What Is The Total Loss Value Of A Vehicle?

The determination of the value of a vehicle declared a total loss in a property damage settlement is difficult because the fair market value of a car basically depends on a prediction of the future.

“Market Value” is the price which a purchaser is willing to pay and which a seller is willing to accept for the property. It is not always easy to determine market value since (1) a fair price may involve many factors intrinsic to the particular car and (2) different people may be willing to offer and to accept different prices for the same car. This makes calculating the amount of a total loss settlement difficult.

In the past, many insurance companies used a standard database that used a system which involved an analysis of sales of comparable vehicles in the area. This system typically generated a value that was far less than the “book value” of the car (per resources such as the “Kelley Blue Book” or the National Automobile Dealers’ Association’s official used car guide).

In 2003, the General Assembly enacted Section 27-304.1 of the Insurance Article of the Annotated Code of Maryland which states:

“The Commissioner shall adopt regulations that establish standards and procedures for: (1) the settlement of claims involving the total loss of a private passenger motor vehicle; and (2) the determination of the private passenger motor vehicle’s total loss value.”

Those regulations became effective on July 5, 2004 and were adopted by the Maryland Insurance Administration, which improved property damage settlements somewhat for claimants. Insurance companies began offering “Book Value.” The regulations can be found in the Code of Maryland Regulations (COMAR) which contains Maryland State agency regulations, in sections 31.15.12.00 through 31.15.12.07. You may find the important sections below.

1) Section 31.15.12.02 defines what is meant by the “Total Loss” of a vehicle:
“Total loss” means the condition of a motor vehicle for which:
(a) The cost of repairs equals or exceeds:
(i) The actual cash value of the motor vehicle as calculated in accordance with Regulation .04 of this chapter; or
(ii) A percentage of the actual cash value of the motor vehicle established by the insurer and calculated in accordance with Regulation .04 of this chapter; or
(b) The total cost to repair the motor vehicle, plus the estimated cost of potential repairs from hidden damage, plus any anticipated rental coverage, may equal or exceed:
(i) The actual cash value of the motor vehicle as calculated in accordance with Regulation .04 of this chapter; or
(ii) A percentage of the actual cash value of the motor vehicle established by the insurer and calculated in accordance with Regulation .04 of this chapter.

2) Section 31.15.12.04 defines what is meant by a “Cash Settlement:”
If an insurer elects to make a cash settlement for the total loss of a motor vehicle pursuant to Regulation .03 of this chapter, the insurer’s minimum offer, subject to applicable deductions, shall be:
A. The total of:
(1) The retail value for a substantially similar motor vehicle from a nationally recognized valuation manual or from a computerized data base that produces statistically valid fair market values for a substantially similar vehicle as defined in Regulation .02B(7) of this regulation; and
(2) Regardless of whether the claimant retains salvage rights, the applicable taxes and transfer fees pursuant to COMAR 11.11.05; or

B. The total of:
(1) A quotation for a substantially similar motor vehicle obtained by or on behalf of the insurer from a qualified dealer at a location reasonably convenient to the claimant; and
(2) Regardless of whether the claimant retains salvage rights, the applicable taxes and transfer fees pursuant to COMAR 11.11.05. 3) Section 31.15.12.05 defines the “Contents of Settlement Offer:”

A. In General. A settlement offer made by an insurer pursuant to Regulation .04 of this chapter shall:
(1) State the amount being offered;
(2) Inform the claimant that, on request from the claimant, the insurer shall provide the claimant in writing:
(a) A copy of the settlement offer;
(b) The method used to arrive at the value of the motor vehicle, including identification of any books, manuals, or databases used;
(c) A detailed explanation of the insurer’s calculation of the motor vehicle’s total loss value, including the calculation of any value added to the motor vehicle by options;
(d) A list of all deductions that will be made from the value of the motor vehicle; and
(e) A copy of the inspection guidelines relied on by the insurer to determine the condition of the vehicle at the time of the loss; and
(3) Inform the claimant that the claimant may, in writing, reject the settlement offer and make a counteroffer in accordance with Regulation .06 of this chapter.
B. If a claimant makes a request under §A(2) of this regulation, the insurer shall provide a response within 7 business days of the date of the request.

