Hail, Salvage Retention & the Appraisal Clause
-The (Not So) Petty Disputes-
After a vehicle crash or a damaging storm, if your insurance company deems your vehicle a total loss and makes you an offer to settle the value which you believe is low, you generally have the ability to use the appraisal provision of your policy to resolve the disputed value.
In its simplest form, the clause says that both you and your insurance company have to hire your own appraisers and agree to let the appraisers decide the value. This remedy to a low total loss settlement offer is also known as invoking the “appraisal clause”, or in some instances invoking the “right to appraisal”. It is a great way to resolve most disputed (first party) total loss settlements.
So that’s seems pretty straightforward, right?
If you disagree with your insurance carrier as to the settlement amount, you can invoke the appraisal clause to resolve the issue. You’d be right, it is pretty straightforward, but ONLY if you don’t want to keep and repair (or not if hail) your totaled vehicle, also known as retaining the salvage.
If you have the right to and elect to retain your total loss vehicle, then the insurance company will deduct from your settlement the salvage value of your vehicle.
So in a hypothetical scenario, let’s say you have a wreck and the repair cost is estimated to be $7,500. Now let’s say that the insurance company says that just prior to the wreck, your vehicle was worth only $10,000, so according to their policy, they are going to declare the vehicle totaled because the repair cost is 75% or more of the value.
Now let’s say that you want to keep the vehicle (for whatever reason) and the insurance company says okay, fine, but if you keep it, we will only pay you $7,000 because we think we could sell the wrecked vehicle for $3,000.
So in the above scenario keeping the vehicle would not result in you getting enough money to fix the car, especially since your deductible will be applied as well. So if your deductible is $500 you end up with $6,500, a wrecked vehicle, and a repair bill for $7,500.
However, let’s say that you invoke the appraisal clause of your policy because you believe the vehicle was worth more than $10,000 just prior to the wreck. Then, let’s say that the appraisal process moves forward and the two appraisers that were hired agree that the vehicle was actually worth $13,000 just prior to the loss. Great! So now if you retain the vehicle, you get $9,500 ($13k – $3k salvage value – $500 deductible), and you can pay $7,500 for the repair and put $2,000 in your pocket (or $2k extra if you’re not repairing), right?
You would think so, but the insurance companies have a trick.
What they can do is instruct their appraiser to remain silent with regard to the value of the salvage and to just negotiate the pre-accident market value. Then, when the $13,000 decision comes in, they can then say that they believe the salvage is worth $6,000, so if you keep the vehicle, you still only get $6,500 after your deductible and you’re in the same boat as if you never invoked appraisal at all.
What!? While the above example is a bit extreme due to the relatively low value I used as an example, this scenario occurs almost any time a person wants to retain their vehicle AND dispute the total loss value using the appraisal clause.
So the issue becomes; “Does the disputed total loss amount include the salvage value of the wrecked vehicle?”.
In my professional opinion, the answer is YES.
The reason is because the appraisal clause language is clear about this. The most common appraisal clauses will either say that that the hired appraisers are to “state separately the Actual Cash Value and the Amount of Loss” or that the hired appraisers are to “state separately the “Amount of Loss””. In both of these clauses, the amount of loss is the amount that is finally owed. So, of course, in a salvage retention (where the owner keeps the totaled car), the value of the wrecked vehicle (which is taken out of the pre-accident value) is an integral part of the final “amount of loss”.
Take the following actual example from a case I’m currently working on. . . .
Here is the Appraisal Clause language that applied to this case:
In an attempt to confirm how their carrier will treat this issue, my customer inquired with their carrier. . . below is the actual back and forth emails from my customer and the insurance company representative:
My Customer’s Initial Inquiry: ” In reference to the subject claim, Progressive and I disagree as to the amount of my loss and I intend to utilize the appraisal provision of my policy to resolve the amount of loss in question. Since I am retaining the salvage on this loss, I expect that the salvage value of my vehicle will be included in the appraisal process. Please confirm this to be the case if I invoke appraisal on this claim.”
First Response from carrier: “Good evening, In response to your inquiry, yes the salvage amount will still be deducted from the agreed value the appraiser come to if you were to retain your vehicle. If the agreed value amount goes up during the appraisal clause, then we would reduce that new value amount by the deductible and new salvage amount. This occurs because you are obtaining that salvage amount by keeping the vehicle itself.”
Customer’s first follow-up inquiry: “Thank you for your email. In response to the disputed salvage amount, it seems that my question was not clear. I understand that when a final salvage amount is agreed to during the appraisal process within the appraisal clause that that amount will be withheld from the actual cash value since I am electing to retain the vehicle. Can you confirm that I am understanding this correctly?”
Second Response from carrier: “Yes, I have attached your valuation report and settlement summaries. After taxes/fees (which add to your settlement) and deductible (-$1499) we have your settlement payment at $10,908.71 for letting Progressive obtain the vehicle. However, if you would like to keep your vehicle, then there is a $4,633.32 cash deduction bringing the payment down to $5,450.99. This is because the $4,633.32 is in the value of the vehicle that you are keeping.”
