OGC Op. No. 08-10-13
The Office of General Counsel issued the following opinion on October 30, 2008, representing the position of the New York State Insurance Department.
RE: Calculation of total loss payments upon automobiles’ title transfer fees and sales tax
(1) When a claimant elects to retain title to an automobile that is a total loss - under which the vehicle’s salvage value will be deducted from the settlement payment - is the amount of sales tax added to the value of the vehicle prior to the accident, or added after the deduction for the salvage value has reduced the value of the vehicle?
(2) Must an automobile insurance company include title transfer fees as part of a settlement for the actual cash value of a motor vehicle upon its total loss?
(1) The amount of sales tax is added to the value of the vehicle prior to the accident, in accordance with the definition of actual cash value in § 216.6(b)(2) of 11 NYCRR 216 (Regulation 64), before the deduction for the salvage value is taken.
(2) No. An insurance company is not required under the New York Insurance Law or regulations promulgated thereunder to include title transfer costs associated with the purchase of a replacement vehicle in determining the actual cash value of a motor vehicle that has suffered a total loss. However, there is also no prohibition in paying that extra sum as a component of loss, so long as it is done in a uniform and non-discriminatory manner.
This is an example of a situation where a first- or third-party claimant retains ownership of an automobile that has been declared a total loss, which had a pre-loss value of $1,000 and a post-loss value of $100. The claimant transfers the automobile to the insurer for disposal. The insurer would pay $1,000 plus sales tax on the pre-loss value of $1,000. However, where the claimant elects to retain the salvage automobile, and the insurer deducts the $100 salvage value from the settlement payment, it is asked whether the insurer should pay sales tax calculated on $1,000, the actual cash value just prior to the loss, or on the $900 paid after deducting the $100 salvage value.
It has been the insurer’s practice to include a $50 title transfer fee as part of its settlement payments to first- and third-party claimants whose automobiles have been declared total losses. The insurer has learned of an opinion of the New York Insurance Department’s Office of General Counsel dated March 12, 2001, which concluded that an automobile insurance company need not include title cost in determining the total loss claim settlement with its insured. It is asked whether that opinion still represents the Department’s position.
Automobile insurance policies generally provide coverage on an “actual cash value” basis. Except where an automobile insurance policy provides otherwise, the definition of “actual cash value” that an insurer must use is set forth in Regulation 64. 11 NYCRR § 216.6(b) defines “actual cash value" as follows:
(b) Actual cash value, unless otherwise specifically defined by law or policy, means the lesser of the amounts for which the claimant can reasonably be expected to:
(1) repair the property to its condition immediately prior to the loss; or
(2) 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.]
Accordingly, in calculating the actual cash value of a vehicle upon a total loss where the claimant elects to retain the salvage, the definition of actual cash value in § 216.6(b)(2) specifies that the cost of replacement includes sales tax. The salvage value of the insured vehicle upon a total loss is a deduction from its actual cash value and, therefore, it is taken after the sales tax has already been added into the calculation of the vehicle’s replacement cost. Applying this formula to the hypothetical example posed, the insurance company would add the amount of sales tax to the $1,000 pre-loss value of the automobile, and then deduct the salvage value to arrive at the amount of the claim payment.
Concerning the question of title transfer fees, there is no requirement in the New York Insurance Law or Regulation 64 that an insurance company include a title transfer fee in the calculation of an automobile’s actual cash value in New York. But there is also no prohibition in paying such fee as a component of loss, as many insurers do so long as it is done in a uniform and non-discriminatory manner.
As the analysis above indicates, this opinion is consistent with the conclusions of the March 12, 2001 Department opinion that this inquiry references. Consequently, that opinion remains the position of the Department.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.