Legal Question in Insurance Law in Colorado

Re: Automobile Damage Settlement

The insurer's obligation is based on the value of the car and not on the amount the owner still owes on the loan. If the insurer has fairly calculated the car's value, then the balance is your problem and not theirs.

Imagine two people, X and Y, who buy identical cars for $15,000 in January, 2001 and who use them equally. X pays cash and Y takes out a loan. In September 2003, the fair value of the cars is $ 5,000; X owes nothing but Y still owes $7,000. If both cars are destroyed, X and Y should each get $5,000 from their insurers. There is no reason for Y to get more money than X for an identical car. After all, if Y had sold the car before the accident he presumably would have received $5,000 and not $7,000, and would have had to absorb the extra $2,000.

Alternatively, imagine Y had driven his car back and forth across the country every month and had over 200,000 miles on it, while X had only 30,000 miles. His loan balance would still be $7,000, but his car would be worth less then X's car. If the car is totaled, why should he get more than X for a car that is worth less?

Or imagine that Y has paid more than he needed to on his loan, so that his balance is only $1,000 and the car is still worth $5,000. If the car is totaled, should he receive the loan balance or the vale of the car?

The bottom line is that the loan balance is irrelevant. Only the value of the car matters, and it would be unfair to treat people who pay cash for their cars less (or more) favorably than people who finance their purchases.

Re: Automobile Damage Settlement

You need to get a true value for your car - look in the auto trader, the Sunday paper, etc. The insurer needs only pay the fair market value, without regard to the outstanding loan. But making sure that what you and the insurer think is the true value is a whole different issue.

Was the car new? Some policies have endorsements providing that under certain circumstances the loan will be paid in full (generally if the loss is on a new car.)