We’ve been focusing on total loss valuations lately after consumer advocates have raised the prospect of totals being flipped to repairable vehicles upon reevaluation of pricing.
Our coverage so far has cope with overall actual cash value assessments — after all, that final dollar value determines whether you’ll be repairing the vehicle or watching it flatbed to auction. But a few pre-determined questions about the inputs contributing to that number recently caught our attention, and that we thought shops and customers might be interested.
Courts: Insurers don’t need to cover costs owed states
Two policyholders have appealed their class-action lawsuit after the Massachusetts Suffolk County Superior Court ruled this spring that Plymouth Rock Assurance correctly excluded titling, registration and inspection costs from totaled-vehicle ACVs.
The lower Massachusetts court’s decision concerning the regulatory expenses echoes a 2021 Fifth Circuit Court of Appeals decision on taxes and fees related to obtaining a replacement Texas vehicle.
The Fifth Circuit in April 2021 ruled the U.S. Western District of Texas was to reject a class-action lawsuit against Elephant Insurance. Two Texans had sued the insurer “due to Defendant's practice of refusing to pay for full ACV Florida sales tax and mandatory transfer fees to first-party total-loss insureds on physical damage policies containing collision and comprehensive coverages.”
The appellate court agreed the policy and Texas law held that Elephant didn’t owe those costs.
The expenses disputed in Singleton and Cooper v. Elephant and Konsevick and Bartini v. Plymouth Rock might not have been enough to tip many vehicles into the repairable category, despite the fact that both Texas and Massachusetts have total loss thresholds of 100 %. But understanding the case law may still be useful to body shops if they or their clients have questions on these points.
The plaintiffs in Singleton v. Elephant argued that at an average vehicle value of $15,000, purchasing a replacement vehicle would hit a consumer with $937.50 price of Texas florida sales tax per claim — not counting local taxes. Also, the state would have imposed no less than $35.50 in title and tag transfer fees.
The plaintiffs in Konsevick v. Plymouth Rock said the insurer had included Massachusetts sales tax in the ACV calculations. But they felt the insurer should have covered at least $100 in other state charges associated with obtaining a replacement vehicle.
Massachusetts charges the absolute minimum $85 in title-related fees, and the other $25 when the totaled vehicle were built with a lien, based on the lawsuit. It said registration transfer fees are $25, and a new registration was $60. Getting a vehicle inspection in Massachusetts costs a minimum of 35.
The Fifth Circuit’s March 2021 decision acknowledged that “purchasing and registering the replacement vehicle necessitates the payment of taxes and costs to the state” and noted that the Texas plaintiffs appealing the situation argued that insurance coverage is meant to restore individuals to the status quo before their loss.
“But what controls is the text of the specific policy in question, not the objective of insurance generally,” a legal court wrote. That policy includes a limit of liability, it said.
The Elephant policy didn’t define cash value except to say it had been “determined by the marketplace value, age and condition.” So the Fifth Circuit looked to Texas law, which it says defines cash value as fair market value and defines fair market value because the price involved when a willing buyer buys something from a willing seller.
“This definition plainly excludes taxes and costs which are remitted towards the state,” the 3-0 per curiam opinion states. “The state collects taxes and costs from the buyer does not matter to the question of fair market value because those amounts aren't area of the price paid towards the seller. Appellants rightly observe that negotiating parties may think about the tax rate when agreeing on a price, but that indicates only that taxes are a factor that influences market value, not too taxes ought to be added to the cost when calculating market price.”
Suffolk County Justice Robert Gordon said the Plymouth Rock standard policy doesn’t define actual cash value. But he noted that Massachusetts regulations say an insurer calculating cash value must consider retail book value; “the cost taken care of the automobile as well as the value of prior improvements towards the automobile at the time of the accident, less appropriate depreciation”; deductions for “prior unrelated damage”; and “the actual cost of purchase” for the same vehicle on sale now.
