Legal Question in Business Law in California

I am getting differing opinions on what constitutes a total loss for a vehicle. These differing opinions are causing me confusion.

On the one hand, I am told that a total loss occurs whenever totaling the vehicle costs the insurance company less than repairing it. For example, an insurance company is telling me that my $20,000 car is a total loss even though it only has $4,000 in repairs, because it costs them less to buy the vehicle out and sell its salvage than to pay for its $4,000 repair. Therefore, since it costs them less to buy the vehicle out and sell its salvage than it does to pay for its $4,000 repair, it is therefore a total loss, regardless of the fact that the repairs are only $4,000 and the predamage value of the vehicle is $20,000.

A $500 per hour lawyer I recently consulted with, named Jack Winters, confirmed that the insurance company has the legal right to do this. He said whatever costs them less, they can do, so if it costs them less to pay the vehicle's value and sell its salvage than it does to repair it, the vehicle is a total loss, even if the repairs are only $4,000 on a $20,000 car.

On the other hand, in Martinez v. Enterprise Rent a Car (2004), a published opinion, it was decided that a total loss occurs only when the cost of repairs exceeds the predamage market value of the vehicle. The court also relied on vehicle code section 4453(b)(1) in reaching its decision. In this regard, the Martinez court stated:

""Further, a vehicle is not a total loss salvage vehicle unless, based on an objective standard, THE COST OF REPAIRS EXCEEDS THE VEHICLE'S PREDAMAGE RETAIL VALUE" (emphasis added).

"Further, defining a "total loss salvage vehicle" under section 544 as one where the cost of repairs exceeds the vehicle's predamage fair market value is consistent with section 4453. That section sets forth the information required on a vehicle registration card. Certain vehicles must be specifically identified including "[a] motor vehicle rebuilt and restored to operation that was previously declared to be a total loss salvage vehicle BECAUSE THE COST OF REPAIRS EXCEEDS THE RETAIL VALUE OF THE VEHICLE. (Vehicle Code 4453, subd. (b)(1)." (emphasis added.)

"In sum, a "total loss salvage vehicle" as defined by section 544 IS ONE WHERE THE COST OF REPAIRS EXCEEDS ITS PREDAMAGE RETAIL VALUE i.e., it is "uneconomical to repair." Moreover, whether the vehicle qualifies as such is established by objective standards. The retail value can be obtained from a widely accepted source such as the Kelley Blue Book. Cost of repairs can be ascertained through estimates from qualified mechanics." (emphasis added)

"As discussed above, California law requires a salvage certificate WHEN THE COST TO REPAIR THE VEHICLE EXCEEDS ITS UNDAMAGED RETAIL VALUE." (emphasis added).

In addition, another published opinion, Moran v. Dept. of Motor Vehicles (2006), upheld the Martinez decision, stating:

"The legal basis for Moran's claim Esurance wrongly classified his vehicle IS DICTA IN MARTINEZ V. ENTERPRISE RENT A CAR (2004) 119 Cal.App.4th 46" (emphasis added).

So on the one hand, I am told that the standard for a total loss is whatever costs the insurance company less, irrespective of the cost of the repairs or the vehicle's predamage value. So if it costs the insurance company less to buy a vehicle and sell its salvage than it does to pay for its repair, the vehicle is a total loss, regardless of the amount of the repair or the vehicle's predamage value. By this standard, a vehicle could be considered a total loss even if it had only $6,000 in repair and it was a $30,000 car, so long as it was cheaper for the insurance company to pay the $30,000 value of the vehicle and sell its salvage than to pay for its $6,000 repair.

On the other hand, the Martinez decision above clearly decided that the standard for a total loss is when the cost of repairs exceeds the vehicle's predamage value. This means that if the cost of repair is $6,000 and the predamage value of the vehicle is $30,000, it is not a total loss, and insurance must pay for its repair.

So why are there two different standards? Which one is the correct standard here?


Asked on 1/17/12, 1:55 pm

2 Answers from Attorneys
George Shers Law Offices of Georges H. Shers

A total loss means that the cost of repair exceeds the fair market value of the car. The other meaning you were told [did you perhaps misunderstand Winter?] makes no sense. Insurance provides protection for the insured and not the insurance company. Look at your own insurance policy and they should define what a total loss is. If the insurance company declares the car a total loss then they have to pay you its fair market value, less the salvage value if you decide to keep the car [because the salvage value is considered to be in addition to the fair market value]. If it were otherwise, then whenever the cost of repair was less than the fair market value, the insurance company could declare it a total loss. The insurance company's obligation is to pay the cost of repairs that do not exceed the f.m.v. or to pay the f.m.v., which ever is less. How can it be cheaper to the insurance company to pay the f.m.v. when the cost of repair is less, by the salvage value at least? Only if the cost of repair minus the salvage value is greater than the f.m.v. is it to the insurance company's advantage to junk the car.

not proof read

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Answered on 1/17/12, 3:59 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

I don't think you're going to find a firm definition written into the law. VC 4453(b)(1) does not attempt to define a "total loss" and VC 544 gives two alternate definitions, one of which simply refers you to what the insurance company has decided.

In practice, insurance companies often declare vehicles to be total losses when the estimated cost of repairs is in the 75% of pre-wreck value area, more or less (or higher). This is for several reasons, including the uncertainty of repair estimates, the cost of supervising repairs, and a preference for new, rather than rebuilt, vehicles at the same price.

Your example, however, of a $20,000 value vehicle that an insurer won't spend $4,000 to repair, defies logic and doesn't fit the 75% rule or the Martinez rule. Note, however, that if you want to keep your damaged vehicle, you normally will be able to, but the insurance company will deduct the salvage value before they pay you, and will report your vehicle to the DMV and the title will be flagged as salvaged.

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Answered on 1/17/12, 4:21 pm


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