help with total loss claim

Posted: Sun Oct 25, 2009 03:00 pm Post Subject:

My claim got settled last Friday. Thanks again to everyone who provided his/her opinions. Here is a look to the adjuster's offers the past month.

The accident date: Sep 23, 2009.

Oct 6th: The adjuster initially offered me $12900 and then up $1000 more to $13900 after I questioned the value. I asked to see the detail of the valuation analysis. After reviewing the analysis, I pointed to the validity of the comps and provided my own comps for their reference. The adjuster mentioned further research would be conducted.

Oct 20th: The claim offer went up to $14585.48. I rejected this number and provided my reasoning and backup comps. I searched online and called dealerships with a few more comps to present to the adjuster by email. I dropped the comps from Carmax.

Oct 23rd: The adjuster offered $15292 to settle. I talked to an attorney and decided to accept the offer though it was $700 short of my expectation.


My question: Assuming insurance companies really know the value of the totaled vehicle and they won't settle for one dime more, how come they won't stick to their initial offer? There's $2300 difference between the initial offer and the last one. What does this say about the practice of the insurance companies? I am really in doubt.

Posted: Sun Oct 25, 2009 04:06 pm Post Subject:

It's all a negoatiation process, but I think you did very well, congrats. You should think about charging for the research you did in your comparision in settling your claim. Insurers are looking to protect their profits ans assets by minimizing a claim, unless it effects the settlement that would not reimburse a claimant for property value. In this case they did, but normally many claimants do not recieve the information you have gotten here and do not do their own research. At least now, you will have the tools and knowledge should something like this happen again.

Posted: Sun Oct 25, 2009 07:34 pm Post Subject:

Gee, what conclusions can we draw from this thread?

The initial offer of total losses from insurers are (by possible design) predetermined by data providers to undervalue total loss claims which enrich insurers?

Some claims adjusters are lazy or are under immense pressure due to time constraints to settle claims on their terms?

The insurance industry has a knowledge that property owners are not willing to negotiate their claims or are not under the impression that they can dispute their insurers' offers for settlements?

Vehicle owners are greedy?

Data providers that market their total loss evaluation programs to insurers in competition with other data providers sell those programs with the knowledge that the information is innacurate?

The market is not truly reflected in those valuation guides to the detriment of policyholders and vehicle owners?

It was great to see the poster prevail in as much as they either wore the appraiser down, disproved the insurer's own data, and had the foresight and knowledge to seek expert help and had the perseverence to refuse to take the initial offer and do their own research.

Posted: Sun Oct 25, 2009 07:51 pm Post Subject:

The initial offer of total losses from insurers are (by possible design) predetermined by data providers to undervalue total loss claims which enrich insurers?

Some claims adjusters are lazy or are under immense pressure due to time constraints to settle claims on their terms?

Vehicle owners are greedy?

Data providers that market their total loss evaluation programs to insurers in competition with other data providers sell those programs with the knowledge that the information is innacurate?

Posted: Sun Nov 29, 2009 02:50 pm Post Subject:

I'm a little late to the discussion here, but feel it's worth commenting. The insured should be commended for sticking to her position, the insurer may be remiss for not offering more than its $14,600. But, reading through the entire thread, Trench is largely spot on with his perception of things. He received some unnecessary bashing, as did a few others.

ACV means different things to different people. Obviously, the insurer is going to start on the low side in its own interest, while the insured will seek the high side. That's the sport of negotiation, isn't it? Think back to the day you purchased your own car, or the policy that protects it. Did you haggle over the price of the car or the accessories that came with it? Probably. How much were you able to negotiate in your insurance contract? ZERO!

The issue here was "Indemnity," and while no one really took a textbook approach, it really should have been at the heart of the discussion -- for everyone's "education." So let's define "indemnity". As I teach it to my insurance students, "to indemnify" means:

"To restore a person, in whole or in part, to the condition that existed, or which they enjoyed, prior to the loss, but without profit or gain."

FK (Fred?) correctly observes that if I owned a 1 oz lump of gold which was valued at $800 in 2008 when I purchased it, and it was lost or stolen in 2009, to be indemnified means being restored to a 1 oz lump of gold, which will cost the insurer about $1100 today. Commodities are especially tricky, however, and not the best example to have used.

To pay me $800, based on the value at purchase, does not "indemnify" me. Purchasing me the 1 oz lump of gold, at today's price does not cause a gain, even if the insurer is forced to pay more than I did. The item is a 1 oz lump of gold. But if the bottom falls out of the gold market the day after my loss, and 1 oz is suddenly worth $150, the insurer has met its obligation "to indemnify" by writing me a check for $150, the cost to replace my 1 oz lump of gold. If the next day's price is $200, I have to pay the difference -- or wait until the price comes back down to $150. I cannot argue that I paid $800 and deserve a check for that amount. To do so takes my claim into the realm of speculative risk, which makes my loss (or potential loss) uninsurable instead. And I cannot sit and wait to file a claim when the price is $2000.

