Fighting Insurance Companies When They Declare Your Car a Total Loss Following an Accident
Getting into an accident that damages your car can cause major inconvenience and expense. The last thing you want in that situation is to have to fight with an insurance company over its decision to declare your car a total loss, or about the amount of money the insurance company will pay you as a total loss settlement.
The law dictates when an insurance company is allowed to declare your car a total loss. Here’s an overview of the requirements, and of issues you may want to fight the insurance company over when it declares your car a total loss.
The Basics of Declaring Cars a Total Loss
The auto insurance you carry on a car you registered in New York or New Jersey protects you, among other things, against the costs associated with repairing or replacing your car if it sustains damage in an accident.
After you notify your insurance company of accident damage to your car, the insurance company must decide how much to pay you for that damage. In that regard, the insurance company has a choice to make: it can pay to repair the damage, or it can declare your car a “total loss” and pay a lump sum settlement that, at least in theory, leaves you with enough money to purchase a comparable replacement vehicle.
On the surface, that choice seems simple enough. In reality, however, it gets complicated, because of how insurance companies determine a total loss, and because of the legal and practical consequences to you of that declaration.
What Total Loss Means for Insurance Companies
We tend to hear the words “total loss” and “totaled” and think it means severe damage that makes a car unrepairable and undrivable.
Insurance companies, however, use a much broader definition of those terms. To them, a total loss exists whenever the cost of repairing accident damage exceeds the car’s value (or a percentage of that value) after repair.
Defining a total loss that way certainly includes cars damaged beyond repair. But it can also include an older, lower-value car that needs only minor repairs, simply because the repair cost exceeds most or all of the car’s value after you fix it.
In other words, insurance companies view total loss through an economic lens. They ask if repairing a car is worth the money, given the car’s value, and if not, then they declare it a total loss.
Insurance companies make this cost-benefit determination largely through mathematical formulas that crunch the costs of replacement parts, labor rates, average car values in your geographic area, and the price of cars when sold as salvage or scrap. They sometimes must also factor-in state-specific laws and regulations that dictate what constitutes a total loss.
Because of those formulas and rules, an insurance company’s economic cost-benefit decision to declare your car a total loss may seem unreasonable, even nonsensical.
Consequences of a Total Loss Declaration
Unfortunately, that decision can also have significant practical, financial, and legal consequences for you.
First, in most states, it means that unless you negotiate an alternative arrangement with the insurance company, you must turn your damaged car over to the insurance company. In New York, for example, insurers must take possession of any car declared a total loss unless the owner is permitted to retain the car as part of a claim settlement. In New Jersey, the law gives insurers the option of requiring that car owners turn over title and possession of the damaged car in the event of a total loss declaration, and most do.
Next, it means that the insurance company will offer you a settlement payment based on the actual cash value (ACV) of your totaled car. In theory, the amount of the payment (after your deductible) should cover the balance of any car loan you have, and hopefully put enough money in your pocket to purchase a replacement vehicle. In practice, however, it does not always go that way.
State laws give insurance companies options for calculating the ACV of a vehicle, which typically includes calculating averages of blue book values and used car sale values in your area. Those amounts, however, may not necessarily reflect the true value of your car, either because of your car’s condition before the crash, after-market parts you added to it, or even its sentimental or personal value to you. Insurers also have an incentive to use the method that yields the lowest value for your car.
For those reasons, the ACV the insurance company assigns to your car in determining how much to pay as a settlement for your total loss may leave you short-changed, with no car and not enough money to afford a replacement.
Finally, a total loss declaration means that even if you negotiate with the insurance company to keep your car and repair it, your car’s title will likely contain the word “salvage.” Most states, including New York and New Jersey, have salvage title laws requiring this marking, the purpose of which is to protect the public from anyone who might try to sell a used car without disclosing its history of accident damage.
Unfortunately, because salvage title laws often treat an insurance company’s total loss declaration as the trigger for requiring a salvage title for a vehicle, even perfectly good cars may end up treated as salvage. That can cause unnecessary expense and inconvenience, because state laws and insurance practices make it expensive and difficult to register and insure a car with a salvage title. Marking a car’s title as salvage also impairs the car’s resale value.
You Can Fight Back
Having your car declared a total loss, in other words, can cause you major expense and inconvenience. But that does not mean you have no options for fighting back. You do.
