Question from an IIABNY member: One of our insured's vehicles was totaled in an accident. The vehicle involved was a 2005 purchased within the last 180 days; the seller knocked it down greatly from the original sales price. The adjuster is stating that it’s New York State law that, if a vehicle is totaled within six months of purchase, they are allowed to settle based on purchase price of the vehicle versus book value. Is this true?
Answer: This is governed by N.Y. Insurance Regulation 64, Unfair Claims Settlement Practices and Claim Cost Control Measures. Section 216.7(c)(1) of that regulation sets the requirements for an insurance carrier’s minimum offer of a cash settlement for a total loss. It must be one of:
- The average of retail values for a “substantially similar vehicle” listed in The Redbook and The N.A.D.A. Official Used Car Guide.
- A quote for a substantially similar vehicle obtained by the carrier from an auto dealer located within 25 miles of the claimant.
- A quote from a computerized database “that produces statistically valid fair market values for a substantially similar vehicle within the local market area.” The Insurance Department has to approve these databases, and the databases must meet criteria in terms of comprehensiveness, data sources, and monitoring.
- Here’s the part the claim adjuster is referring to:
If (one of the first three methods) would result in a settlement offer greater than the purchase price plus the cost of substantiated improvements paid by the insured for a vehicle purchased within the 180 calendar days prior to date of loss, the insurer's offer of settlement may be limited to the purchase price, plus the cost of any substantiated improvements, less the deductible. This method of settlement shall not be applicable to motor vehicles acquired by the insured through a private sale or as a gift. A private sale is one in which the seller does not engage in the sale of motor vehicles as an occupation.
- If it’s not possible for the carrier to arrive at a value using one of these four methods, the carrier must use the next best available method and explain it to the claimant.
If the client bought the car from a private individual and not from a dealership, then the carrier may not use the purchase price as the basis of settlement. However, if he did buy the car from a dealer, then the carrier is within its legal rights to base its minimum offer on the purchase price.