THE ASSESSMENT OF DIMINISHED VALUE IN TRAFFIC ACCIDENTS From the Formula Era to Market-Based Appraisal in Türkiye, with a Comparative Analysis of European and United States Practice Review Article Diminished value • Motor insurance • Expert witnessing • Comparative law ABSTRACT A vehicle damaged in a traffic accident sells for less on the second-hand market than an otherwise identical vehicle with no accident record, even where the repair is technically flawless. That difference is termed diminished value and is compensable under Turkish law as a component of pecuniary loss arising from tort. How diminished value should be calculated has been the subject of intense normative debate in Türkiye since 2015. The coefficient-based formulas introduced through the General Conditions of Compulsory Motor Third Party Liability Insurance were given a statutory footing by Law No. 6704; but in 2018 the 15th Chamber of the Council of State annulled the clauses on excluded cases, and the Constitutional Court struck down the statutory reference to the General Conditions in two judgments of 2020 and 2022. Despite those annulments, the Annex-1 formula rewritten on 4 December 2021 continued to be applied at the insurance stage until 1 July 2026, while over the same period the courts adopted an actual-loss standard, producing a dual regime. The amendment of 12 June 2026 repealed Annex-1 and adopted the principle that diminished value is to be determined by a loss adjuster from the difference between second-hand sale values, having regard to the vehicle's make, age, model, level of use, damaged components and prior damage history. This study documents that trajectory in detail from legislative and case law sources, analyses the parameters of the repealed formula through a worked numerical example, and compares the outcome with the mercantile diminution methods used in Germany and the 17c formula widely used in the United States, applied to the same fact pattern. The concluding section sets out in detail, as of the date of completion of the study, the six-stage method applied by the Turkish courts, contrasts the calculation approaches accepted with those rejected, and closes with concrete proposals on the minimum content of expert reports. Keywords: diminished value, motor insurance, compulsory third party liability insurance, actual loss, expert witnessing, mercantile diminution, second-hand market value, comparative law, General Conditions Annex-1, Constitutional Court annulment ABSTRACT A vehicle damaged in a traffic accident sells for less on the second-hand market than an otherwise identical vehicle with no accident record, even where the repair is technically flawless. This residual gap is termed diminished value and is compensable under Turkish law as a component of pecuniary loss arising from tort. How that figure should be calculated has been contested in Türkiye since 2015. Coefficient-based formulas introduced through the General Conditions of Compulsory Motor Third Party Liability Insurance were given a statutory footing by Law No. 6704, yet the 15th Chamber of the Council of State annulled several exclusion clauses in 2018, and the Constitutional Court struck down the statutory reference to the General Conditions in two successive judgments rendered in 2020 and 2022. Despite those annulments, the Annex-1 formula was rewritten on 4 December 2021 and continued to govern the insurance stage until 1 July 2026, while the courts applied an actual-loss standard over the same period, producing a dual regime. The amendment of 12 June 2026 repealed Annex-1 and provides that diminished value is to be determined by a licensed loss adjuster from the difference between secondhand sale values, having regard to the make, age, model, mileage, damaged components and prior damage history of the vehicle. This study documents that trajectory from legislative and judicial sources, analyses the parameters of the repealed formula through a worked numerical example, and compares the outcome with the German mercantile diminution methods and the 17c formula widely used in the United States when applied to the same fact pattern. The concluding part sets out, as of the date of completion, the six-stage method currently applied by the Turkish courts and contrasts the calculation approaches that are accepted with those that are rejected, before closing with concrete proposals on the minimum content of expert reports.
Keywords: diminished value, motor insurance, compulsory third party liability, actual loss, courtappointed expert, mercantile diminution, second-hand market value, comparative law, Annex-1 formula, constitutional review 1. Introduction In 2024, 1,444,027 traffic accidents occurred on Türkiye's road network, 1,177,172 of which resulted in material damage only (TÜİK, 2025). In the great majority of those accidents the vehicle is repaired and returns to the road. Yet repair does not restore the vehicle's economic condition fully to what it was before the accident. Because the accident record is entered in the database of the Insurance Information and Monitoring Centre (SBM) and can be queried by a second-hand buyer, of two vehicles of the same make, model, age and mileage the one with a damage record trades at a lower price. That difference, which cannot be closed by the repair cost, is termed in legal language diminished value.
That diminished value is a compensable head of loss is uncontested in Turkish law. The debate concentrates on how that head is to be measured. Since 2015 insurance legislation has introduced formulas tying the calculation to predetermined coefficients; the courts, by contrast, have continued to require the loss to be proved with concrete market data. The tension between the two approaches led to successive actions before the administrative and constitutional courts and to a series of annulments, producing over more than a decade a practice in which the insurer and the court reached different figures for the same incident.
That duality ended with the amendment published in Official Gazette No. 33278 of 12 June 2026. The Insurance and Private Pension Regulation and Supervision Agency (SEDDK) repealed Annex-1 of the General Conditions of Compulsory Motor Third Party Liability Insurance, which governed the calculation of diminished value, and provided that from 1 July 2026 diminished value is to be determined by a loss adjuster from the difference between second-hand sale values. The standard at the insurance stage was thereby brought closer to the actual-loss standard the courts had long applied.
The remainder of the article is organised as follows. Section 2 defines the concept of diminished value in its technical and commercial dimensions and explains the market mechanics of the loss. Section 3 addresses chronologically the development of the regulatory framework in Türkiye from before 2015 to the 2026 amendment. Section 4 analyses the Annex-1 formula applied between 2021 and 2026 with its parameters and works it through a numerical example. Section 5 examines judicial practice and Section 6 contested issues in practice. Sections 7 and 8 are devoted respectively to European and United States practice, and in Section 9 the same incident is calculated by four different methods and compared. The concluding section explains stage by stage the method adopted by the courts as of the date of completion of the study and offers recommendations on expert reports and on legislation.