[In 1977, several of us watched the selling price of Krugerrands rapidly drop from a high of around $200. We said (when the price was about $105), "If the price comes down to $100, we'll each buy 10 of them." Funny thing was, they got down to $102, and we never bought.]


One of the examples I use in my classes is similar: Suppose I have a beautiful, walnut console 21" TV my parents bought new in 1959 -- maybe paid $600 for it. It's in perfect working condition today and has been lovingly cared for and looks nearly showroom-new. A thief breaks into my home and steals it. Despite the fact that the thief's going to be really pissed off to learn that it's a B&W TV, the insurer will be hard pressed to replace this like-for-like in the exact sense, with another 21" console TV in showroom condition, and has no responsibility to do so. But ACV here (if it's the definition in the policy) is also problematic because a strict interpretation means the item's value after reduction for wear-and-tear and depreciation.

What's a 21" B&W TV worth 50 years later in 2009 after depreciation? $0? (Can't apply "collector's value" either unless insured as such). To say to the insured, "Sorry for your loss, but it wasn't worth anything," is contrary to the spirit, if not the principle, of indemnity. So the insurer is bound by the spirit of its contract to restore the insured "in whole, or in part" in the best way possible in 2009.

In this example, the insured's condition is that "I enjoyed" being able to view a 21" TV picture. The walnut console cabinet is immaterial to the discussion since no one makes anything like that today. The insurer's basic obligation is to restore an insured to his ability to view a 21" TV picture.

So the insurer's best response will be to offer the insured (A) a TV with a 21"screen (or as close to it as possible), or (B) a check for the value of a 2009 21" television. The insurer will likely choose (B) and allow the insured to choose his own replacement item. The fact that (A) would result in the insured receiving a COLOR TV courtesy of the insurer is also immaterial, and does not represent a gain. An insured cannot argue that he should be given a 52" TV "because it's about the same width" as the stolen TV's cabinet. 52" vs. 21" screen size represents a "profit or gain," violating the standard of indemnity.

The insured also cannot argue that the insurer must find him a 21" B&W console TV in showroom condition instead. The insurer honors its contractual commitment by replacing "like-for-like" in the broadest sense. Even in a stated-value claim, the settlement will be in dollars, not in items. As Trench tried, repeatedly, to point out, the insurer's obligation is one of "value-for-value," not "item-for-item."

In the present vehicle loss, it makes no sense for the insurer to say, we can find you one through our sources for $13,000, so we'll cut you a check for $14,600, and you can contact our source and get it. That, effectively, hands the insured at $1,600 gain. If they have located a "matching" vehicle, and the insured wants a "matching" vehicle, they should willingly provide the vehicle. The insured cannot dictate where the replacement comes from -- a $13,000 inside source or a $16,000 Carmax lot.

The insured cannot complain that it's not the right color, not worth as much as the one I had, has different tires, and so on, if it is essentially like-for-like in all other respects -- a 20004 Honda Odyssey EX with DVD system and approximately 51,000 miles. Replacing a vehicle with one which has 98,000 miles is NOT replacing like-for-like, even if all of the equipment and features are in perfect working order, the color is the same, and they take the tires from the old vehicle and put them on the new one, and the insured is within her right to reject the offer as insubstantial.

No one has mentioned the Kelley Blue Book in all this, the "other" standard guide to vehicle pricing besides NADA. Kelley provides a high (dealer sells), low (dealer buys), and private party (mid-range selling) price for virtually every make and model, articulated by geographical location. A 2004 Odyssey with 51,000 miles and a DVD system ranges from $9950 to $14630 in Charlotte, NC, and about $400 more here in the Los Angeles, CA area.

That Carmax has a vehicle available for $1300+ more than the Kelley Blue Book price is not the insurer's "problem." The insurer was being entirely reasonable in both their interpretation of ACV and the spirit of indemnity by offering a cash payment of $14,600. If the insured wanted the Carmax vehicle, they would have to have paid the difference with their own funds. (It should be a wake-up call to the insured that the Carmax price was almost 10% higher than the vehicle's retail value.)

The insurer's obligation is to provide "like-for-like" in terms of value not substance. Personal lines losses are always subjective and settlements are always disputed to some extent. It would be no different with a stated-value claim. Insureds would probably gripe that the insurer should have paid them more than the stated value, if the insured realizes after the loss that they undervalued the item.

The insurer is not Burger King . . . you can't have it all your way as an insured. You can try to get item-for-item, but value-for-value fulfills the terms and conditions of the policy, and would not be overruled by a court unless the value offered was entirely unreasonable.

