Factors to be considered

Establishing ACV

Settling disputes

Auto body repair consumer bill of rights

Other interests

Diminution in value

Introduction

 An automobile or motor vehicle total loss is defined as an auto that is physically not repairable, stolen and not recovered, or damaged to the extent that the cost of repairs plus the salvage value equals or exceeds its actual cash value (ACV). Actual cash value in an auto loss is considered to be the market value of the vehicle immediately prior to the loss, as opposed to, say, a homeowners loss in which actual cash value is often replacement cost less depreciation. Of course, the policy should be reviewed since some insurers now define ACV to fit the needs of the insurer. Some will define ACV as replacement cost less physical depreciation, the difference between the fair market value before loss and the fair market value after loss, or a combination of methods of determining ACV.

 In addition to ACV, a claims representative will also consider in the settlement process title fees and taxes. Such costs are part of the ACV with insureds and a negotiated item with third-party claimants in most jurisdictions. Market value is the price that an auto can be expected to bring when sold in a given market where both the seller and buyer are willing and under no pressure to buy or sell.

 Claim representatives and estimating personnel must establish the repair cost, ACV, and salvage value of the vehicle in question to determine if that vehicle is a total loss. Insurers will usually consider an auto a total loss when the estimated repair cost exceeds the estimated ACV of the vehicle. Generally, 60 percent is an acceptable guideline above which the vehicle is considered to be a possible total loss. Vehicles damaged to the 60 percent extent are referred to as “borderline” totals.

 Many losses can quickly be determined “totals.” Others require the completion of a detailed estimate. If the adjuster decides to “total” a vehicle with damage in the 60 percent range, he should complete a detailed inspection of the vehicle to arrive at the ACV and consult the market in the area where the loss occurred for identical or similar vehicles that have sold in months close to the date of loss.

 Situations do arise where vehicles are considered total losses when damaged to a lesser extent. For example, vehicles that are submerged to the point where water enters the dashboard often are classified as “obvious” or “dashboard” totals. The salvage value of such a vehicle is generally very high, because the sheet metal components incur little damage from being temporarily submerged. However, the potential does exist for costly damage to electrical components which generally do not immediately appear. The same is true in the case of an engine fire—the body of the vehicle might be undamaged while the engine and the wiring sustain extensive damage.

 Factors That Must Be Considered

 When confronted with a total loss, the claim representative must consider the length of repair time, potential hidden damage, and—if the vehicle is not repairable to its pre-accident condition—possible diminution of value. (For a discussion of diminution of value, see Diminution of Value later in this article.)

 How long a possible repair might take is especially important in claims involving liability to a third party. That third party will have a valid loss of use claim. And, unlike a first-party insured whose loss of use claim is limited by the policy, third-party claims are limited only by what a jury would consider appropriate. In the case of a third-party claimant, the courts have ruled that the expense does not have to be incurred to be recoverable. For example, a person might own two cars. One is damaged in a not-at-fault accident. In theory, the person could drive the other car. The loss of the vehicle means the owner does not have what he had before the loss and is therefore entitled to be put back the way he was whether he could drive his second car or not. There are many valid reasons why claiming there was no loss of use is unacceptable. The claimant is entitled to loss of use whether he uses his second car or a loaner from a dealer or not.

 Hidden damage may exist when a car is damaged to the extent that it is in the borderline range. As a practical matter, there is usually no way to determine hidden damage on heavily damaged vehicles until dismantling is completed. The experience and expertise of the estimator, claim representative, and repair person must be relied upon to consider some allowance in the estimate for the existence of potential hidden damage.

 Diminution of value claims result when repairs do not restore the value of the repaired vehicle to the market value it had immediately prior to the accident. In other words, there is an actual economic loss that may be recovered in tort. On the other hand, in first party collision or comprehensive coverage where the policy only promises to repair or replace, diminution in value claims only may be recovered in a few states like Georgia.

 Establishing ACV

 Vehicle evaluation is not an exact science. A number of tools and resources are available to the skilled claim representative to establish the ACV of a vehicle and conclude a fair settlement. Often it is more time consuming and difficult to reach an agreement with the owner on the ACV amount than to establish the ACV offer.

 The National Automobile Dealers Association (NADA) publishes the Official Used Car Guide each month. This guide covers a specific geographic region and includes vehicles seven years old or less. The guide book prices are compiled from figures provided by the association's dealers. These dealers are generally the larger dealers and as a result their prices include overhead costs, such as used car warranty costs, general minor repair costs, and used car set-up costs incurred before putting the car on the lot for resale. For these reasons, the prices found in the guide are generally considered to be in the upper range of values for vehicles. Since the guide covers such a large area, the prices quoted may be high or low for a more specific market area.

 The NADA book is but one resource to help establish a “guideline as to the price range.” The book should not be used as the sole means of establishing ACV and making a settlement offer.

 When dealing with vehicles older than seven years, another guide is available from NADA. The Official Older Used Car Guide is published on a national level three times a year. In includes vehicles from eight to eighteen years of age. Again, the adjuster should not rely on this guide as the sole means of establishing ACV on older vehicles.

 One other guide, Cars of Particular Interest, contains information on older, collector type, or exotic vehicles. Again, the adjuster should consider this resource as a guide. There are several other reputable automobile price guide books on the market for vehicles of all ages.

 The most reliable way to establish the ACV in a local market is through a combination survey of used car dealers and private sellers. Local daily newspapers, weekly suburban publications, buy-and-sell type publications, and magazines published just for vehicles are common sources. Ideally, the claim representative will conduct a market survey. Often the Internet can be easily utilized in making a determination of value.

 Most often the adjuster turns to an outside vendor for help in establishing ACV. These vendors collect local market information by conducting actual dealer lot surveys or reviewing local classified advertising, or a combination of the two. Market survey information is available to the claim representative on a computer network. Information on three or four cars is usually immediately available for comparison purposes.

 The claim representative must make adjustments to quoted prices from all sources in order to account for differences in equipment and condition of the damaged vehicle and the comparable vehicles that were located. The claim representative's objective is to establish a fair range of values. He can establish such a range based on the market survey previously mentioned.

 After establishing a range of values for the damaged vehicle, the adjuster begins settlement discussions with the owner. The use of a range involves the establishment of a minimum and a maximum value amount. The range of values must be legitimately established. If not, a company might be in violation of an applicable Unfair Claim Settlement statute if the adjuster begins the negotiating process with the owner at the minimum.

 Settling Disputes

 Unfortunately, the best efforts of the claim representative do not always establish a settlement offer that is acceptable to the vehicle owner. A third-party claimant's recourse is a suit or some form of arbitration. A first party may demand appraisal under the terms of the contract.

 Part D, “Coverage for Damage to Your Auto” in the ISO 2005 personal auto policy (PAP) contains the appraisal section. It reads:

 A.If we and you do not agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. The appraisers will state separately the actual cash value and the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will

1.Pay its chosen appraiser; and

2.Bear the expenses of the appraiser and umpire equally.

B.We do not waive any of our rights under this policy by agreeing to an appraisal.

 The same section of the policy provides a “Limit of Liability” for applicable first party claims. The policy states:

 A.Our limit of liability for loss will be the lesser of the: