OGC Op. No. 11-02-01

The Office of General Counsel issued the following opinion on February 7, 2011, representing the position of the New York State Insurance Department.

Re: Adjusting the Total Loss of a New, Leased Vehicle & Payment to Insured or Loss Payee

Questions Presented:

1) What is the loss payment an insurer must make on a private passenger automobile of the current model year that has suffered a total loss due to complete destruction or theft?

2) Should the insurer remit the loss payment to the named insured or the loss payee?

Conclusions:

1) The loss payment an insurer must make on a private passenger automobile of the current model year that has suffered a total loss due to complete destruction or theft is the reasonable purchase price on the date of loss of a new identical vehicle, less the applicable deductible and an allowance for depreciation, calculated in accordance with § 216.7(c)(3) of N.Y. Comp. Codes R. & Regs. tit. 11, Part 216 (Regulation 64), unless this settlement method would result in a lower loss payment than the methods described in 11 NYCRR § 216.7(c)(1)(i), (ii) and (iii), in which case the settlement method that results in a higher loss payment among the methods provided in 11 NYCRR § 216.7(c)(1)(i), (ii) and (iii) would be the appropriate settlement method to use to calculate the loss payment.

2) Whether the insurer should remit the loss payment to the named insured or the loss payee depends on the terms and conditions of the automobile insurance policy.

Facts:

The Insurance Department received the following inquiry:

a.) Mr. X leases a new 2010 . . . motor vehicle from [a vehicle lessor].
b.) Pursuant to the terms of the lease:
(i) Mr. X purchases “Collision” and “Other Than Collision” coverage for the leased [vehicle].
(ii) [The vehicle lessor] is named, on the insurance policy declarations page, as “Loss Payee and Additional Insured” for the leased [vehicle].
c.) The policy provides that the limit of liability for Collision and Other Than Collision coverage is the lesser of:
(i) the actual cash value (ACV) of the stolen or damaged property; or
(ii) the amount necessary to repair or replace the property.
d.) The leased/insured [vehicle] is stolen or deemed a total loss due to a collision.
e.) As of the date of loss, the ACV of the leased [vehicle] is determined to be twenty thousand dollars ($20,000.00).
f.) Following the loss, the insurer calls [the vehicle lessor] (as policy loss payee for the vehicle), and is told by [the vehicle lessor] that the ‘demand’ amount is eighteen thousand dollars ($18,000.00).

At the time of the loss, the 2010 motor vehicle was the most current model, and it was not superseded by a new, officially-announced succeeding model.

The inquiry asserts that the insurer considers the vehicle lessor’s “demand” amount of $18,000 to be the appropriate loss payment, because the “demand” effectively constitutes the cost to replace the vehicle. The inquiry also contends that because the policy requires the insurer to pay the lesser of actual cash value or the cost to replace the vehicle, the appropriate loss payment under these circumstances is $18,000. The inquiry further argues that because the vehicle lessor is named as the loss payee in the policy, the insurer should remit the loss payment to the vehicle lessor, and not to the insured.

Analysis:

Adjusting the Total Loss of a New Leased Vehicle

11 NYCRR § 216 is relevant to this inquiry. The instructions for calculating the loss payment on a vehicle that has suffered a total loss are contained in 11 NYCRR § 216.7(c). 11 NYCRR
§ 216.7(c)(3) defines a “private passenger automobile of the current model year” to mean “a current model year automobile that has not been superseded in the marketplace by an officially introduced succeeding model, or an automobile of the previous model year purchased new within 90 days prior to the date of loss.” Based on the facts provided, the vehicle about which the inquiry was made was a “private passenger automobile of the current model year.”

The method for adjusting the total loss of a private passenger automobile of the current model year is described in 11 NYCRR § 216.7(c)(3) as follows:

If the insured vehicle is a private passenger automobile of the current model year, the insurer shall pay to the insured the reasonable purchase price to the insured on the date of loss of a new identical vehicle, less any applicable deductible and an allowance for depreciation in accordance with the schedule below, except where the utilization of this method of settlement would result in a lower claim payment as compared with the utilization of the methods described in subparagraphs (1) (i), (ii) and (iii) of this subdivision.

Thus, the loss payment an insurer must make on a private passenger automobile of the current model year that has suffered a total loss due to complete destruction or theft is the reasonable purchase price on the date of loss of a new identical vehicle, less the applicable deductible and an allowance for depreciation, calculated in accordance with 11NYCRR § 216.7(c)(3), unless this settlement method would result in a lower loss payment than the methods described in 11 NYCRR § 216.7(c)(1)(i), (ii) and (iii), in which case the settlement method that results in a higher loss payment among the methods provided in 11 NYCRR § 216.7(c)(1)(i), (ii) and (iii) would be the appropriate settlement method to use to calculate the loss payment.

The vehicle lessor’s “demand” of $18,000 is not a settlement method recognized in 11 NYCRR §216.7(c)(1)(i),(ii), (iii) or (3). Thus, the insurer must recalculate the payment in accordance with NYCRR § 216.7.

Payment to Insured or Loss Payee

The inquiry contends that because the vehicle lessor is named as the loss payee in the policy, the insurer should remit the loss payment to the vehicle lessor, and not to the insured. However, whether the loss payment should be remitted to the vehicle lessor is dependent upon the full terms and conditions of the policy, which may or may not indicate that the loss payment should be remitted to the vehicle lessor.

Prior to making a loss payment on a vehicle that has suffered a total loss, either by destruction or theft, an insurer is required by Insurance Law § 3412(b) to, “except where the insured is permitted to retain the automobile as part of the claim settlement, take possession of any salvage and the certificate of title, properly endorsed to them [the insurer] of private automobiles whenever a loss is determined by the insurer to be a total loss or a constructive total loss.”

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.