Wednesday, 20 February 2013 18:41

Rhode Island Bill Proposes Changes to Total Loss

A newly introduced bill in the Rhode Island General Assembly would make it an unfair claims settlement practice for an insurance company to declare a vehicle a total loss unless the damage exceeds 75% of the vehicle’s pre-accident value.

Under Section 27-9.1-4 of the General Laws, the Unfair Claims Settlement Practices Act, the proposed amendment would require the vehicle owner’s “express written authorization” before any vehicle could be declared a total loss if the cost to repair the vehicle is less than 75% of the fair market value of the motor vehicle immediately preceding the time it was damaged.

This bill is distinctive in that it prevents an insurer from declaring a total loss below a certain threshold, rather than (as in other states) requiring an insurer to declare a total loss above a certain threshold.

Most state laws define damage thresholds primarily to set requirements for salvage title laws only. In other words, the state may require a salvage title if damage exceeds a certain threshold, however insurers are still be free to declare a total loss at any level they see fit.

For example, in a state with a 75% salvage title threshold, a vehicle may have only 55% damage yet the insurer, after factoring in salvage value of the car, would find that the repair is not economically feasible and declare the car a total loss. In this case, the car might go to the salvage auction as a total loss, yet it would retain a clean title under state law, as it remains below the salvage title threshold.

In North Carolina, for example, the law requires an insurer to declare a total loss whenever the damage to the vehicle exceeds 75% of its value. In this case, the law in no way prevents an insurer from declaring an economic total loss at any level it sees fit, provided it is below 75%.

The Rhode Island bill is clearly different in that it does prevent an insurer from declaring a total loss below the 75% level of damage (without the owner’s consent), even if the repair is not economically feasible.

Also under the proposed new subdivision, ‘fair market value’ would be defined as the retail value as set forth in a “nationally recognized compilation of retail values commonly used by the automotive industry…”

The bill, H 5263, was introduced by on February 6 and has been referred to the House Corporations committee.

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