Property Damage: Total Loss

Property Damage:  Total Loss

When is a motor vehicle considered a total loss?

A vehicle is considered a total loss when and if the cost of repairs, including supplemental claims, such as projected rental vehicle during period of repair, equal or exceed 75 percent of the pre-accident cash value which is sometimes referred to as the Fair Market Value (FMV). See 11 NCAC 4.0418(5).

In most cases, the liability insurance carrier is required to pay the FMV of the vehicle.  FMV is the value a seller, not forced to sell, and a buyer, not forced to buy, would agree upon for the vehicle immediately before the collision giving rise to the property claim.  Adjusters have a book value that they use to arrive at FMV, but they have some room to negotiate based upon the condition of the vehicle.  BV is supposedly FMV, but not always.  This gives both sides some leeway to negotiate.  Many insurance companies use the National Automobile Dealers Association (NADA) publication entitled "Official User Car Guide" which is published monthly.  Your finance company or bank should have a current copy.  They are also available at book stores and online.  Some liability insurance companies have their own valuations.  No publication is completely accurate.  They are only "guides."  There is some basis to negotiate in every case.

Example:  Your vehicle's pre-accident FMV is $10,000 and the estimates for cost of repairs are less than $7,500.00.  The liability insurance company is obligated to only pay for the cost of repairs.  However, if the estimated cost of repairs is $7,500.00 or more, the liability insurance company must pay the pre-accident FMV of $7,500.00 and no more.  Frequently problems arise when claimants fail to understand that the law does not require liability insurers to pay more than FMV.  If FMV is $7,500.00 and the cost of repairs is $9,000.00 then you will only recover $7,500.00.  In other words, you can't recover more than the FMV even when the cost of repairs exceeds the FMV.

What happens if we can't agree on an evaluation?

If you and the adjuster are initially unable to reach an agreement as to FMV, the adjuster is required to base any further settlement offers not only on published regional average values of similar vehicles, but also on the value of the vehicle in the local market.  Local FMV must be determined by using either the local market price of a comparable vehicle or, if no comparable vehicle can be found, quotations from at least two qualified dealers within the local market area.  If your vehicle was in better than average condition prior to the collision, the adjuster is required to give due consideration to this fact in arriving at value.  See 11 NCAC 4.0418(1).

You should require from the adjuster that a written statement accompany the total loss payment.  The statement should include estimates, evaluations and deductions used in calculating the payment, as well as stating the source of these values.  See 11 NCAC 4.0418(4).

What does "Salvage Value" mean?

If the vehicle is a total loss and if you and the adjuster agree on the vehicle's pre-accident FMV and the adjuster is willing to pay the FMV then the liability insurance company gets the car.  In other words, the insurance company is not going to pay you FMV and let you keep the car.  This is because there is usually some residual value in totally damaged vehicles.  At the very least, the vehicle can be stripped and some of the parts sold.  The value of what is left of the “total loss” vehicle is referred to as the “salvage value.”  When the adjuster pays the FMV, you must sign over the title to the vehicle.  If you wish to keep the vehicle, you must pay the insurance company the “salvage value.”  You pay the “salvage value” by accepting a check from the insurance company for the FMV less the salvage value. If you wish to keep the vehicle, you have the right to ask the liability insurance company prior to your agreeing to settlement to give you in writing the name and address of the salvage dealer who will purchase the salvage for the amount claimed as salvage value by the adjuster. See 11 NCAC 4.0148(3).