crash.  Perhaps, arguably, it is even better because some of the parts would have been replaced with new parts.

Yes, there’s some logic there, but I’d bet everyone reading this (who is not an insurance company representative) would agree it’s full of something that gets shovelled out of pig pens.

The judge hearing the case saw through it.  The judge pointed out that the question is what is likely to actually happen in the marketplace where reason does not necessarily prevail, not what should logically happen.

The judge preferred the evidence of the appraisal expert hired by the plaintiff, that indeed the value of this luxury car had gone down as a result of the damage it had sustained, even though the damage had been properly repaired.  That expert had given an opinion that the loss of value amounted to 15% of the vehicle’s value at the time of the collision.

Of course, the value went down.  A $2,000.00 damage declaration would reduce the value of any car.  “Of course” is not a convincing legal argument, though.  Matters of opinion require the evidence of “experts”, in this case automobile appraisal experts.  The fact that the “of course” won the day in this case doesn’t stop an insurance company from hiring the same expert to make the same “logic” arguments in another case.

The precedent that this case provides, which is applicable to other cases, is clarification of the law that this loss, called “accelerated depreciation”, is a loss that a negligent driver (through his insurance company) must pay for, even if you have not sold the vehicle and effectively “paid for” the loss by selling the vehicle at a discount.  Armed with this case, it is a loss that I will be considering in every personal injury claim when the injured victim’s vehicle has sustained $2,000 or more in damage.

If anyone would like a copy of the court decision, please e-mail me and I will forward it to you.

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12 Comments

  • Require assistance to begin action for a potential accelerated deprec.claim.
    Thank you.

    • Lee – have a look at the exchange in the question/answer section of the blog. Call me if you need a walk-through of our Small Claims system – 250-769-7444 ext 100.

  • A large auto dealer in Vancouver sold me a lease return vehicle 3 years ago. They declared it accident free. I went to sell it privately and find it has 2 separate ICBC estimates in excess of $2k totalling $8k+. What is my legal recourse?

    • Mark, your legal recourse is against the auto dealer you purchased the vehicle from for negligent (or if applicable, fraudulent) misrepresentation with regard to the crash repair history. Engage the services of the Car Whisperers – 604-419-1877 to quantify your loss.

  • please email me the court decision. thanks

    • Thank you, Carey. The applicable excerpt of the decision of Mr. Justice R. Punnett issued March 25, 2014 is cut/pasted below. I see that he accepted your opinion of accelerated depreciation of $4,000.00 for the vehicle you had assessed. What did ICBC end up paying in costs for the benefit of your opinions/trial preparation/etc.?

      The decision excerpt:

      Depreciation Claim

      [160] The plaintiff purchased the 2004 BMW M3 for $30,000 US in March 2008. As noted above, the vehicle required $18,421 in repairs following the First Accident. After that accident the plaintiff attempted to sell the BMW. He listed it on Craigslist for three months at an asking price of $27,000. It was his evidence that he had a few inquiries but no offers after advising prospective buyers of the damage caused by the First Accident. He made similar attempts to sell it in 2011 but received no response. As a result, he still owns and drives the vehicle.

      [161] The plaintiff provided an expert report from Carey Scarrow, who was qualified as an expert in the field of automotive appraisals and automotive collision repairs. He opined that as a result of the 2009 accident the vehicle sustained an accelerated depreciation of $4,000 due to the stigma associated with the BMW having been in the accident.

      [162] In examining the vehicle Mr. Scarrow noted uneven body panel alignment in the front of the vehicle and other minor deficiencies including flaws in the refinished body panels with inconsistent coating thickness. He commented that the overall repair quality was of acceptable industry standards for the calibre of car but not representative of its previous pre-accident factory standard.

      [163] Mr. Scarrow noted that it was mandatory for the seller to declare any damage over $2,000 to a prospective purchaser. He stated that the repaired areas will deteriorate at varying rates, making the repairs more evident as the vehicle ages.

      [164] He then provided his opinion that the collision repairs resulted in a value of $15,000, an accelerated depreciation of $4,000 when compared with an estimated value of $19,000 for a BMW of that make, age, and mileage but without the accident damage. In his report Mr. Scarrow indicated that he based this opinion on his inspection of the vehicle itself, references to the Sanford Gold Book, July 2013 edition (a used car valuation guide), as well as what he referred to as “local market comparable research.” In cross-examination he expanded somewhat on this methodology, noting that he relies on his years of experience in used car valuation and sales to determine the valuation numbers. In this case he said that he also posted the car for sale for a period of three to four days and gauged the response from potential buyers. He noted that potential buyers for vehicles of this type are particularly “fussy” about the details of previous damage and repairs.