2. Conceptual Framework 2.1. Technical and Commercial Diminished Value Diminished value is not a single phenomenon; it is the sum of two distinct components. Technical diminution arises from the repair's inability to return the vehicle exactly to its factory condition. Cutting out and replacing a welded part, pulling on a chassis alignment bench, applying a coat of paint of a different thickness from the original all leave measurable deviations in body tolerances. The second component, commercial (mercantile) diminution, does not disappear even where the repair is flawless; it consists simply in the fall in the price a buyer is willing to pay for a vehicle with a damage record.
That distinction is not a theoretical nicety. Technical diminution can be proved by measurement and inspection and depends on repair quality; commercial diminution depends on market behaviour and largely persists however well the repair is carried out. These two heads, termed in German legal terminology technischer Minderwert and merkantiler Minderwert, are usually combined into a single figure in Turkish practice. Yet the component determining the weight is almost always the second.
2.2. The Market Mechanics of the Loss: Information Asymmetry and the Damage Record The economic explanation of commercial diminished value rests on information asymmetry. A second-hand buyer cannot directly observe whether the vehicle carries a hidden defect, but can easily query the damage record. The record becomes for the buyer an indicator of unobservable risk, and the buyer prices that uncertainty by demanding a discount. The size of the discount varies with which components the record concerns: glass, bumper or headlamp replacement leaves almost no trace in the market, whereas records concerning welded structural parts such as the chassis, pillars, sill, floor pan and rear wing produce a marked fall.
Two structural elements strengthen that mechanism in Türkiye. The first is that damage history can be queried publicly through the SBM; the second is that the second-hand market has become largely transparent through listing platforms, so that the buyer can compare undamaged equivalents on the same listing page. Together those two elements raise the damage record discount in Türkiye above the level of many European markets. As will be seen in the comparative section, the same damage pattern results in a loss of about three to four per cent of the vehicle's value in Germany, while in Türkiye that ratio can rise to a band of ten to fifteen per cent.
2.3. Legal Character In Turkish law diminished value is a head of pecuniary loss compensated within the tort provisions of the Turkish Code of Obligations No. 6098. The reduction in the injured party's assets is not limited to the repair cost; the continuing diminution in value after repair is a loss requiring compensation so long as it remains within the appropriate causal link between the act and the damage. For compulsory motor third party liability insurance, diminished value falls within the material damage cover defined in Article A.5 of the General Conditions; it is determined by an insurance loss adjuster at the request of the entitled party (Aslan Düzgün, 2019). For a diminished value claim to arise, it is not required that the vehicle has been sold. The loss arises with the fall in the vehicle's value within the owner's assets; a sale is merely an event making the moment of loss visible. The same principle is adopted in German and English law. Conversely, where the vehicle has not been repaired or has been written off, diminished value cannot be claimed as a separate head; in that case the loss is already calculated over the whole vehicle. 3. The Development of the Regulatory Framework in Türkiye 3.1. Before 2015: The Case Law Era Until 2015 there was no binding administrative regulation on the calculation of diminished value. The former General Conditions published in Official Gazette No. 25197 of 12/8/2003 contained no provision on diminished value (Aslan Düzgün, 2019). The calculation was left entirely to the discretion of courts and experts. The criterion the Court of Cassation developed in that period was simple: diminished value is the difference between the vehicle's second-hand market value undamaged as at the date of the accident and its market value after repair. In determining that difference, the vehicle's age, mileage, make and model, the extent of the damage and the nature of the damaged components are taken into account.
Despite the clarity of the criterion, serious problems of uniformity arose in practice. Different experts reaching figures many times apart in the same case, some reports presenting a fixed percentage of the insured value as diminished value, and no market research being carried out at all were common occurrences. That uncertainty was also highlighted in the rationale of the 2015 regulation.
3.2. The 2015 General Conditions and the First Formula The General Conditions of Compulsory Motor Third Party Liability Insurance were published in Official Gazette No. 29355 of 14 May 2015 and entered into force on 1 June 2015, taking their final form with the amendments of 2 February and 2 August 2016 (Aslan Düzgün, 2019). The first formula in Annex-1 was built on the vehicle's market value (ARD) and its mileage (KM). Subtotals (T1-T4) calculated in four groups — replacement of welded main parts, repair of welded main parts, other parts not on the list, and painted components — were combined, and a mileage adjustment then applied: if the vehicle's mileage was 15,000 or below, DIMINISHED VALUE = (T1+T2+T3+T4); if 15,001 or above, DIMINISHED VALUE = (T1+T2+T3+T4) − [(T1+T2+T3+T4) × ((KM−15,000) / 75,000)] / 2. The multipliers in each group item were fixed; for example replacement of the centre pillar was taken at 3.00, of the rear wing at 3.50 and of the roof panel at 4.50, always as a percentage of the vehicle's market value.
Alongside the formula, a list of six clauses headed 'Cases Outside Cover' was set out. That list excluded from cover damage remediable by mini repair, operations on bolted parts without damage to the main frame and chassis, claims exceeding 25 per cent of market value, claims relating to vehicles whose ownership changed between the accident and the notification date, vehicles with tow or scrap certificates, and finally the portion exceeding 50 per cent of the amount calculated for rental vehicles, taxis and minibuses.
3.3. Law No. 6704 and the Search for a Statutory Basis That the General Conditions introduced criteria for calculating compensation in a way narrowing the application of statutory provisions brought with it a debate on legal basis. By Law No. 6704 of 14/4/2016, Article 90 of Highway Traffic Law No. 2918 was amended to provide that compensation within the scope of compulsory motor third party liability insurance is subject to 'the procedures and principles laid down in this Law and in the general conditions prepared within the framework of this Law'. A statutory basis for the administrative regulation was thereby sought.