Since the “Standard Policy” language is controlled through the state, Massachusetts legal precedent holds that the courts shouldn’t automatically evaluate ambiguities from the insurer and in favor of the policyholder, according to Gordon.
“As an initial matter, the Standard Policy doesn't expressly define ‘ACV,’ and is without every other terms therein suggesting that ACV is meant to include regulatory fees,” Gordon wrote. “A legal court doesn't construe the Policy's silence as to regulatory fees as necessarily excluding them from ACV; but it does interpret such silence to imply that the Policy doesn't require the resolution of ACV to include them.”
“The lack of any language in the Policy requiring regulatory fees to become factored into ACV is consistent with the proven fact that the ‘value’ of a vehicle, at the time of an accident or else, never includes the expense of their title, registration and inspection, since the worth of those things is non-transferable.”
According to Gordon, the plaintiffs argued that regulatory fees are members of the “actual costs of purchase” mentioned in Massachusetts law because you can’t buy and manage a car without them. But he ruled that cost meant the total amount paid to the seller.
“As established ante, regulatory fees do not increase the value of a vehicle, aren't transferrable to a purchaser, and should get paid towards the Commonwealth as opposed to the seller.” Thus, “actual cost” excluded those fees.
An attorney for the plaintiffs within the Konsevick case said he couldn’t comment further.
Exploring Tesla FSD, other prepaid features not yet activated
Another potential ACV question might arise from automakers’ ability to update a vehicle’s software within the air and tie features to some VIN number.
This means, for instance, that an OEM could drive options sales by permitting people to prepay for any future feature for a cheap price today, or maybe in the same price but with the benefit of having that digital capability immediately unlocked at launch.
The latter is happening today with digitally distributed video games; customers buy and download them ahead of time. At the appointed release date, the software company flips a switch, the prepurchased game goes live, and the gamer can immediately start playing while fellow enthusiasts are still waiting in store lines or awaiting files to download.
The former is also happening today. Tesla, among the pioneers of over-the-air vehicle software updates, has stated that its current vehicles carry the necessary hardware for “Full Self-Driving.” The organization is just focusing on the program and waiting on regulators.
But it's been letting consumers purchase the feature anyway and secure a price. At some point in the near future, Tesla promises, it’ll anticipate to unlock the feature for all those preorder adopters.
Until then, customers have spent thousands with an option for their vehicle that they can’t use yet — but will have the ability to someday.
This raises a fascinating total loss question, we realized after reviewing an associated post on the Tesla Motors Club forum.
The user “RiatGray” on June 12 that the beloved 2021 Tesla Model S have been damaged to the stage they felt it had been unclear whether it would be a total loss or a repairable vehicle. They observed: “I understand I will loose FSD upgrade… that's was 7k last summer. I bought it late. And I don't believe I'll be able to buy another MS .”
We wondered when the user was right relating to this or not in the circumstances of a total loss. Could a complete Self-Driving preorder be transferred to a new Tesla when the existing Tesla were totaled? Would Tesla refund the cash? Or would the thousands spent be part of a total loss valuation and settlement?
So we thought we’d throw the question out there to a few knowledgeable folks and see the things they had to say.
A query to some media inquiry email on Tesla’s website was unreturned. We unsuccessfully put the question to Twitter Tesla CEO Elon Musk, who sometimes is receptive to tweet Q&A exchanges. We then asked a Tesla Vehicle Support representative through the company’s customer chat option.
“Full self driving beta among other upgrades can only be returned via tesla.com within 48 hours of purchase at this time,” the Tesla rep replied.
So a refund was impossible after the first Two days, and the customer would need to file a claim for that FSD upgrade cost using their insurer?
“That’s correct, since i don’t get access to verify configurations at this time, this is the path of action to deal with this problem,” the Tesla rep replied.
We also asked the insurance coverage Information Institute how an intangible prepaid feature such as this would be handled in a total loss claim. I felt like an extended warranty paid entirely upfront might be another example of such a scenario, we suggested.
