Say your car is worth $5,000, according to the National Automobile Dealers Association (NADA) guide. Say you're in an accident and you have to make a claim on your collision insurance. Your insurer pays for the repairs on your car (minus your deductible) and you decide to sell the car. As you shop your car around, you find that you can't get anything near $5,000 for it because it was wrecked and repaired. What happened? Your car has experienced diminished value (also known as diminution in value). So, can you make a claim for this "loss" under your auto insurance policy?

Policyholders contend that their insurers are obligated to return their automobiles to pre-loss condition after accidents. A monetary value is usually attached to that condition, and policyholders say that a car that's been in an accident will fetch a lower price when sold compared with a similar car that hadn't been crashed — that a car's value inherently diminishes after it's been in an accident, regardless of the quality of the repair. Consumer advocates have long held that policyholders are entitled to a diminished-value check from their insurers if they can document that their vehicles have not been returned to pre-accident condition.

The diminished value debate has raged for years because most auto insurance contracts have been silent on the issue of whether the insurer is liable for any real or perceived decrease in a vehicle's value after a crash, even if the vehicle has been repaired to its original condition. Insurers argue that diminished value is not covered, but consumers disagree — and court battles often result when policyholders clash with their insurance companies over diminished value payments.

But the Insurance Services Office (ISO), which provides insurance forms and data, has authored policy language that insurers can use in 36 states and Washington, D.C. (see sidebar) that officially takes insurers off the hook for diminished value payments. Here's how insurance policies sometimes come into being: The ISO submits sample property/casualty policy language to state insurance departments across the country that help insurance companies alter and clarify their own insurance policies. Some state insurance departments must approve the ISO's filings before an insurance company can adopt any policy language proposed by ISO.