In MTPL (compulsory motor third-party liability insurance) claims settlement, one of the terms that provokes the strongest feelings is ‘depreciation deduction’. The injured party receives the calculation and sees that the insurer has deducted a portion of the price of the new part because their car is twelve years old. A few lines further down, the same injured party reads that no diminution in value will be paid because the car is too old. Taken together, the two sentences rightly seem contradictory: if the new part is worth less because of the car’s age, why is the repaired car with a claims history not worth less as well? As a broker, I see that a good part of the dispute arises because the logic behind the two concepts is not clear. This article puts both directions on the table at once: what the Hungarian Civil Code (Ptk.) entitles the insurer to do, what can be disputed, and when the loss of value after the repair is due to you. The calculation of a total loss and the question of the insurer’s calculation versus the repair shop’s quote are covered in separate articles in the knowledge base; here I only refer to them.
- Depreciation deduction stems from the rule in the Hungarian Civil Code (Ptk.) prohibiting gain from a loss: if a repair with a new part makes the vehicle more valuable, the insurer may deduct this financial benefit – the dispute is about which items actually gain in value, and to what extent.
- Diminution in value is the other direction: under Section 6:522 of the Ptk., full compensation also includes the diminution in value of the injured party’s assets, so if a professionally repaired car is worth less because of its claims history, the difference is part of the loss – but it has to be proven.
- Both are disputes about the amount, not a rejection: request the itemised calculation broken down by head of claim, dispute it in writing, and if no settlement is reached, the route is a complaint, the Financial Arbitration Board (PBT) or the courts.
Where does the right to a depreciation deduction come from?
An MTPL claim is a claim for damages, so the rules come not from the insurer’s policy conditions but from the Ptk. Under Section 6:522(1), the person who caused the damage must compensate the injured party’s loss in full; under subsection (3), however, the compensation must be reduced by the financial benefit the injured party gains from the damage, unless this is not justified in view of the circumstances of the case. This is the prohibition on gaining from a loss: the aim of compensation is to put you financially where you were before the accident – not in a worse position, but not in a better one either. If a worn tyre with six months of remaining life is damaged and replaced with a new one, your car is worth more than before the accident; in claims settlement this surplus is called depreciation and is deducted. The same principle lies behind a spent battery, a corroded exhaust or worn brake pads. A depreciation deduction is therefore neither a penalty nor an arbitrary discount, but the other side of the principle of full compensation. In casco, the policy conditions set this out separately; in MTPL, the Ptk. provides its basis.
What can legitimately be deducted – and where does the dispute begin?
The law gives not a percentage but a principle: what can be deducted is what is genuinely a financial benefit. In claims-settlement practice, insurers typically work with calculation software that assigns a depreciation rate according to the vehicle’s age and mileage – the rate and the range of items it applies to vary from insurer to insurer. Disputes commonly arise on three points:
- Wear-and-tear parts. Tyres, battery, exhaust, brake pads: here the principle of depreciation deduction is least open to dispute, because the service life of these parts genuinely runs down with use. The rate, however, can be a matter of dispute: a one-year-old tyre does not depreciate in the same way as a five-year-old one.
- Body panels and non-wearing parts. A new door or wing on a ten-year-old car rarely makes the car more valuable on the market: buyers look at the vehicle as a whole, not at one of its doors. The injured party’s argument is therefore that there is no financial benefit here and the basis for a depreciation deduction is missing; some insurers’ calculations nevertheless apply a rate to these parts too. This item is always worth checking separately and questioning.
- Labour and paintwork. Labour is not a part: it does not wear out and does not increase the value of the vehicle, so a depreciation deduction is hard to make sense of for it. Depreciation deductions on paintwork also occur in practice, on the grounds that fresh paint replaces worn paint; whether this is justified depends on the condition of the panel in question, and it can be disputed.
Under Section 31 of the Gfbt. (Act LXII of 2009 on compulsory motor third-party liability insurance), the insurer’s compensation offer must be adequately reasoned and must state the amounts by head of claim. The same section also sets a deadline: within 15 days of receiving the documents needed to settle the claim, but no later than three months from the submission of the claim, the insurer must give its reasoned offer or – if liability or the amount is disputed – its reasoned reply. This is the key: for every depreciation item you can ask the insurer to state what financial benefit it sees and why. If the calculation is lower than the repair shop’s quote, the route of an invoiced repair and a supplementary inspection is described in the article on the calculation versus the repair quote; with a total loss the logic is different – there the question is not depreciation but the value at the time of the loss and the salvage value – this is covered in the total loss article.
