Lesson 4: Adjusting Automobile Losses
Standards for Prompt, Fair and Equitable Settlements Applicable to Automobile Insurance
This section is applicable to claims arising under motor vehicle collision and comprehensive coverage.
Definitions: The following shall govern the construction of the terms used in this section:
I. Agreed Price shall mean the amount agreed to by the insurer and the insured, or their representatives, as to the reasonable cost to repair damages to the motor vehicle resulting from the loss, without considering any deductible or other deductions.
2. Designated Representative shall mean a person designated by the insured to represent him or her in negotiations with the insurer in an attempt to settle the claim. Such designated representative may be a member of the insured’s immediate family or any other person named by the insured who may legally act on his or her behalf and who so acts without compensation of any kind.
3. Substantially Similar Vehicle shall mean a motor vehicle of the same make, model, year and substantially the same condition, including all major options of the insured vehicle. Mileage must usually not exceed that of the insured vehicle by more than 4,000 miles unless mutually acceptable to both the insurer and the insured.
Adjustment of Partial Losses
The following subdivisions shall govern the conduct of insurers in the adjustment of partial losses:
I. Insurers shall include the insured’s deductible, if any, in subrogation demands. Subrogation recoveries shall be shared on a proportionate basis with the insured, unless the deductible amount has been otherwise recovered. No deduction for expenses can be made from the deductible recovery unless an outside attorney is retained to collect such recovery. The deduction may then be for only a pro rata share of the allocated loss adjustment expense.
2. If an insurer prepares an estimate of the cost of the motor vehicle repairs, such estimate shall be in an amount for which it may be reasonably expected the damage can be satisfactorily repaired. The insurer shall give a copy of the estimate to the insured and may furnish to the insured the names of one or more conveniently located repair shops that will perform the repairs for the amount tendered in settlement of the claim.
3. If the insured’s motor vehicle is repaired at a repair shop of the insurer’s choice, for a sum estimated by the insurer as the reasonable cost to repair the vehicle and the recommended repair shop does not satisfactorily repair the vehicle, the insurer shall, at no additional cost to the claimant and within a reasonable period of time, cause the damaged vehicle to be restored to the condition it was in prior to the loss.
4. Deductions for betterment and/or depreciation are permitted only for parts normally subject to repair and replacement during the useful life of the insured motor vehicle. Deductions for betterment and/or depreciation shall be limited to an amount equal to the proportion that the expired life of the part to be repaired or replaced bears to the normal useful life of that part, Calculations for betterment, depreciation and normal use must be included in the insurer’s claim file.
5. Deductions for previous damage or prior condition of the motor vehicle must be measurable, discernible, itemized and specified as to dollar amount, and such deductions must be detailed in the claim file.
6. If the insurer does not perform its own physical inspection, it is nevertheless bound by all the applicable requirements.
Adjustment of Total Losses
The following subdivisions shall govern the conduct of insurers in the adjustment of total losses:
I. If the insurer elects to make a cash settlement:
It must use the most recent publication of an “Official Used Car Guide” approved by the insurance commissioner/department and uniformly and regularly used by the company, as a guide for setting the minimum value of the motor vehicle which is the subject of the claim.
Any deviation downward from the guide’s retail valuation must be by documentation that gives detailed information about the vehicle’s condition, and any deductions must be measurable, discernible, itemized and specified concerning dollar amount, and they shall be appropriate in amount; If the retail value of the specific motor vehicle is not published in the most recent publication of an “Official Used Car Guide” approved by the commissioner/insurance department and which is used uniformly and regularly by the Company, the company must secure dealer quotations on the retail value of similar vehicles and base the settlement upon them.
The offer must enable the insured to purchase a substantially similar vehicle for the case settlement and any deviation from this practice must be supported by documentation giving particular information about the motor vehicle’s condition. The source of the dealer quotations must be maintained in the claim file; the company shall provide a reasonable written explanation to the concerned parties when case settlement offers, as set forth in Subdivisions (I) and (2) above are made.
The explanation must specify the dollar amount of the base figure and identify the actual source. Any additions or subtractions from the base dollar figure must be identified and explained; and In addition to any cash settlement value agreed to by the claimant, there must be added an amount equal to the state applicable sales tax of such cash settlement value, as reimbursement to the claimant for the excise tax imposed by the state.
2. If the insurer elects to replace the vehicle, the replacement vehicle must be immediately available, substantially similar vehicle that is both furnished and paid for by the insurer, subject to the deductible, if any.
3. If the insured vehicle is a private passenger automobile of the current model year, meaning that it has not been superseded in the marketplace by an officially introduced succeeding model, the insurer shall utilize one of the following methods in the settlement of the loss, except where the method used would be detrimental to the interests of the insured as compared with utilization of the methods described in Subsections (a) and (b) above:
The insurer shall pay to the insured the reasonable purchase price on the date of loss of a substantially similar vehicle, less any applicable deductible and an allowance for depreciation in accordance with an official used car guide which has been approved by the commissioner/insurance department and is used regularly by the insurer; or
The insurer shall furnish the insured with a substantially similar replacement vehicle, and charge the insured for any applicable deductible and for depreciation in accordance with said official used car guide.
4. If the insurer, in the process of adjusting a total loss, makes a deduction for the salvage value of the insured vehicle, the insurer must furnish the insured with the name and address of a salvage dealer who will purchase the salvage for the amount deducted.