New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following opinion on April 30, 2002, representing the position of the New York State Insurance Department.

RE: Calculation of Total Loss Payments and Regulation 64.

Question Presented:

Where an insurer adjusts a total loss motor vehicle physical damage claim, and a deduction is made for the salvage retained by the insured, should the sales tax be applied to (1) the actual cash value of the vehicle before deducting the value of the salvage or (2) the difference between the actual cash value and the value of the salvage?

Conclusion:

Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 216.6(b) (2000), the sales tax is viewed as a component of the actual cash value of the motor vehicle. Therefore, in calculating the total loss payment, the sales tax should be applied to actual cash value of the vehicle before deducting the value of the salvage.

Facts:

The inquirer provided the following two scenarios and asked which calculation is correct:

1) Actual cash value: $10,000
   + 800 (8% sales tax)
------------
$10,800
  -2,000 (salvage/owner retained)
-----------
$ 8,800 (payment to the insured)
 
 
2) Actual cash value: $10,000
  -2,000 (salvage/owner retained)
-----------
$ 8,000
  + 640 (8% sales tax)
-----------
$ 8,640 (payment to the insured)

Analysis:

N.Y. Comp. Codes R. & Regs. tit. 11, § 216.6(a) (2000) provides as follows:

(a) In any case where there is no dispute as to coverage, it shall be the duty of every insurer to offer claimants, or their authorized representatives, amounts which are fair and reasonable as shown by its investigation of the claim, providing the amounts so offered are within policy limits and in accordance with the policy provisions. (emphasis added)

In New York, most motor vehicle physical damage insurance policies are written on an actual cash value basis. N.Y. Comp. Codes R. & Regs. tit. 11, § 216.6(b)(2000) defines the term "actual cash value" in pertinent part as follows:

(b) Actual cash value, unless otherwise specifically defined by the law or policy, means the lesser of the amounts for which the claimant can reasonably be expected to:

repair the property to its condition immediately prior to the loss; or

replace it with an item substantially identical to the item damaged. Such amount shall include all monies paid or payable as sales taxes on the item repaired or replaced . . . (emphasis added)

To effectuate this provision, section 216.7 provides minimum standards for the settlement of motor vehicle physical damage claims. Section 216.7(c)(1) provides that in a total loss situation, if the insurer elects to make a cash settlement, the insurer’s minimum offer must be one of the enumerated valuation methods, subject to applicable deductions. Section 216.7 also provides that the other provisions of Regulation 64 apply to motor vehicle physical damage claims to the extent that they are consistent with section 216.7.

In regard to deductions for salvage, section 216.7(c)(6) of Regulation 64 provides as follows:

If the insurer in the process of adjusting a total loss makes a deduction for the salvage value of the insured vehicle, the insurer must furnish the insured, upon the insured’s request, with the name and address of a licensed or certified salvage dealer or dismantler who will purchase the salvage for the amount deducted with no additional charges to the insured by the salvage dealer or dismantler.

Accordingly, in a total loss situation, the insurer may offer the insured the actual cash value of the vehicle, which includes all monies paid or payable as sales taxes on the item replaced, minus the salvage amount retained by the insured. Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 216.6(b) (2000), the sales tax is viewed as a component of the actual cash value of the motor vehicle. Therefore, in calculating the total loss payment, the sales tax should be applied to the actual cash value of the vehicle before deducting the value of the salvage.

For further information, you may contact Attorney Pascale Joasil at the New York City office.