      [165] The plaintiff relies on Signorello v. Khan, 2010 BCSC 1448, and Cummings v. 565204 B.C. LTD., 2009 BCSC 1009. Signorello stands for the proposition that a vehicle need not be sold in order to demonstrate an accelerated depreciation loss (para. 29); see also Cummings, at para. 73.

      [166] The defendants acknowledge that claims for accelerated depreciation are good in law. However, they submit there is a heavy burden on a plaintiff to adduce sufficient evidence to prove that accelerated depreciation has actually taken place. They rely on Miles v. Mendoza, 1994 CanLII 419 (B.C.S.C.), and Burrard Import Ltd. v. Budget Rent-A-Car of B.C. Ltd, 2001 BCPC 75. In Miles, the court noted that “difficulties of proof” arise where the car is not sold after the accident, as the depreciating effect of the accident declines over time. The court also said that expert evidence of that only spoke to the general “stigma” attaching to damaged vehicles was not sufficiently persuasive proof to award damages for accelerated depreciation: “it cannot be “assumed”, by virtue of the occurrence of an accident requiring extensive repairs, that a properly repaired vehicle has suffered accelerated depreciation” (para. 40).

      [167] Burrard followed Miles in finding that the evidence did not meet the necessary standard given the claimant’s expert’s opinion amounted to no more than a simple proposition and as a result was not the type of persuasive evidence contemplated by the jurisprudence.

      [168] The defendants submit that the plaintiff must prove that the accelerated depreciation actually occurred by adducing evidence that goes over and above the simple proposition that a car which has been in an accident, even though properly repaired, carries a stigma. They say that in this case the plaintiff’s evidence does not go beyond asserting the existence of such a stigma.

      [169] I cannot accept this submission, for two reasons. First, in my view, the evidentiary standard as described in Miles has not been applied quite so strictly in recent decisions. In Cummings, for example, Madam Justice Gerow awarded $7,600 in damages for accelerated depreciation. There the evidence consisted of an automobile valuation expert’s opinion that the plaintiff’s vehicle had suffered an accelerated depreciation of 20% following the accident. There is no comment in the decision as to the factual basis for this opinion and no suggestion that it went beyond the expert’s experience of the “stigma” in the marketplace. The owner had also attempted to trade the vehicle in but was informed by the dealership that they did not accept trade-ins on vehicles with more than $5,000 in damage.

      [170] In Signorello the car was an extremely rare exotic high-performance luxury sports car, manufactured by Mercedes-Benz. The valuation expert set a value based on conversations he had with various Mercedes-Benz dealers in the province. The court identified some concerns with this evidence, noting that the defendant had argued that the expert’s opinion was based on hearsay and opinion evidence itself. Justice Grauer then said at para. 25:

      [25] … the starting point for any vehicle appraisal is the Canadian Black Book, a guide to the wholesale value of used vehicles in Canada relied upon by dealers across the country. This car is so rare, however, that it does not appear in the Black Book. Of course the figures in that book could also be described as opinion evidence … In the particular circumstances of the case, it is my conclusion that it was not an inappropriate way for Mr. Cogbill to approach the problem, although it would have been preferable had he included the specifics of his conversations. As it was, he did indicate the dealers whom he consulted, …

      [171] From this I take that the expert may rely on the Black Book or similar valuation guides in coming to an opinion as to the value of the vehicle. It also suggests that the “difficulties of proof” that may arise if the car is not sold can be overcome by an expert’s opinion.

      [172] Second, even if one accepts that the standard from Miles still applies, I am of the view that the evidence tendered here does go beyond a “bare” opinion that the car has suffered depreciation due to a “stigma.” Mr. Scarrow based his valuation on a long history of appraising cars, including BMWs. He also relied on the Gold Book, a valuation guide, and market research that he described in cross-examination. The plaintiff also provided evidence that he had attempted to sell the vehicle at a reduced price following the accident and received no offers.

      [173] I conclude that the plaintiff’s evidence is sufficient to establish accelerated depreciation in value for the BMW. I accept Mr. Scarrow’s figures and award damages of $4,000.

  • Paul, it appears costs at Scale B were awarded.

    • Carey – what I’m asking is what you charged for your services, including the report as well as trial preparation and attendance….which of course are disbursements that ICBC will have to reimburse the Plaintiff for….in addition to compensation for the accelerated depreciation.

  • Paul, base fee for this report is $450.00 plus GST, additional fees such as excess mileage,preliminary inspection prior to the commencement of repairs, and if the vehicle is a Exotic or limited production make or model can apply. Trial prep & attendance is $125.00 per hour.

    • Thank you, Carey….what I’m really interested in knowing what your fees were in THIS case, i.e. what did THIS report cost and what did you bill for your trial preparation/attendance….to give an insight into the unreasonableness of the insurance company to outright refuse to pay these claims.

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