Nothing has been said about the "aleatory" side of insurance -- the unequal giving and receiving that occurs. How much has the insured paid in premiums to the insurer? Not that this determines the value of a claim, but I'd be willing to bet that even at $14,600, the insured would have gotten a check for far more than she has paid in premiums. Perhaps as much as $10,000 more.

Great discussion, even if somewhat misguided along the way.

Posted: Sun Nov 29, 2009 03:51 pm Post Subject:

That Carmax has a vehicle available for $1300+ more than the Kelley Blue Book price is not the insurer's "problem." The insurer was being entirely reasonable in both their interpretation of ACV and the spirit of indemnity by offering a cash payment of $14,600. If the insured wanted the Carmax vehicle, they would have to have paid the difference with their own funds. (It should be a wake-up call to the insured that the Carmax price was almost 10% higher than the vehicle's retail value.)

Posted: Sun Nov 29, 2009 05:11 pm Post Subject:

Nothing has been said about the "aleatory" side of insurance -- the unequal giving and receiving that occurs. How much has the insured paid in premiums to the insurer? Not that this determines the value of a claim, but I'd be willing to bet that even at $14,600, the insured would have gotten a check for far more than she has paid in premiums. Perhaps as much as $10,000 more.

Posted: Sun Nov 29, 2009 09:48 pm Post Subject:

Sounds like a wash to me.

If anything they now have a strike against them in the claims game and risk premium increases or non renewal for exercising the option to hold the insurer to their end of a contract.

Posted: Mon Nov 30, 2009 04:01 pm Post Subject:

I think you missed my point, Mike. In my discourse on the "aleatory" nature of insurance, you're right, we're all better off if we never have to file a claim, because it means we've (probably) never suffered a loss, and life is (relatively) good. But in the incident that forms the basis of this thread, it is not a matter of benevolence when the insurer makes a claims settlement offer, it is a matter of performance of a contractual obligation.

That some insurers browbeat insureds into accepting less than they may be entitled is not in dispute, either. That falls into the realm of unfair claims practices, and the regulators do a fair job of enforcement through market conduct examinations as well as consumer complaint follow up. But far too many insureds fail to understand what their contract with the insurer entitles them to collect and they act unreasonably.

When an auto policy promises to repair, replace, or indemnify according to ACV, it is the insurer that is in control of the decision as to which of the three options to offer. The insured cannot demand repairs that would exceed the ACV of a vehicle, but they can attempt to have the insurer find a suitable replacement (as in this thread). When the insurer makes a reasonable determination as to a vehicle's ACV -- as it appeared was true in this instance -- it can be requested, but cannot be compelled, to replace with a vehicle of greater value than what it is offering -- that's one aspect of the aleatory nature of insurance. The aleatory aspect of the contract permits the insurer to make a reasonable offer of settlement based on common factors such as labor & materials, the actual cost of replacement, or a determination of a fair market value, as it did here.

That the insured persisted and obtained a final offer greater than the insurer was initially willing to pay is simply a testimony of perseverance. The initial offer was not unreasonable, but the insured was not pleased and chose not to accept, which is her right. But the insured is not in control and cannot force the insurer to do anything beyond the language of the contract. If the insurer had offered a ridiculous amount like $9,950 and never budged, the insured would have had grounds to pursue legal recourse. $12,900 was too low to be acceptable in the face of $14,000-$16,000 costs of replacement vehicles of varying mileage.

Insurers that pay claims in amounts/ways they have no obligation to pay/do open themselves to estoppel in future claims. So, in some respects, paying claims has turned into a game: "What's the least we can offer the insured to satisfy them?" But insureds commonly misunderstand their coverage, and often believe they're entitled to far more than the insurer is obligated to pay.

As far as your comment about the "a strike against them in the claims game," the states have begun to adopt laws or regulations that forbid such actions when an accident is not the insured's fault. Same is true in homeowner's, too.

In your earlier post, you mentioned insurers "undervaluing claims to enrich themselves." That's hardly the case, because if they collect $3,500 over 4-5 years in premiums and pay $12,900 or $15,200 in a single claim, how are they being enriched? They are simply trying to limit their loss. As Trench points out, consumers who lack knowledge are at risk of being taken advantage of.

But how would that differ from the consumer who goes to a retail store and buys a TV for $750 when they could have gone to Wal*Mart and bought the same model for $500? They cannot argue that the first retailer is unjustly enriching itself. Yet Wal*Mart must be enriching itself, too, right? It's just a matter of limiting one's losses.

We should all expect our insurance companies to both be fair in a claim, and to operate profitably. As I teach my clients and student, insurers are in business to make money . . . they stay in business by paying claims. Insurers who fail on both counts do not last long.

Posted: Mon Nov 30, 2009 04:17 pm Post Subject:

As Trench points out, consumers who lack knowledge are at risk of being taken advantage of.