Woodland Hills Personal injury lawyer Barry P. Goldberg encounters this “total loss” dance in every car accident case where there is significant property damage. In most cases, the client wants the car “totaled” so he or she can get a new car and not be forced to drive a car with massive repairs. Sometimes, the client does not want the car “totaled” even though the value of the car is less than the amount of the repairs. The client may not be able to replace a heavily damaged vehicle or likes the vehicle enough that he or she wants to try to fix it regardless of the damage. Whether a car is considered to be “totaled” causes great confusion for consumers and lawyers alike.
As a general rule, a damaged auto is considered “totaled” when the cost of repair is higher than the Actual Cash Value (ACV) of the auto. As anyone who has gone through this is aware, it is not always practical to repair the auto, even if the cost of repair is less than the ACV. Usually, there is a percentage (which differs from state to state and insurer to insurer) at which the auto will be considered a “Total Loss.” This analysis becomes acute when the cost of repairs approach 75% of the value of the vehicle.
To determine whether an auto is considered a “total”, the insurer will calculate the total loss ratio (cost of repairs/ACV) and then compare this ratio to its internal limits, or “Total Loss Formula” (TLF). While there is no bright line test in California, the experience of this office is around a 75% ratio. One of the reasons an insurer will accept the “balance” of the additional 25% is that severely damaged autos often need additional repairs that exceed the original estimates. As the repairs get closer and closer to 100% ACV, the insurer risks losing more money because in addition to the repairs, there may be payouts for rental cars and storage. Further, an upset insured is more likely to insist on further and further repairs.
An additional note is important at this point in the discussion. Our office has noted that Rental Car companies have a much lower threshold or TLF than most insurance companies. Our experience is that a Rental Car company will total its cars out closer to 60%. Why is this? Simply, because it is difficult to rent out an auto that has had major repairs. When consumers rent an auto they expect a new car in perfect operating condition. There cannot be a shimmy in the steering or parts out of perfect alignment. Most consumers would urge the same standard for their own personal auto that has been in a major collision. A major reason that consumers want their auto “totaled” is that they sustain “Diminished Value” or “Stigma” damages after the auto has been repaired. This is a controversial topic which will be handled in a different blog post.
The Total Loss Formula (TLF) in California is:
Cost of Repairs + Salvage Value ≥ Actual Cash Value.
If the sum of the first two amounts are greater than the ACV, the auto is a total loss. Salvage Value is the amount the insurer could sell the auto in its damaged condition. This amount is usually very small, especially if it is for the scrape metal value of the auto. Occasionally, large portions of the auto are still useable, such as the front end, engine or fancy tires. We see high Salvage Value in desirable autos such as Mercedes Benz or classic cars that can be scavenged for parts. In addition, slightly higher salvage values go to popular “best sellers” like Honda Accord and Toyota Camry because there is a huge market for replacement parts.
If the consumer wishes to “Retain Salvage,” the insurer will pay the Total Loss minus the Salvage Value and the consumer keeps the auto. However, if the auto is repaired and returns to the highway in operating condition, the Department of Motor Vehicles (DMV) requires that there be a Salvage Certificate which will be forever noted on the auto’s title. Many consumers chose to repair a “totaled” vehicle because they have a connection to a repair shop or do the repairs themselves. In those cases, the consumer believes the value of the auto in operating condition, with the salvage certificate, is more valuable than accepting the insurer’s total loss payment.
It is vitally important that a consumer communicate his or her preferences about repairing the auto to the handling personal injury attorney as soon as possible. The attorney must also be prepared to discuss the economic “pros and cons” with the client, so that the best choices regarding the property damage can be made promptly.