So you’ve been in a car accident: Vehicle Damage and Diminished Value Claims

Written by Gillian Clarke, Christine Chong, Nolan Bachmann and Kate Pearce

Navigating the aftermath of a car accident can be challenging, especially when it comes to handling vehicle damage. In Alberta, the introduction of the Direct Compensation for Property Damage system on January 1, 2022, has changed the way these claims are processed. Under this system, if you’re not at fault, you now deal directly with your own insurance company for vehicle repairs, intended to simplify and speed up the process. Additionally, the concept of “diminished value” – the reduction in your vehicle’s market value after an accident – has been clarified by a recent court ruling, which states that such claims cannot be made against the at-fault driver under the DCPD. As a relatively new property damage regime, more judicial consideration is to be expected in the coming years.

Direct Compensation for Property Damage System

Historically, if you were in a car accident in Alberta through no fault of your own, the insurance company for the driver at fault paid for your vehicle damage, whether by way of repairs (if your vehicle could be fixed) or salvage value (if it could not). However, on January 1, 2022, Alberta passed legislation adopting what’s known as a Direct Compensation for Property Damage system. The relevant amendments were made to the Insurance Act, RSA 2000, c l-3, particularly at sections 585.1 and 585.1(7)(a), and to the Direct Compensation for Property Damage Regulation, AR 132/2021 (the “DCPD”).

The DCPD requires drivers deemed not at fault in motor vehicle accidents to deal with their own car insurance company to repair damage to their “automobile or its contents” instead of getting the at-fault driver’s insurance to do so, as was previously the custom. The intention of the new legislation was to simplify and speed up the process of getting your vehicle fixed after an accident by avoiding the often complicated and time-consuming process of going through the at-fault party’s insurance company.

Whether or not you are “deemed” at fault depends on the circumstances of the accident. The DCPD legislation addresses multiple common accident types, including (but not limited to) a rear-end collision, a “t-bone” collision, or an accident occurring while one vehicle is overtaking or passing another. The amount that a driver can recover for vehicle damage is directly proportional to the amount they are deemed not at fault according to the DCPD. For example, a driver who is 100% not at fault can recover 100% of the value of their vehicle; a driver deemed 25% at fault, however, can only recover 75% of their vehicle’s value.

If the at-fault vehicle owner does not have any car insurance on their own vehicle, or the at-fault vehicle owner cannot be identified, such as in a hit-and-run collision, the DCPD will not apply. Instead, depending on whether or not the not-at-fault driver had property damage insurance coverage, either their own car insurer will take care of the damage, or the at-fault driver would have to be dealt with directly either by way of a negotiated resolution or by suing them for the vehicle property damage.

Diminished Value Claim for Vehicle Damage

One type of vehicle damage that has been historically claimed against at-fault drivers over the years is something called “diminished value” or “accelerated depreciation”. Essentially, this relates to the notion that a vehicle that has been in a collision is worth less in the marketplace than those of the same make, model and year which were not involved in a collision, even after the vehicle damage has been repaired. In the past, there have been Alberta court decisions which have awarded the not-at-fault vehicle owners judgment for the diminished value to their vehicle against the at-fault driver who caused the accident. There have also been court decisions to the contrary.

Following the implementation of the DCPD, it was unclear whether “diminished value” was considered damage to a “vehicle or its contents” under the Insurance Act legislation. Recently, Alberta’s first decision interpreting the DCPD sheds light on how the courts may handle diminished value claims going forward.

In the case of Hupper v Howatt, 2024 ABCJ 141 (“Howatt”), two vehicles were involved in a motor vehicle collision and both of them were insured. As a result, the DCPD applied with respect to the not-at-fault Plaintiff’s vehicle damage repairs. The Plaintiff also made a claim against the at-fault driver for the diminished value of their vehicle. The Court had to consider whether the DCPD allowed both the damage claim and the diminished value claim, or if the DCPD prevented the Plaintiff from making a claim against the at fault party for the diminished value of their vehicle. The Alberta Court of Justice Judge determined that the Plaintiff could not claim for the diminished value to the Plaintiff’s vehicle from the at-fault party because:

1.??? Section 585.1 of the Insurance Act demonstrated a clear intention to simplify and streamline vehicle damage claims under motor vehicle insurance policies in Alberta; and

2.??? The wording in section 585.1(7)(a) demonstrated a clear intention to bar all property damage claims against the at-fault party’s car insurer (diminished value being a property damage claim and not a direct vehicle damage claim.) The Court stated that the ordinary and grammatical interpretation of the words used in this section of the Insurance Act and the interpretation by Ontario courts of substantially similar legislation supported this position.

Howatt also stands for the proposition that when both parties in an accident have insurance for vehicle damage, you cannot make a claim for vehicle damage against the at-fault party for the same, nor can you make a claim for the diminished value to your vehicle. It remains unclear whether or not a claim for diminished value can be made against your own vehicle insurer.

The Howatt decision provides the current interpretation of these sections of the Insurance Act in Alberta; however, is not binding on other Justices at higher levels of court. Subsequent judges and courts may interpret the law differently. There will undoubtedly be more judicial consideration given to this relatively new property damage regime in the coming years.

Been in an accident? Have questions about your vehicle property damage and personal injuries? Our experienced team of personal injury lawyers is ready to help you and provide a free initial consultation. Read more about our services and our team on our website.