3.4. Review by the Council of State In an annulment action brought by the Ankara Bar Association, the 15th Chamber of the Council of State first ordered a stay of execution in respect of certain provisions on 4/10/2016; it then annulled unanimously, by its decision of 27 June 2018 (case no. E.2015/5277, decision no. K.2018/6090), clauses 2, 4 and 6 of the part of Annex-1 headed 'Cases Outside Cover' (Aslan Düzgün, 2019). The reasoning stated that, although cases outside cover were already regulated in Law No. 2918 and in Article A.6 of the General Conditions, additional restrictive provisions had been introduced under the heading of diminished value. The Chamber further found that the definitions of 'bolted part' and 'repair/replacement' in clause 2 were not clear, and that the provision in clause 6 had the effect of leaving half the loss with the injured party, contrary to the principle of payment of the actual loss.
3.5. The Constitutional Court's Two Annulment Judgments The centre of the debate soon moved to constitutional review. By its judgment of 17/7/2020 (case no. E.2019/40, decision no. K.2020/40, Official Gazette 9/10/2020) the Constitutional Court annulled the phrases in Articles 90 and 92 of Law No. 2918 referring to the general conditions. As a result, compensation within the scope of compulsory motor third party liability insurance had to be calculated within the tort provisions of the Turkish Code of Obligations, without regard to the limitations and formulas laid down in the general conditions.
The legislature attempted to fill the gap by Article 18 of Law No. 7327 of 19/6/2021, adding a new sentence and paragraph to Article 90. The sentence added provided that diminished value compensation would be calculated 'having regard to the vehicle's market value, level of use, damaged components and the amount of damage', while the paragraph added provided that the procedures and principles for the application of the article would be determined by the SEDDK. The Constitutional Court annulled that regulation too by its judgment of 29/12/2022 (case no. E.2021/82, decision no. K.2022/167), published in Official Gazette No. 32104 of 14 February 2023. 3.6. The 2021 Revision and Normative Duality The chronology here is internally contradictory. Although the Constitutional Court annulled the reference to the general conditions in 2020, Annex-1 was rewritten from scratch by Official Gazette No. 31679 of 4/12/2021, and the coefficient structure most debated today was introduced by that regulation. Annex-1 remained in force after the second annulment as well. The resulting picture was this: insurers and loss adjusters closed the claim file according to the Annex-1 formula; when the entitled party applied to a court or to the Insurance Arbitration Commission, the actual-loss standard was applied. That dual regime, producing two different figures for the same incident, was one of the main factors increasing the number of actions and arbitration applications. 3.7. The Amendment of 12 June 2026: Abandoning the Formula The process entered a new phase with the amendment published in Official Gazette No. 33278 of 12 June 2026. Article 6 of the amendment repealed Annex-1 together with Annexes 2, 3 and 7, and rewrote the definition of diminished value in Article A.5. Under the new provision, diminished value is determined by an insurance loss adjuster appointed according to procedures and principles to be set by the Agency, having regard to the vehicle's make, age, model, level of use, damaged components, prior damage history and the difference between second-hand sale values. The provision entered into force on 1 July 2026.
The practical consequences of the amendment are not limited to that. An entitled party applying for vehicle damage is now deemed also to have claimed diminished value; no separate claim is required. The insurer must notify the diminished value amount in writing or through a durable medium within the working day following receipt of the final adjuster's report. The principal change, however, is in the basis of the calculation: the coefficient tables have been replaced by the difference between second-hand sale values. The standard at the insurance stage has thereby been placed on the same footing as the standard applied by the courts.
Figure 1. The development of the vehicle diminished value regime in Türkiye (2015-2026) A summary of the process by period is given in Table 1. The table shows together, for each period, the basis of the calculation, the method applied and the review decision ending that period.
Table 1. Periods of the vehicle diminished value regime in Türkiye Period Basis of calculation Method applied Development ending the period Before 2015 Tort provisions of the Code of Obligations Expert discretion, market difference; no uniformity General Conditions of 14/5/2015 2015-2021 General Conditions Annex-1 (formula based on market value and mileage); Law No. 6704 with Art. 90 KTK Fixed multipliers by part, mileage adjustment, list of cases outside cover Council of State 15th Ch. decision of 27/6/2018 and Constitutional Court judgment of 17/7/2020 2021-2026 General Conditions Annex-1 (4/12/2021); Law No. 7327 with Art. 90 KTK DV = Market Value × R × K × H × G coefficient model Constitutional Court judgment of 29/12/2022; amendment of 12/6/2026 After 1/7/2026 General Conditions A.5 (as amended 12/6/2026); tort provisions of the Code of Obligations Determination by a loss adjuster from the difference between second-hand sale values; the claim is deemed automatic In force Note. Compiled on the basis of the Official Gazette texts and the judgments of the Constitutional Court and the Council of State. 4. The Anatomy of the Annex-1 Formula (2021-2026) Although repealed, a detailed examination of the Annex-1 formula is necessary for two reasons. First, its effect continues in files relating to contracts concluded before 1 July 2026 and to accidents occurring before that date; under Article C.11 of the General Conditions, the general conditions apply to contracts concluded after their date of entry into force. Second, the formula shows concretely how administrative regulation typifies a head of loss and what systematic deviations that produces. 4.1. Vehicle Code and Market Value Annex-1 divides vehicles into seven codes: passenger car and taxi (A), minibus and bus (B), van, lorry and tractor unit (C), special purpose vehicle and tanker (Ç), construction machinery, agricultural tractor and farm machinery (D), trailer (E) and motorcycle (F). The code determines which coefficient tables apply. The vehicle's market value is determined as at the accident date by taking the average of the values in the Insurance Vehicle Value List of the Association of Insurance, Reinsurance and Pension Companies of Türkiye and the Market Value List of the Insurance Loss Adjusters Executive Committee of the Union of Chambers and Commodity Exchanges of Türkiye. If the vehicle appears in only one list, that value is taken directly; if in neither, the value found by the adjuster's own research applies. That provision points to one of the most criticised aspects of the formula era: the starting point of the calculation is not actual prices realised in the listings market but the average of two institutional lists.
