You have been involved in a car accident and your car is totaled (this means that the car costs more to fix than it is worth).  If the insurance company offers you a settlement on your total-loss claim, the following six (6) items are things your insurance company definitely does not want you to know about when you’re negotiating the value of your vehicle.

1.)   The Total-Loss-Settlement Amount Your Insurance Company Offers Include Mandatory Taxes And Fees. Your insurance company is required to pay you what is known as the actual cash value (ACV) of your vehicle. ACV is the market value of the vehicle taking into consideration pre-loss condition, options, and mileage. To determine the amount it will pay you, your insurance carrier researches your vehicle’s market value by comparing your vehicle to vehicles that are for sale in your local area.

The California Department of Insurance forces the insurance companies to also reimburse you the 8.75% sales tax you will have to pay when you replace the vehicle.

EXAMPLE:  If your insurance company offers you $10,000 to replace your vehicle, and you search the local market and find your car selling for around $10,000, you may be tempted to accept their offer.  However, they are trying to cheat you out of $875.  Even though the ACV for your vehicle is $10,000, they have unfairly valued your vehicle at $9,125.  The carrier merely included the sales tax already owed to you in their offer.  If the market value of your vehicle is $10,000, the insurance company owes you $10,875 ($10,000 + 8.75% tax).

2.)   Payment Of An Undisputed Part Of A Claim Is Required By Department Of Insurance Regulations, And Does Not Bar A Further Recovery Of Benefits Under Your Policy. The Department of Insurance’s regulations make it clear that every insurer shall immediately, but in no event more than thirty (30) calendar days later, tender payment of the amount of the claim which has been determined and is not disputed by the insurer. [CaliforniaCode of Regulations, Title X, Chapter 5, Subchapter 7.5, Section 2695.7(h)] 

Moreover, an insurer may not issue a check in partial settlement of a loss or claim that contains language releasing the insurer or the insured from total liability unless the policy limit has been paid or there has been a compromise settlement agreed to by the claimant and the insurer. [10 Cal. C. Regs. § 2695.4(f)]

In presenting its valuation to you (extending an offer), your insurance company is admitting that it owes at least the valuation amount on the claim.  Under the Department of Insurance regulations, your insurance company is required to promptly tender the amount not in dispute (the carrier’s valuation amount).

TIP:  If you disagree with the carrier’s evaluation, tell them to immediately send you the undisputed amount and (after you receive the check) challenge their valuation.

3.) If You Disagree With The Total Loss Value Your Insurance Company Arrives At, You Can Challenge That Amount. Insurance companies will generally ask you to provide documentation to back up the reason for your disagreement. Insurance companies then review the documentation for accuracy and applicability to the total loss vehicle. If there is still disagreement, state law and the terms of your policy describe how an appraisal process will resolve the differences.

If you disagree with the insurance company’s valuation of your vehicle, you have the right to an objective, third party determination of value of that vehicle. In fact, the law requires that each side hire their own appraiser.

THE APPRAISAL PROCESS: Your insurance company will hire an appraiser to appraise your vehicle. If you do not hire your own appraiser, then the insurance company will pay you what they deem is appropriate. In effect, you will be stuck with the insurance company’s valuation of your vehicle. Potentially, this could even mean LESS than their original offer!

Once both appraisers (yours and the insurance company’s) have compiled their reports, they try to reach an agreement on the value of your vehicle before scheduling a formal appraisal hearing. If the appraisers are unable to agree, then a third party called an “evaluation umpire” will then listen to both sides and make a determination as to which appraiser is right about the vehicle’s value.

NOTEState law requires both sides to share the cost of an appraisal hearing equally.  In most cases, an appraisal hearing costs about $500 ($250 per side), which goes to pay the evaluation umpire.

4.) You Cannot Trust Your Insurance Company! Car owners who have lost their normal (and often sole) means of transportation are in an extremely vulnerable position. They usually have no way to get to and from work and, of course, they have yet to be paid any money by their insurance company. Even if the insured’s policy provides for rental car coverage, that coverage is usually limited to a maximum of 30 days, seldom long enough to resolve a total loss claim, especially where the insured can’t accept the insurance company’s offer.

Many companies use this leverage to their advantage and take the position that once the company has made what it contends is a fair offer to the insured, the insured has to either accept the offer or be confronted with immediate financial losses.

If your insurance company cheats 10,000 policyholders out of $1,000 each, the insurance company saves $10,000,000.  It is not unusual for the larger carriers (Farmers, Mercury, Allstate, etc…) to resolve tens of thousands of total-loss claims each year.  The insurance companies have huge incentives to minimize the amount policyholders are owed paid on their claim.

5.) Your Personal Injury Lawyer Will Probably Not Help You With Your Total Loss Claim. Unfortunately, the amount of attention paid to a client’s total loss claim by most lawyers is usually quite minimal, for at least a few reasons. First, the settlement of the total loss claim is most often simply forgotten by the time the attorney has a chance to be of any meaningful assistance to the client.

Secondly, most attorneys regard any effort they make to assist their client in resolving the property damage aspect of a claim somewhat of a “courtesy” to the client, the attorney usually refrains from taking any fee from the property damage portion of the claim. Because personal injury attorneys do not take fees on total loss claims, their interest in maximizing recovery on total loss claims is usually minimal.

Third, even if the client comes to an attorney before the property damage claim has been resolved, the monetary “dispute” between the client and the insurance company is often relatively nominal, often amounting to no more than a thousand dollars. The natural reaction to the client’s dilemma will be to conclude that you can’t fight a billion dollar insurer for that amount of money.

6.)  You Can Sue Your Insurance Company If The Carrier Treats You Unfairly. The following regulatory violations may support a lawsuit against your insurance company for treating you unfairly:

a.  Low-Ball Offer.  Compelling a policyholder to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered, is an unfair practice. [Insurance Code § 790.03(h)(6)]  The California Insurance Commissioner Regulations states in part: “No insurer shall attempt to settle a claim by making a settlement offer that is unreasonably low.” [California Code of Regulations Title X, Chapter 5, Subchapter 7.5, § 2695.7(g)]

b. “Forcing” appraisal. An insurer’s delay in payment of first party benefits could be found to have been made unreasonably, thereby “forcing” the insured to go through an appraisal procedure.  If such a finding is made, that would constitute a breach of the implied covenant of good faith and fair dealing, which will support a claim for bad faith. [Bernstein v. Travelers Ins. Co., 2006 WL 2567875, pg. 6-7 (N.D. Cal. 2006)

c.  Delay in making payments. The actionable withholding of benefits may consist of unreasonably delaying payments when due. [Major v. Western Home Ins. Co., 169 Cal. App. 4th 1197, 1209, 87 Cal. Rptr. 3d 556 (4th Dist. 2009)] Insurance Code section 790.03 defines as deceptive acts or practices in the business of insurance certain acts performed by an insurer towards its insured. An insurer: “Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear is an unfair practice.”