“Certainly a fascinating question, which hasn't been posed before,” media relations Vice President Loretta Worters wrote in an email. “You are correct that if there is damage to property , it would be covered underneath the property part of your auto policy, such as an infant child car seat.
“If there is a feature around the car that has been damaged, I would imagine it would be an obligation of the insurer to cover that damage, irrespective if it isn't in use at this time.”
But Worters suggested we contact insurers that cover Teslas concerning the parameters of the individual policies.
We tried the Top 6 carriers, but received no answers other than State Farm saying it had nothing to share. The Independent Insurance Agents & Brokers of America also didn’t respond to an email asking about how exactly this issue would be handled using the insurers.
Total loss valuation experts in a variety of parts of the country had differing takes once the question was offer them.
“So unused warranty is returned,” North Carolina-based Collision Safety Consultants CEO Billy Walkowiak wrote in an email June 28. “If they bought the $10,000 fully automatic self driving then that's added value. I argued once the customer purchased his new Tesla and also got free super charging for life. Once it had been totaled it wasn't transferable. He could sue another driver but his company didn't owe him.
New York-based ZB Claim Services President John Walczuk was skeptical FSD might be recouped.
“Regarding the issue you've presented I'd guess that such an option might be observed for the same reason being an guarantee,” Walczuk wrote in an email June 28. “Unfortunately we don't have parameters by which we could measure its value.
“When measuring a long warranty and its residual value, that is not area of the actual vehicle total loss or ACV that an insurance company covers, however, you can calculate the unused portion. It's a separately pursued amount, not covered by the insurance company.
“If you were to purchase a vehicle and the manufacturer states 100 thousand miles and also you total at 50,000 there isn't any value to pursue. Why would this differ?
“Questions for example transfer ability would enter any discussion regarding the future viability from the unknown. Is it saleable such as a door from a salvaged vehicle? Could it be a module that may be connected to another Tesla? We're referring to software with this Tesla offering.
“My take is ZERO value in case your Tesla is totaled. …
“My position could be zero value, unless saleable and usable on another vehicle. This isn't a child seat, where the manufacturer of the item has made the carrier aware that they'll be liable if the safety features are compromised and also the carrier has said we're not fighting that fight. …
“It is really an easy one and I would want to be around the carriers side so far as value.”
Texas-based Auto Claim Specialists general manager Robert McDorman felt such an option would be a covered loss.
“Options such as Tesla Full Self-Driving options are a covered loss and part of the Actual Cash Value settlement process,” he wrote within an email June 29.
“Extended Service Contracts and Pre-Paid Maintenance if these do not have a prorated cancelation clause this loss is also a covered loss. I deal in el born area daily on the GAP claims we handle.”
Auto Damage Experts President Barrett Smith suggested it could have to be an additional facet of coverage decided to through the insurer in advance.
“Under first party- the insurer owes for the Actual Cash Worth of the automobile and as such, they'd necessary informed about the added monetary risks, and agree to cover them, and affix reasonably limited for same,” Smith wrote within an email Friday.
“Under third-party, the at-fault party would owe for those costs associated with the loss, including economic damages for example Diminished Value, Extended warrantees etc.”
He noted inside a June 29 email that certain physical upgrades to a vehicle may need additional coverage.
“Generally, under first party coverage, accessories, , may be covered when the policy were built with a certain allowance, or special endorsement for ‘optional equipment coverage’ to cover such things as custom lighting, wheels/tires, exhaust, sound systems etc.,” Smith wrote. “Other personal items might be covered under one's home owner coverage. Baby car seats could be covered.”
Auto Damage Experts operations president David Smith felt the upgrade could be part of an appraisal.
“If I was appraising the worth it would definitely be taken into consideration,” David Smith wrote within an email Thursday. “It is a value add.”
So all that’s some food for thought. As more OEMs gain the capability to sell customers digital instead of physical features, it’ll be interesting to see how these items tend to shake in claims where the vehicle isn’t repairable.