4.2. Market Value and Level of Use Coefficients Once the market value is determined, two reducing coefficients come into play. The Market Value Coefficient (R) varies between 0.65 and 1.00 according to the vehicle's market value and reduces the calculation for lower-value vehicles. The Level of Use Coefficient (K) is set between 0.70 and 1.00 according to the vehicle's mileage at the accident date (operating hours for code D). The bands of both coefficients are shown in Table 2.
Table 2. Annex-1 (4/12/2021) market value and level of use coefficients Market value, codes A and F (TL) R Market value, codes B-E (TL) R Mileage, codes A and F K 0 – 49,999 0.65 0 – 249,999 0.65 0 – 19,999 1.00 50,000 – 99,999 0.70 250,000 – 349,999 0.70 20,000 – 49,999 0.95 100,000 – 199,999 0.75 350,000 – 499,999 0.75 50,000 – 99,999 0.90 200,000 – 299,999 0.80 500,000 – 749,999 0.80 100,000 – 149,999 0.85 300,000 – 399,999 0.85 750,000 – 999,999 0.85 150,000 – 199,999 0.80 400,000 – 499,999 0.90 1,000,000 – 1,249,999 0.90 200,000 – 299,999 0.75 500,000 – 749,999 0.95 1,250,000 – 1,499,999 0.95 300,000 and above 0.70 750,000 and above 1.00 1,500,000 and above 1.00 — — Note. Mileage bands differ for codes B, C, Ç and E (Table K.2); operating hours are taken as the basis for code D (Table K.3). Compiled on the basis of ZMSS General Conditions Annex-1 (Official Gazette 4/12/2021-31679). 4.3. The Damage Coefficient The damage side of the formula is built by summing coefficients by part. In the list annexed to Annex-1 a Part Replacement Coefficient (Pi), a three-band Repair Coefficient (Oi) and a two-band Paint Coefficient (Yi) are defined for each part. In passenger cars, for example, roof panel replacement is valued at 5.00, right or left front chassis at 3.00, rear wing at 4.00 and bonnet at 1.00. The Damage Coefficient is the sum of those items:
DC = Σ (Pi + Oi + Yi) = [(P1+O1+Y1) + (P2+O2+Y2) + … + (Pn+On+Yn)] The repair band is determined by reference to the labour cost. If the ratio of the original part price, excluding VAT and undiscounted, to the labour cost calculated on the same basis is up to 15 per cent, the light repair coefficient applies; between 15 and 30 per cent, the medium coefficient; above 30 per cent, the high coefficient. Where that information cannot be established from the file, the high repair coefficient is used directly.
4.4. The Damage Amount Coefficient and the Damaged Parts Coefficient Whether or not the part appears in the parts list, a second coefficient is calculated on the total damage amount including VAT as at the accident date. No deduction whatsoever is made from the total damage amount:
T = (Damage Amount / Market Value × 100) × 0.10 The damage coefficient and the damage amount coefficient are added and divided by one hundred to obtain the Damaged Parts Coefficient: H = (DC + T) / 100. That is the step at which the formula becomes a percentage ratio.
4.5. The General Assessment Coefficient The final adjustment is made with the General Assessment Coefficient, composed of three items. That the vehicle is commercial or rented reduces the calculation by 0.05 (G.1). A deduction of 0.03 is applied for each record in the SBM damage history, up to a maximum of 0.15 (G.2). Conversely, the vehicle's mileage being within 1,000 kilometres of the lower bound of the relevant table increases the calculation by 0.05 (G.3). The coefficient is calculated as G = 1 + (G.1 + G.2 + G.3).
4.6. The Final Formula and a Numerical Example When all parameters are brought together, diminished value is found as follows: DV = Market Value × R × K × H × G For motorcycles (code F) that amount is multiplied by 2.5 to reach the final diminished value. The parameter flow of the formula is shown in Figure 2.
Figure 2. The parameter flow of the General Conditions Annex-1 diminished value calculation (2021-2026) To make concrete how the formula works, the same example will be used throughout the article. A 2022 model passenger car (code A) has 45,000 kilometres at the accident date and a market value at that date of 1,200,000 TL. In the accident the right rear wing was replaced, the rear panel repaired at the medium band, the boot lid repaired at the light band and full paint applied to all three parts. The total repair cost including VAT is 180,000 TL. The vehicle is private and there is one prior damage record in the SBM. The steps of the calculation are given in Table 3. Table 3. Step-by-step application of the Annex-1 formula in the example Step Basis Value Market value Average of the TSB and TOBB lists 1,200,000 TL Market Value Coefficient (R) Table R.1, 750,000 TL and above 1.00 Level of Use Coefficient (K) Table K.1, 20,000-49,999 km 0.95 Right rear wing Replacement P = 4.00 + full paint Y = 1.00 5.00 Rear panel Medium repair O = 1.00 + full paint Y = 1.00 2.00 Boot lid Light repair O = 0.50 + full paint Y = 1.00 1.50 Damage Coefficient (DC) Sum of the items 8.50 Damage Amount Coefficient (T) (180,000 / 1,200,000 × 100) × 0.10 1.50 Step Basis Value Damaged Parts Coefficient (H) (8.50 + 1.50) / 100 0.10 General Assessment Coefficient (G) 1 + (0 − 0.03 + 0) 0.97 Diminished value (DV) 1,200,000 × 1.00 × 0.95 × 0.10 × 0.97 110,580 TL Note. The example has been constructed for explanatory purposes; no reference is made to any case or person. Calculated from ZMSS General Conditions Annex-1 (Official Gazette 4/12/2021-31679). 4.7. A Structural Critique of the Formula The formula largely achieved its aim of ensuring uniformity; the results different adjusters reached for the same damage pattern converged. It nevertheless carries systematic deviations arising from its structure.
