When is a car a Total Loss?

If you are arguing to an insurer adjuster that your MVA (Motor Vehicle Accident) client should be paid for a total loss of his/her vehicle, be aware that a first-line adjuster and first-line claim manager can justify in their file paying an amount for a total loss vehicle of either the adverse party and their own insured on the same basis. So you need to know what the insurer regards as the dollar amount of a “total loss.”

Although the insurance policy clauses required by insurance commissioners vary, in most states: “the cost of a replacement car” is not simply the automobile dealer’s price for a replacement car of the same type and year model. If you are getting a check for the replacement of a “total loss” vehicle the check total should include the amount of taxes, title and license fees needed to lawfully
drive the new car on the streets. In some states, those tax, title, and license fee are thousands of dollars.

The policy language of an insured’s policy will commonly define a “total loss” as occurring when (in language which translates into a version of):

The cost of repair, plus projected supplements, plus rental reimbursement expense, plus projected diminished resale value, exceeds the cost of buying the damaged vehicle at its pre-accident value, minus the proceeds of selling the damaged vehicle for salvage.

Within the company, the insurer often short-cuts the definition of “total loss” to:

(A) the cost of a replacement car minus salvage value of the damaged car,

is less than

(B) (I) the cost of repairing the car, plus (ii) cost of a rental car during the repair period, plus (iii) cost of paying the difference between the market value of the car as repaired compared to the ACV (actual cash value before the collision).

Recognizing that in the real world, even that definition of “total loss” is cumbersome for insurance adjusters, insurance companies have a shorthand formula they use to authorize the front-line adjuster to pay for a “total loss”. A common formula authorizes the adjuster to pay for a “total loss” when repair cost would exceed 51% of the vehicle’s ACV (the pre-collision market value). Other companies use higher percentages, e.g., 80 % of the ACV.

Therefore, in dealing with an insurance adjuster or manager:

If you represent the insured, look at the policy first, then use of the above discussed ideas of what is a total loss to demand proper compensation. You can even demand that they give you in writing their internal definition of total loss “so if it doesn’t seem right I can complain to the state insurance commissioner”.

If you represent the plaintiff suing for a total loss, pick from the above discussed ideas to maximize your demand.