Diminution in value: when even the repaired car is worth less
Section 6:522(2) of the Ptk. expressly states that, as part of full compensation, the person who caused the damage must also compensate the diminution in value of the injured party’s assets. A professionally repaired car with a claims history is typically worth less on the used-car market than an undamaged equivalent: the word ‘repaired’ in the advert, the claims history that buyers look up and traces of non-factory paintwork are all bargaining points in the buyer’s hands. This difference is a genuine financial disadvantage and, according to the wording of the law, part of the loss. In claims-settlement practice, insurers typically recognise it only for young, low-mileage vehicles with significant structural damage, and often only on express request – their internal rules on this vary from insurer to insurer.
The Ptk., however, knows no age limit: the question is always whether the loss of market value can be proven. On this point case law is strict as well. In a decision of fundamental importance, the Kúria (Hungary’s Supreme Court) held – in a different, warranty case, but following the general rules of compensation – that the fact of a repair on its own, in the absence of other evidence, provides no basis for establishing a diminution in value, and that if the defect can be repaired without a diminution in value, no compensation is due under that heading either. Diminution in value is therefore not automatic: you have to show that your car is specifically worth less because of its claims history – the established tools for this are an opinion from a court-certified vehicle expert and a market comparison of vehicles of the same type and age. Where this succeeds, the amount rests not on the insurer’s goodwill but on the Ptk.
How do the two fit together?
The contradiction mentioned in the introduction is in fact two rules pointing in the same direction. The prohibition on gaining from a loss and compensation for diminution in value follow from the same sentence: the injured party’s assets should be exactly where they were before the accident. If the new part adds value, that can be deducted; if the claims history takes value away, that has to be added. What is inconsistent is a calculation that applies only one direction: it considers the vehicle old enough for a depreciation deduction, but also old enough for no diminution in value to be due. When disputing the settlement offer, it is worth putting this double standard in exactly these terms, head of claim by head of claim.
The dispute step by step
- Request the itemised calculation. Parts prices, labour, paintwork and depreciation rate item by item – the basis for this is the reasoned offer broken down by head of claim under Section 31 of the Gfbt.
- Specify what you are disputing. Separately the rate for wear-and-tear parts, separately the depreciation deduction on body panels and labour, and separately the missing diminution in value. An itemised objection carries more weight than the sentence ‘this is too little’.
- Provide evidence. A repair shop quote, an invoice, photos showing the condition of the parts concerned; for diminution in value, an expert opinion and a market comparison. The expert opinion is at your own expense, but where justified its cost may be claimable as part of your claim.
- Do not sign until you have understood it. Accepting the settlement offer typically closes the dispute about the amount for the items settled in it; under Section 32 of the Gfbt. the insurer must pay the accepted amount within 15 days, but before accepting you can ask questions and dispute it.
- Complaint, arbitration, court. The insurer must give a reasoned reply to a complaint within 30 days (Government Decree 437/2016); if this does not resolve the matter, as a consumer you can turn to the Financial Arbitration Board (PBT) or go to court. The MNB (Hungary’s central bank and financial supervisor) does not decide individual disputes about amounts.
The typical points of dispute in MTPL claims are listed in the article on the common causes of disputes.
What to do in practice
Report the claim on the claims line of the insurer of the party who caused the damage, and at the inspection ask the assessor to record the condition of the parts – tyres, battery, paintwork – because later this decides the rate of the depreciation deduction. Do not look only at the bottom line of the calculation: the depreciation line and the missing diminution in value can each be disputed separately. If the case gets stuck or becomes disputed, I help where I can – I act on the client’s behalf, do not provide legal representation and do not decide in place of the insurer; how a stuck case proceeds is described in the article on the broker’s role.
A question tailored to your own claim calculation? Run the online calculator in minutes, or book a free 20-minute consultation →
Sources
- Hungarian Civil Code (Ptk., Act V of 2013) Section 6:522 – full compensation, diminution in value, prohibition on gaining from a loss
- Gfbt. (Act LXII of 2009 on compulsory motor third-party liability insurance) Sections 31–32 – reasoned compensation offer by head of claim, payment
- Kúria (Supreme Court of Hungary) – summary of decision of fundamental importance No. Pfv.V.21.294/2012 (proving diminution in value)
- Government Decree 437/2016 – complaints handling, 30-day reply
- MNB – Financial Arbitration Board (PBT)