• The level of use coefficient reduces diminished value linearly as mileage rises. Yet in the second-hand market the discount created by a damage record, while falling in absolute terms for high-mileage vehicles, can remain at the same level proportionally. Figure 3 shows how the calculation narrows with mileage alone changing under a fixed damage pattern.
• The G.2 coefficient reduces the calculation for each prior damage record. In practice that rests on the assumption that the new accident does not cause duplicated loss. But if the prior record concerns a different area of the vehicle, the new damage creates an independent diminution in value and the deduction results in part of the loss going uncompensated.
• At no stage does the formula look at the actual sale prices of damaged and undamaged equivalents. The market value is produced from the average of two lists and the loss from coefficients. When the level of discount in the market changes, the formula's result does not; unless the coefficient tables are updated, the deviation grows.
Figure 3. The effect of mileage and damage severity on the diminished value ratio in the Annex-1 formula 5. Judicial Practice: The Actual-Loss Standard 5.1. The Method Adopted by the Court of Cassation The Court of Cassation maintained the actual-loss standard throughout the formula era. In its decision of 10/5/2016 (case no. E.2016/966, decision no. K.2016/5728) the 17th Civil Chamber defined diminished value as the difference between the vehicle's value after being damaged and repaired in the accident and its value in an undamaged condition. In that Chamber's decision of 20/9/2016 (E.2016/4690, K.2016/7983) and its decision of 15/11/2017 (E.2016/19642, K.2017/10599) the method was elaborated further, stressing that diminished value must be calculated from the difference between the vehicle's second-hand market value undamaged as at the accident date according to free market conditions and the market value of its repaired condition, determined having regard to the vehicle's age, features, extent of damage and the nature of the damaged parts. That case law has two consequences. First, the date of the calculation is the accident date; a calculation made on values at the report date is erroneous unless corrected by an updating exercise. Second, calculations made on the insured value or a fixed percentage of it are not accepted; the insurance value list is an insurance value, not a free market price. 5.2. Elements Required in an Expert Report The actual-loss standard places a far heavier burden of reasoning on the expert than the formula did. The minimum elements a diminished value report must carry to be regarded in practice as amenable to review are:
• The undamaged second-hand market price as at the accident date, documented with multiple comparable listings and realised sale data; not based on a single listing price or a single list. • Classification of the damaged parts according to whether they are structural; a clear distinction between welded main parts, bolted parts and parts subject only to paintwork. • The market price of the repaired condition determined by the same method and from comparables carrying a damage record; showing from which data the discount rate was derived. • Examination of the SBM damage history and identification of which area prior records concerned; the duplication assessment reasoned. • The final difference shown with its calculation steps, and legal filters such as the degree of fault and the policy limit applied under a separate heading.
5.3. The Insurance Arbitration Commission and the Scale of the Dispute Most diminished value disputes are resolved not before the ordinary courts but before the Insurance Arbitration Commission established under Article 30 of Insurance Law No. 5684. The Commission received 614,507 applications in the non-life branch in 2024 and 757,771 in 2025, an increase of 23.31 per cent. In the distribution of applications by policy type, compulsory motor insurance accounted for 578,974 applications or 94.09 per cent in 2024 and 728,312 or 95.98 per cent in 2025 (Insurance Arbitration Commission, 2026). The total number of applications the Commission received from 12/8/2009 to 31/12/2025 is 3,261,007.
Those figures show the scale of the dispute and the total effect a single method of calculation produces. The number of experts registered within the Commission in the field of calculating compensation arising from motor vehicle insurance, including diminished value, is 668; that is the second largest group among all expert lists.
5.4. The Procedural Framework A diminished value claim is a claim the injured party directs to the insurer directly. Under Article 97 of Law No. 2918, before an action is brought or arbitration commenced, a written application must be made to the insurer and the insurer must fail to respond in time or reject the claim in whole or in part. As to limitation, Article 109 applies; there is a two-year period from the date the injured party learns of the damage and of the person liable and in any event a ten-year period from the date of the accident. If the act also constitutes an offence, criminal limitation periods apply. Interest runs against the insurer from the date of default and against the operator and driver as a rule from the date of the incident. 6. Contested Issues in Practice 6.1. Prior Damage Records and Duplication The problem most frequently encountered in expert practice is the effect of records in the vehicle's damage history on the new claim. The correct approach is to assess records not by number but by area. If the prior record concerns the front of the vehicle and the current accident the rear, the two losses are independent of one another and no deduction is required. Conversely, where the same part is replaced a second time, the diminution in value relating to that part is already reflected in the market price and duplicated compensation would arise. Because the G.2 coefficient of Annex-1 does not make that distinction, only the actual-loss method makes area analysis possible.
6.2. Severe Damage and Written-Off Vehicles Diminished value cannot be claimed as a separate head for vehicles written off or bearing a scrap or tow certificate. For those vehicles the loss is calculated from the difference between the vehicle's pre-accident value and the salvage value. Where a vehicle carries a severe damage record but has been repaired and returned to the road, diminished value is calculated; but the discount that record creates in the market is far higher than for an ordinary damage record, and that must be shown separately in the comparables research. 6.3. Commercial Vehicles and Rental Fleets Diminished value claims for taxis, minibuses and rental vehicles were twice restricted in the formula era. The 50 per cent limit in the 2015 text was annulled by the Council of State, and in the 2021 text the same tendency became a deduction of 0.05 through the G.1 coefficient. The rationale is that commercial vehicles already trade at lower prices in the second-hand market. That rationale is partly correct; but the criticism that the restriction is incompatible with the actual-loss principle, because it takes as its basis the insurer's liability rather than the true amount of the loss, retains its force.
