The Office of General Counsel issued the following opinion on April 5, 2001 representing the position of the New York State Insurance Department.This opinion was clarified pursuant to opinion #01-10-05 issued on October 9, 2001.
RE: Settlements of Total Loss Motor Vehicle Damage Claims N.Y. Comp. Codes R. & Regs. tit. 11, § 216.7 (c)(1)(iv) (2000) (Regulation 64).
May an insurer limit its settlement offer to an insured for a total loss motor vehicle damage claim to the lesser dollar amount of the purchase price plus the cost of repairs for a stolen vehicle, purchased within 180 days prior to the date of loss, as opposed to a greater dollar amount based upon the vehicles actual cash value?
Yes. Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 216.7 (c)(1)(iv) (2000) (Reg. 64) an insurer may limit its offer to the amount of the purchase price plus the cost of repairs if the methods for valuing the vehicle, purchased within 180 days prior to the date of loss, would result in a settlement offer greater than the purchase price, plus the cost of repairs made by the insured. However, if the insurer has acted improperly in settling the claim, an aggrieved party may file a complaint with the Consumer Services Bureau and it will investigate the allegations of the complaint.
A law firm is currently engaged in a dispute with an insurance company, which is represented by an adjustment company, arising from a total loss due to theft of a clients motor vehicle, which loss occurred on April 3, 2000, 148 days after the date of purchase. The client purchased the vehicle from an auto auction in the amount of $9,000, which is approximately the amount offered by the carrier. However, the firms position is that its client is entitled to $19,000, which it describes as being the vehicles Actual Cash Value.
N.Y. Comp. Codes R. & Regs. tit.11, § 216.7 (c) (1) (2000) (Regulation 64) prescribes the methods by which an insurer may value a vehicle in a total loss situation and provides in relevant part as follows:
(c)(1) If the insurer elects to make a cash settlement, its minimum offer, subject to the applicable deductions, must be one of the following:
(i) The average of the retail values for a substantially similar vehicle as listed in the two valuation manuals current at the date of loss and approved by this department .
(ii) A quotation for a substantially similar vehicle obtained by the insurer from a qualified dealer located reasonably conveniently to the insured.
(iii) A quotation obtained from a computerized database, approved by the superintendent, that produces statistically valid fair market values for a substantially similar vehicle, within the local market area.
(iv) If the method used in subparagraph (i), (ii) or (iii) of this paragraph 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 insurers 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.
Therefore, pursuant to N.Y. Comp. Codes R. & Regs. tit.11, § 216.7 (c) (1) (iv) (2000) (Regulation 64), when a vehicle is purchased from an automobile dealer, engaged in the sale of motor vehicles as an occupation, within the 180 day period prior to the date of the loss, the insurers minimum offer may be limited to the purchase price plus the cost of any repairs made up to the date of loss, if the minimum valuation methods would result in a settlement offer greater than the purchase price plus the cost of repairs.
This provision was adopted to deter fraudulent claims, without sacrificing the insureds ability to obtain a fair settlement. At the time of this revision, it had been reported to the Insurance Department that insureds were arranging to have their substandard vehicles stolen in order to obtain a settlement based upon the greater dollar amount of the actual cash value of a clean vehicle. See Regulatory Impact Statement, Amendments to Part 216 of Title 11 NYCRR, 33 N.Y. St. Reg. 13 (1981).
In the present case, the insurers offer would be justified provided that it conforms to the requirements of Regulation 64 and there are no extenuating circumstances that would yield a different result. However, if the insurer has engaged in some form of unfair settlement practice or has failed to comply with the procedures set forth in Regulation 64, the aggrieved party may file a complaint with the Consumer Services Bureau describing the practice.
For further information, you may contact Attorney Pascale Joasil at the New York City Office.