Insurance Regulations Protect You By Keeping Insurance Companies Honest
To begin, insurance regulations in your state may specifically require the insurance company to deal with you fairly and reasonably. That is the case in New York and New Jersey, which have largely similar regulations when it comes to how insurance companies may go about declaring your car a total loss.
Those regulations include:
- Requirements that the state insurance commissioner approve any method the insurance companies want to use to calculate ACV;
- Requirements that the insurer provide you with a detailed written explanation of how it arrived at the ACV for your car;
- A period of time (35 days in New York, 30 days in New Jersey) in which the insured (that’s you) can notify the insurer that its proposed cash settlement does not provide enough money to purchase a replacement vehicle; and
- A requirement that the insurance company must negotiate with you in good faith.
An insurance company’s violation of its obligations under these regulations could result in legal and regulatory difficulty for the company. It may also give you a basis for taking legal action seeking compensation for violation of state insurance laws.
Speak with an experienced car accident and insurance loss attorney today to learn more about your rights if an insurance company has treated you unfairly in declaring your car a total loss.
You Can Negotiate With Insurance Companies Over a Total Loss Declaration or ACV Calculation
Learning that the insurance company has declared your car a total loss, and receiving a settlement offer that seems too low, can make you feel powerless.
That’s just how the insurance company wants you to feel. The settlement offer you receive for your totaled car will almost certainly amount to the absolute minimum the insurance company can get away with presenting to you. The insurance company hopes you will take it, no questions asked, because you feel as if you really don’t have much of a choice.
But, you do have a choice. You can negotiate with the insurance company over a wide range of items contained in its calculation of your totaled car’s ACV, from your car’s equipment, condition, mileage, and value, to the cost of obtaining a replacement car in your geographic area that is just as good as the one the insurer has declared a total loss. You can even negotiate the insurance company’s decision to declare your car a total loss in the first place.
Remember, insurance companies have an obligation to negotiate in good faith. They cannot tell you to buzz-off. They have to listen, and they have to hear you out if you disagree with their calculations or decisions.
An Experienced Car Accident Lawyer Can Help You
Does the notion of reading and understanding insurance regulations make your eyes glaze over? Do you worry about trying to negotiate the terms of a total loss settlement with an insurance adjuster?
You aren’t alone. Most people who confront the confusing process of dealing with an insurance company that has decided to declare their car a total loss would rather avoid a fight. They did not sign up for digging into the fine print of insurance regulations and horse-trading with an insurance adjuster when they purchased car insurance. They just want a fair settlement to replace (or repair) their damaged car.
Unfortunately, insurance companies count on you shying away from a fight, and on your lack of knowledge about the rules that keep them honest. That’s how they get away with declaring cars a total loss on nothing more than a mathematical formula, and with offering lowball settlements that barely pay for a set of tires, let alone a whole car.
However, you are not powerless, and you do not need to take on the fight alone. You can refuse to let the insurance company bully you by hiring a skilled car accident and insurance claim attorney to advocate on your behalf.
An experienced car accident and insurance claim attorney can, for example:
- Negotiate directly with the insurance company on your behalf, seeking a higher settlement payment or other outcomes that suit your needs and priorities;
- Protect you from aggressive insurance company tactics designed to scare you off from disputing a total loss declaration;
- Ensure you meet all deadlines necessary to preserve your rights under the terms of your insurance policy, and applicable insurance laws and regulations;
- Collect evidence to show why the insurance company’s total loss declaration, or its ACV calculation, do not treat you fairly;
- Hold the insurance company to its obligations under applicable laws and regulations;
- Prepare and file legal actions on your behalf seeking to force the insurance company to deal with you fairly, and in some instances, seeking damages for violations of insurance laws if the insurance company refuses to play ball.
Every case is different, of course, so the specific tasks a lawyer might perform for you can vary. In general, however, putting your total loss settlement dispute with an insurance company in the hands of an experienced attorney puts you on equal footing with the insurance company.
Do Not Let Total Loss Become a Total Inconvenience
To summarize, insurance companies have good reason to try to force you into accepting the settlement they offer after declaring your car a total loss. But, you have every right to demand that an insurance company treat you fairly throughout the process of claiming compensation for your damaged vehicle.
By hiring a skilled lawyer, you can ensure that the insurance company will think twice about using any hardball tactics on you. To learn more about your rights after your car sustains damage in an accident, before or after the insurance company has declared it a total loss, contact an experienced car accident and insurance claim attorney today for a free consultation.