6.4. Original Parts and Repair Quality The amendment of 12/6/2026 also made provision in Article B.2 on the payment of compensation, providing that where repair is not possible the part will be replaced with an original part and that the burden of proving the entitled party's consent or the impossibility of using an original part rests with the insurer. That provision has an indirect but important consequence for diminished value: because the use of equivalent parts reduces the vehicle's second-hand value more than an original part does, placing the burden of proof on the insurer strengthens the injured party's position.
6.5. Transitional Problems After 1 July 2026 The most contested aspect of the new regime is its application in time. The General Conditions apply to contracts concluded after their date of entry into force. Accordingly, in accidents under a policy issued before 1 July 2026 the Annex-1 formula is expected to continue to have effect at the insurance stage. But in the face of the Constitutional Court's two annulment judgments it is clear that even in those files the actual-loss standard will be applied before the courts. The dual regime, while ended for new contracts, will therefore remain on the agenda for a few more years in files relating to earlier policies. Stating the policy date and the applicable text explicitly in expert reports has for that reason become essential. 7. Practice in European Countries 7.1. Germany: Mercantile Diminished Value The most developed practice in comparative law is in German law. The Federal Court of Justice (BGH), in its decision of 3 October 1961 (VI ZR 242/60, BGHZ 35, 396), held that a vehicle having been technically flawlessly repaired after an accident does not prevent the market from valuing the repaired vehicle below its undamaged equivalent, and accepted that difference as a compensable loss. The claim is founded on section 251 of the German Civil Code and arises independently of whether the injured party has sold the vehicle. There is no single mandatory method of calculation. The most widely used Ruhkopf/Sahm method calculates diminished value as MW = (Sale Value + Repair Cost) × Xr / 100. The coefficient Xr is set between 3 and 7 according to the ratio of repair cost to sale value and the vehicle's age: in the first year of registration 5, 6 and 7 respectively; in the second year 4, 5 and 6; from the third year 3, 4 and 5. For the method to apply, the ratio of repair cost to new vehicle price must exceed 10 per cent, the ratio of sale value to new vehicle price must remain above 40 per cent and the repair cost must not exceed 90 per cent of the sale value. Alternatives such as Halbgewachs, the Hamburg model, BVSK and the market interest and factor method (MFM) are also used.
Rigid thresholds based on age and mileage have been abandoned in German practice. In its 1979 decision (VI ZR 16/79) the BGH had spoken of an upper limit of 100,000 kilometres for passenger cars. In its decision of 23 November 2004 (VI ZR 357/03), however, in a dispute concerning a 16-year-old vehicle with roughly 164,000 kilometres, it refused to set a firm upper limit on age and mileage, having regard to the lengthening technical life of vehicles, and left the assessment to the judge under section 287 of the German Code of Civil Procedure. 7.2. Austria and Switzerland Austrian law recognises mercantile diminished value in parallel with German law; German methods are adapted for use in expert practice. In Switzerland too the diminution in value remaining after repair is compensated, with the calculation left to expert assessment and market data. In neither country is there a regulatory formula determining the upper limit of compensation.
7.3. The United Kingdom In English law the basis is restitutio in integrum, the general principle of the law of damages, traceable back to Livingstone v. Rawyards Coal Co. (1880). In Payton v. Brooks [1974] RTR 169 the Court of Appeal accepted that a claimant whose vehicle was damaged and repaired could claim, in addition to the repair cost, the fall in market value arising from the vehicle having been damaged. There is no binding method of calculation; in practice the effect on the second-hand price of an accident record entered in HPI and similar databases is established through independent valuation reports. Because insurers generally exclude this head in first-party policies, the claim is mostly directed at the party at fault and its liability insurer.
7.4. France, Italy and Spain In French law the calculation of pecuniary loss is shaped around the concept of replacement value based on expert opinion (VRADE). Although the diminution in value remaining after repair is accepted as a separate head of loss, in practice it is accepted only for new or nearly new vehicles and where there is significant structural damage, and amounts remain limited compared with Germany. In Italian law the equivalent head, deprezzamento commerciale or svalutazione commerciale, has been recognised in the decisions of the Court of Cassation (Corte di Cassazione); the Court has accepted that even where the repair cost exceeds the vehicle's commercial value the injured party cannot be forced to accept the commercial value alone (Cass., ord. n. 10686/2023). In Spain the head of depreciación venal is recognised, but because the scale system provided for bodily injury in compulsory motor insurance does not cover material damage, the calculation is left to expert assessment. 7.5. The Limits of Harmonisation at European Union Level European Union law has harmonised minimum cover amounts in motor liability insurance and the injured party's direct right of action; Directive 2009/103/EC and Directive (EU) 2021/2118 amending it establish that framework. The heads of compensation and the method of calculation, by contrast, are left to member states' substantive law. In cross-border accidents the applicable law is as a rule that of the country in which the damage occurred. The result is that markedly different diminished value amounts arise within Europe for the same damage to the same make and model of vehicle.
8. United States Practice 8.1. First-Party and Third-Party Claims The distinguishing feature of American practice is the sharp distinction drawn according to against whom the claim is directed. Third-party diminished value claims directed at the at-fault driver's liability insurer are accepted in the great majority of states, since the criterion there is the full compensation principle of tort law. First-party claims directed by the injured party at their own comprehensive policy, by contrast, are rejected in most states because of limitations in the policy wording.