4) Section 31.15.12.06 addresses the response by the Claimant to a settlement offer:
A. In General. After receipt of a settlement offer, a claimant may:
(1) Accept the offer; or
(2) In writing, reject the offer and make a counteroffer based on:
(a) Dealer quotations for a substantially similar motor vehicle;
(b) Advertisements for a substantially similar motor vehicle; or
(c) Any other source of valuation for a substantially similar motor vehicle.

B. Duty of Insurer. If an insurer rejects a claimant’s counteroffer made pursuant to §A(2) of this regulation, the insurer shall, within 5 business days, send to the claimant a written explanation in clear and understandable language of why the information relied on by the claimant in the counteroffer does not provide a more accurate valuation than the information relied on by the insurer in its offer.

In a property damage settlement where the vehicle is declared to be a total loss, once an offer is accepted, the insurance company will require the owner(s) of the vehicle to sign the title of the vehicle over to the insurer. This is done so that the owner of the vehicle cannot sell the wreckage, keep the salvage value and therefore receive more than the value of the vehicle paid in the settlement value.

The regulations apply to settlements and do not apply if a case does not settle and goes to trial. At trial, in order for the Plaintiff to recover the total loss value of the vehicle the plaintiff must prove that the vehicle was in fact a total loss. This means that the plaintiff must introduce evidence on whether the vehicle can be repaired to substantially the same condition in which it was before the accident.

If a vehicle is determined at trial to be a total loss due to the collision, the “salvage” value of the vehicle has to be considered when calculating the damage. The fact finder (either the Judge, or a Jury if it is a Jury trial) will have to determine: (1) the fair market value of the vehicle immediately before the collision, and (2) the value of the vehicle after the collision (the “salvage value”). If the vehicle is determined to be a total loss, the measure of damages is the difference between the pre-accident fair market value and the post-accident salvage value. The salvage value has to be considered so that the Plaintiff who recovers the full fair market value of the totaled car cannot sell the wreckage to a junk dealer and then keep what the junk dealer paid, thereby making the plaintiff more than whole.

One way to determine the “fair market value” of the motor vehicle immediately before the collision is by the price paid for the vehicle. The present market value depends upon such an infinite variety and number of conditions and circumstances such as the original cost, which not only relates to some extent to its intrinsic value but affects its present value, since the cost of new parts to replace those broken or worn will be greater in a higher priced car than in one of less value, also the length of time it has been in use, the manner in which it has been used, the type of care taken, its actual condition, and the difficulty of securing new parts.

Therefore, there can be no standard by which the market value of such a car can be measured with definiteness and certainty, and under such circumstances the price paid for it would be some evidence of its present value.

Evidence of the original cost of a used automobile is admissible on the issue as to its value at the time of loss, on the theory that the present value of a used article can be determined with a reasonable degree of certainty by taking such original cost and making due allowance for depreciation and vehicle upgrades, modifications and value added options.

The rule in Maryland with respect to the measure of damages for damage to a motor vehicle which has not been entirely destroyed is the reasonable cost of the repairs necessary to restore it to substantially the same condition that it was in before the damage, provided the cost of repairs is less than the diminution in market value due to the damage.

When the cost of restoring a motor vehicle to substantially the same condition is greater than the diminution in market value, the measure of damages is the difference between its market value immediately before and immediately after the damage. In addition, the measure of damages may include a reasonable allowance for the loss of use of the vehicle.

If a vehicle loses value after it has been repaired and has a diminished market value from being damaged, the owner of the vehicle can recover in addition to the cost of repairs, the diminution in market value, provided the two together do not exceed the diminution in value prior to the repairs.

The measure of damages is the less of: (1) the sum of the repair costs and the diminution in value if the repairs are performed; and (2) the difference between the vehicle’s value immediately before the collision and its salvage value in its unrepaired state after the collision. The owner may also obtain a reasonable allowance for the loss of use of the vehicle. Also, if the vehicle is determined to be a total loss, the owner may recover the cost of obtaining a temporary substitute vehicle during the period that is reasonably needed to procure a permanent replacement.

The issue of diminished market value is the reason why many insurance companies will total a vehicle even if its repair costs are 60-70% of the vehicle’s value.

      I can help you with these issues so that you can avoid these problems. Call me directly at 410-446-6644 or email me at alexmiller@alexmillerlaw.com.