Customers second follow-up inquiry: “Thanks for your response. To be clear, the salvage value has not been determined as of yet. It will be determined during the appraisal process as part of the disputed amount of loss. I understand that your office believes the salvage value is $4633.32, but that amount may not be the final agreed salvage value after appraisal. Please confirm I understand this correctly.”
Third Response from carrier: “Hello, Are we moving forward with the appraisal clause then?”
Customers third follow-up inquiry: “Once you confirm that I understand the scope properly, then yes we can move forward with appraisal clause. The scope of the appraisal clause will include determining the salvage value of the vehicle. Correct?”
Fourth Response from carrier: “Hello, The salvage value we currently have will be used once the appraisal clause info comes back from the independent appraiser that is hired.”
Customers fourth follow-up inquiry: “Thanks Jordan. It seems we are not communicating well on this issue. Are you saying that if I invoke the appraisal provision of my policy that the independent appraisers will not determine the salvage value of my vehicle during the process?”
Fifth Response from carrier: “There is a difference between actual cash value and salvage deduction. The actual cash value is determine by the independent appraiser. Unless there is a misunderstanding, I have confirmed with my supervisor the salvage deduction would remain the same as we have it now.”
So keep in mind, the customer’s vehicle is at a repair facility and while all this back and forth is going on (over the span of like 5 days), the insurance company is telling the customer they must move the vehicle to somewhere that is not charging storage. This is so even though they have never answered the question that the customer posed, which can be a deciding factor in whether he wants to keep the vehicle or not. What if the salvage value the insurance company has set is way too high? If that is the case, then the “amount of loss” is lower than it should be (after the reduction).
I’m suggesting to my customer to file a complaint with the Department of Insurance to try and get clarification.
When appraisal clause is invoked on a total loss and the owner is retaining salvage, is the salvage value of the vehicle to be determined by the appraisers or can the insurance company remove the salvage value from the appraisal clause process?
The only instance I can see where the insurance company would be allowed to exclude the salvage value determination from the appraisal process is when the policy says that the appraiser shall “only determine the actual cash value” and not the amount of loss. I have not seen a policy that is worded that way as of yet. I guess we’ll see how the department of insurance responds. I’ll try to update this article once there is a response from the department.
The email exchanges between the customer and the insurance carrier reveal several inconsistencies and points of confusion in the carrier’s statements. These inconsistencies highlight a lack of clarity and transparency on the part of the insurance company, which can significantly impact the policyholder’s ability to make informed decisions.
Here are some key observations:
- Initial Confirmation and Subsequent Ambiguity:
- The carrier’s initial response to the customer’s inquiry seemed to confirm that the salvage value would be included in the appraisal process. The carrier stated, “the salvage amount will still be deducted from the agreed value the appraisers come to if you were to retain your vehicle.”
- However, in subsequent responses, the carrier failed to clearly articulate whether the salvage value would be independently determined by the appraisers during the appraisal process or if the carrier’s predetermined salvage value would remain unchanged. This ambiguity creates confusion and undermines the initial confirmation.
- Contradictory Statements on Appraiser’s Role:
- Initially, the carrier indicated that any increase in the agreed value during the appraisal process would result in a proportional adjustment to the salvage value. This implies that the salvage value could be part of the appraisal discussion.
- Later, the carrier’s response suggested that the actual cash value would be determined by the independent appraiser, but the salvage deduction would remain as initially assessed by the carrier. This is contradictory and suggests a predetermined outcome, regardless of the appraisal process.
- Lack of Direct Answers:
- The customer repeatedly sought clarification on whether the appraisal process would include determining the salvage value. The carrier’s responses did not directly answer this crucial question, causing frustration and confusion. For instance, the carrier’s fourth response implied that the predetermined salvage value would remain unchanged, yet did not explicitly address the customer’s inquiry about the appraisal process’s scope.
- Potential Misinterpretation of Policy Terms:
- The carrier’s statements reflect a potential misinterpretation or selective interpretation of the policy terms. If the policy states that appraisers should “state separately the Actual Cash Value and the Amount of Loss,” it logically includes the determination of salvage value as part of the “amount of loss.” The carrier’s insistence on separating the actual cash value from the salvage deduction without clear policy support raises questions about their adherence to the policy’s intent.
- Impact on Policyholder’s Decision-Making:
- The inconsistencies and lack of clear communication from the carrier hinders the policyholder’s ability to make an informed decision about retaining the vehicle. The customer needs accurate and consistent information to weigh the financial implications of keeping the vehicle versus accepting the total loss settlement.
- Pressure Tactics:
- The carrier’s insistence on moving the vehicle to avoid storage charges while failing to provide clear answers adds undue pressure on the policyholder. This tactic can be seen as a way to expedite a decision in the carrier’s favor, rather than ensuring the customer has all the necessary information to make an informed choice.
In summary, the insurance carrier’s inconsistent statements and lack of clear communication highlight a significant issue in how total loss settlements and salvage values are handled.
The policyholder’s experience underscores the importance of transparency and adherence to policy terms to ensure fair and equitable treatment in disputed total loss claims. The carrier’s approach not only complicates the appraisal process but also undermines the trust and confidence that policyholders place in their insurance providers.