8.2. The Mabry Decision and the 17c Formula The best-known exception to that rule is the State of Georgia. In State Farm Mut. Auto. Ins. Co. v. Mabry, a class action involving more than twenty-five thousand policyholders, it was accepted that the insurer was obliged to pay diminished value under a first-party policy as well. Following that decision insurers developed a method, known in practice as the 17c formula, inspired by the calculation method set out in the court order on the implementation of the decision. The formula consists of three steps. First, 10 per cent of the vehicle's pre-accident NADA value is taken to find the base loss amount. A multiplier is then applied according to the structural severity of the damage: severe structural damage 1.00; major damage to structure and panels 0.75; moderate damage 0.50; minor damage 0.25; no structural damage or panel replacement 0.00. Finally a mileage multiplier is applied: 1.00 for 0-19,999 miles; 0.80 for 20,000-39,999; 0.60 for 40,000-59,999; 0.40 for 60,000-79,999; 0.20 for 80,000-99,999; 0.00 for 100,000 miles and above.
8.3. Criticisms of the Formula The most criticised aspect of the formula is that the 10 per cent ceiling rests on no market research. The second criticism concerns the mileage multiplier: the multiplier falling to zero for vehicles over 100,000 miles yields the conclusion that no diminished value arises at all for such vehicles, whereas market data show the contrary. Although the Georgia Insurance Commissioner has stated explicitly that it produced and approved no formula, the formula continues to be used in practice as though it were a standard. Market-based reports prepared by independent valuers have for that reason become increasingly decisive in litigation. The similarity between that picture and Türkiye's experience between 2015 and 2026 is striking. In both countries a formula produced for administrative or contractual convenience came in time to be treated as the criterion determining the true amount of the loss; the correction came not through improving the formula but through returning to market data. 9. A Comparative Assessment When the example introduced in Section 4 is calculated by four different methods, the results diverge markedly. The General Conditions Annex-1 formula yields 110,580 TL, the market difference method required by judicial practice 150,000 TL, the German Ruhkopf/Sahm method 41,400 TL and the Georgia 17c formula 48,000 TL. Expressed as a proportion of market value, those amounts correspond respectively to 9.2, 12.5, 3.5 and 4.0 per cent.
Figure 4. The same incident calculated by four different methods The whole of the difference does not arise from method alone. Part of the reason the German and American methods yield lower results is that the discount created by a damage record in those countries' second-hand markets is genuinely lower. In Germany repairs being documented and inspected, and in the United States repair quality being reflected in price more moderately despite the prevalence of vehicle history reports, limit the discount. In Türkiye, by contrast, the ease of querying the damage record and a strong aversion in buyer behaviour raise the discount. The high ratios in Türkiye are therefore not a calculation error but a market reality; the debate on method must be conducted on the basis of how far it reflects that reality. Table 4. A comparison of the vehicle diminished value regime in selected countries Country Legal basis Method of calculation Binding formula Age/mileage limit Türkiye (after 1/7/2026) Tort under the Code of Obligations; General Conditions A.5 Difference between second-hand sale values by a loss adjuster None None Türkiye (2021-2026) General Conditions Annex-1 DV = Market Value × R × K × H × G Yes Indirectly, through the mileage coefficient Germany BGB § 251; BGHZ 35, 396 Methods such as Ruhkopf/Sahm, Halbgewachs, MFM None Rigid limit rejected by BGH VI ZR 357/03 United Kingdom Restitutio in integrum; Payton v. Brooks Independent valuation, market comparison None None France Civil Code liability provisions Assessment based on expert opinion None Limited in practice to new vehicles Italy Civil Code Art. 2043 et seq.; Cass. case law Expert assessment, commercial value difference None None USA (Georgia) Mabry decision; policy terms 10% of NADA value × damage multiplier × mileage multiplier De facto (17c) Multiplier zero above 100,000 miles Note. Compiled on the basis of the legislation, supreme court decisions and expert practice of the countries concerned. The common trends emerging from the table are these. In none of the countries examined is there a binding statutory formula determining the upper limit of compensation; even 17c in Georgia is not an official regulation but industry practice. Rigid thresholds based on age and mileage have been abandoned by the supreme court in Germany, the country with the most mature practice. The centre of gravity of the calculation is shifting towards market data in every country. Türkiye's 2026 amendment is consistent with those trends.
10. Conclusion and Recommendations Between 2015 and 2026 Türkiye tried a formula-based model for calculating vehicle diminished value and abandoned it. The experience is instructive for showing the limits of regulatory typification. The formula served the aim of reducing inconsistency in practice; but its structure, tied to coefficient tables, caused it to deviate systematically from the true amount of the loss. That is also the common reasoning prominent in the decisions of the Council of State and the Constitutional Court: an administrative regulation cannot set criteria narrowing the full compensation principle of the law of damages. The new regime entering into force on 1 July 2026 has brought the standard at the insurance stage together with the judicial standard. But abolishing the formula does not on its own solve the problem of uniformity; it merely moves the problem into the field of expert witnessing and loss adjusting. To prevent a return of the inconsistency that gave rise to the formula era, it is the method, not the criterion, that must be standardised.
10.1. The Method Adopted by the Courts as of the Date of Completion of This Study As of August 2026 the method applied in Turkish courts for determining vehicle diminished value derives not from administrative regulation but directly from the tort provisions of the Turkish Code of Obligations No. 6098. Following the Constitutional Court's judgments of 2020 and 2022, no formula, coefficient or upper limit in the general conditions binds a court. The criterion applied is the difference theory: the loss is the difference between the state the assets would have been in had the tort not occurred and their actual state after the act. That criterion is adapted to vehicle diminished value as follows: diminished value is the difference between the vehicle's undamaged second-hand market value on the free market as at the accident date and the market value of its repaired condition as at the same date. That definition arose from the case law the 17th Civil Chamber of the Court of Cassation applied consistently during the formula era and which has been continued by the 4th Civil Chamber, which took over such disputes after that Chamber was closed. The method is applied in six stages.
First stage: technical identification of the damage. From repair invoices, adjuster reports, damage photographs and any site inspection record, it is determined item by item which part was replaced, which repaired and to which paint was applied. The decisive distinction at this stage is whether the part is a welded structural element of the body or a bolted element. Operations on welded parts such as the chassis, pillars, sill, floor pan, rear wing and roof panel cause a marked discount in the market, whereas operations on bolted or easily replaceable parts such as the bumper, headlamp or door skin mostly create no significant fall. Second stage: determining the undamaged market price as at the accident date. The accident-date prices of comparable vehicles of the same make, model, trim level, age and mileage with no damage record are researched. The courts do not accept a calculation resting on a single listing, a single list or a single dealer price; examination of multiple comparables and inclusion of the data in the report are required. The insurance value list of the Association of Insurance, Reinsurance and Pension Companies of Türkiye and the market value list of the Union of Chambers and Commodity Exchanges are only a cross-check at this stage; the insured value is an insurance value and does not substitute for the free market price. Third stage: determining the market price of the repaired condition. The discount the market applies to such a vehicle is established from comparables with the same features but carrying a damage record. The discount rate cannot be assumed as a fixed percentage; it varies with the area of the damage, the severity of the record and the vehicle's segment. Where no comparable can be found, expert assessment may be used, but the data and reasoning from which the assessment was derived must be shown in the report. Fourth stage: calculating the difference. The difference between the two market prices found in the second and third stages is the vehicle's gross diminished value. The calculation is tied to the accident date; if values at the report date are used as the starting point, they must be reduced to the accident date and the method used stated. Otherwise inflation and market movements inflate the calculation artificially. Fifth stage: applying the legal filters. The gross amount is not the amount to be awarded directly. The following adjustments are made in order: the defendant's degree of fault is applied; a claim directed at the compulsory motor third party liability insurer is limited by the material damage cover limit in the policy; any diminished value amount already paid by the insurer is set off; the vehicle's prior damage records are examined on an area basis to assess whether duplicated compensation arises; and finally, under the rule of adherence to the claim, the judgment cannot exceed the amount claimed. Sixth stage: making the report amenable to review. The diminished value report is drawn up so as to show every step of the calculation, the source of the data used and the date of access. If how the final figure was reached can be followed only by its author, the report will meet a supplementary report or a new expert examination on objection. In practice the leading cause of reports being overturned is that the comparables research was not carried out or not documented. The procedural picture is as follows. The claim is communicated to the insurer in writing under Article 97 of Law No. 2918 before an action or arbitration is commenced. Because actions against an insurance company are commercial actions, the commercial court of first instance has jurisdiction and mediation is a condition of action; in actions against the operator and driver the civil court of first instance has jurisdiction. The great majority of injured parties prefer the route of the Insurance Arbitration Commission as faster and cheaper; the arbitral panels apply the same actual-loss standard. Limitation is subject to Article 109. Interest runs against the insurer from the date of default and against the operator and driver as a rule from the date of the incident. The approaches accepted and rejected by the courts are set out comparatively in Table 5. Table 5. Calculation approaches accepted and rejected in judicial practice Issue Accepted Not accepted Source of value Accident-date free market price; multiple comparables documented The insurance value list or a fixed percentage of it Basis of calculation The difference between the undamaged market price and the market price of the repaired condition Direct application of the General Conditions Annex-1 formula Number of comparables Examination of both undamaged and damage-recorded comparables Reliance on a single listing or a single sale figure Date of calculation The accident date; reduction by a stated method where necessary Direct use of current values at the report date Damage classification Distinguishing welded structural parts from bolted parts Giving all parts the same weight Prior damage records Duplication assessed by overlap of area Automatic proportional deduction by number of records Accrual of the claim The loss arises regardless of whether the vehicle has been sold Rejection of the claim on the ground that no sale has taken place Limitations Degree of fault, policy limit, set-off and adherence to the claim Limitation by a fixed percentage of market value Note. Compiled on the basis of the case law of the 17th and 4th Civil Chambers of the Court of Cassation and expert practice. As the table shows, what the courts require is less a calculation technique than a standard of proof. The determining element is the quality of the market data submitted to the file rather than the formula applied. That is also why the expert's rigour in research is so decisive in diminished value disputes.
10.2. Recommendations For the method described above to operate uniformly in practice, it is the report rather than the calculation itself that must be standardised. The following recommendations are offered in that framework.
• Comparables research must be mandatory and documented. The report should contain the listing or sale data, with dates of access, of at least five undamaged and, as far as possible, five damage-recorded comparables as at the accident date. A calculation resting on a single source should not be regarded as amenable to review. • Damage area analysis must be included in the report. The area to which prior records relate must be established, and the duplication assessment made on the basis of area overlap rather than the number of records.
• The accident date must be taken as the basis and any updating shown explicitly. If values at the report date are used as the starting point, the method of reduction to the accident date and the index used must be stated in the report.
• The insurance value list must not be accepted as the market price on its own. Institutional lists should be used only as a cross-check, and the free market price determined independently. • Age and mileage must be treated as a parameter of the calculation rather than as a threshold applied at the outset. The approach adopted by the German supreme court in its 2004 decision may serve as a model in preventing claims for high-mileage vehicles being rejected from the start.
• What the SEDDK should regulate is not the calculation itself but the minimum content of the report. A report format containing standards on data source, number of comparables, documentation and reasoning — rather than a formula determining the figure — could secure both uniformity and full compensation.
In a country with over a million material damage accidents and more than seven hundred thousand arbitration applications a year, the method of calculating a single head of compensation affects a total running into hundreds of billions of lira. Returning the calculation to market data is the right choice given that scale; whether the choice proves lasting will be determined by how rigorously reporting standards are established.
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