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How Do Total Loss Claims Work?

We get a lot of calls from people that aren’t necessarily injured, but need help navigating the property damage claim for their vehicle. In this podcast episode, Josh and Aaron walk through what a total loss claim is and share tips and tricks for the best way to work with insurance companies to get the best fair market value for your totaled car.

Listen here or read the transcript below. FVF’s Summary Judgment podcast is available wherever you listen to podcasts including Apple Podcasts, Spotify, iHeart Radio, and more.

Intro: Thank you for tuning into Summary Judgment where Austin personal injury attorneys, Josh Fogelman and Aaron Von Flatern of FVF Law, discuss the ins, outs, and in-betweens of personal injury cases.

Aaron Von Flatern: Hello, out there. This is Aaron Von Flatern. I’m here with my law partner, Josh Fogelman, founding members of FVF law. We started our law firm about five years ago, and have created a different kind of firm designed to educate consumers and let them have informed options, informed decisions before they go in and talk to insurance companies. Today, we wanted to take on one of these big topics, which is total losses, what happens when your vehicle’s been deemed a, quote, unquote, “total loss,” and what even is a total loss? Let’s start with that definition. I’ll start us off here. A total loss is a vehicle that’s not economically repairable. In other words, it would cost more money to repair it than the vehicle is worth, and there’s some reasons why the insurance companies are able to insist on paying you that lower figure. It’s heads I win, tails you lose situation. But once the insurance company has deemed it a total loss, that means they’re going to offer you some money. Josh, let’s talk about what are they actually offering you money for, and is it negotiable?

Joshua Fogelman: Sure. So a total loss generally means that based on the economics of the amount of damage that was done to the vehicle, it doesn’t make sense to repair it anymore and so what the insurance company has a legal responsibility to do is to replace your vehicle. They have a legal obligation to pay you the fair market value of what it would cost you to go out and replace the exact vehicle that you had, same year, same make, same model, same mileage, same option, same wear, same tear. The purpose of this being to make you whole and to get you back into the exact same vehicle you had before the vehicle was damaged. We are always asked about whether or not that amount that an insurance company first offers can be negotiated, and the answer is, maybe.

Insurance companies have their own programs that they use and own software and tools and databases that they use to evaluate what the replacement value of a car is. But at the end of the day, fair market value means fair market value, and sometimes insurance companies don’t take into consideration the vehicle’s particular condition or unique features about the vehicle, such as the vehicle’s rarity or desirability on the fair market. Sometimes the insurance companies would use a lesser quality of the vehicle, say for example, that the vehicle was in worse condition than it really was to try to devalue it, so they can be negotiated in some circumstances, if you know what you’re doing.

Aaron Von Flatern: Yeah, it takes a lot of research, and I think one thing that’s important to mention is, as Josh said, it’s replacement value, fair market value. That’s different than trade-in value. A lot of people come to us with these offers from the insurance company, they say, “Is this what they can do to me?” And the answer is, let’s look at their paperwork. What are they sending you? What are they basing this off of? Have they used one of those databases that compares, just like in the real estate market, comparable vehicles being sold in your market, same make and model, and not the trade-in value, that’s never going to be the right answer in one of these cases. So if you’re getting a trade-in value or even something that’s averaged with trade-in value, that’s something to fight. We can definitely help you and guide you through that.

We’re personal injury lawyers so what we work on are injury cases, but a lot of our clients have been in car accidents because it’s a very common way to get injured, and so we’re very well trained in this. A lot of our lawyers, including me are former insurance adjusters, and it’s important to try to keep them honest. Josh, if someone is getting low-balled say, what are some of the things that they could do as homework to try to get the insurance company to change their mind?

Josh Fogelman: Yeah, when we are faced with that question, I oftentimes tell people, go out and scour the internet, AutoTrader, eBay, Craigslist, your local dealer for the specific manufacturer of the vehicle that you were driving and actually get a feel for what vehicles like yours, trim package and so forth, similar trim package and so forth and so on are actually being listed and actually selling for, so that when you actually get an offer from the insurance company, even after you’ve negotiated it, you know that you can take whatever amount they’re offering to pay you and walk out into the market and purchase the same vehicle, and we found that when you actually gather that data and present it to the insurance company and make that argument, it can help move the dial.

Aaron Von Flatern: Yeah, not a lot, but you can usually push them up somewhat by doing your homework, and sometimes a lot. One thing that comes up here in Texas, Josh, is that it used to be true that insurance company would tell you the amount that they’re going to pay for the total loss, and then they would cut off your rental car the next day. Can you talk a little bit about how that’s maybe changed and how some insurance companies haven’t really gotten with times?

Josh Fogelman: Yeah, and I think this opens the door to a bigger topic, which is, which insurance company is it that’s actually going to be paying you for the total loss of your vehicle because you’re going to have different rights and responsibilities if it’s your insurance company that you’re relying on to pay for the vehicle versus… If, for example, somebody hit you and caused the crash and totaled your vehicle, and you’re trying to get paid from their insurance company. And I’ll break that down here in a moment, but under the circumstance where you’re trying to get paid from another person’s insurance company, the law used to say that if your vehicle was in fact, a total loss, then they were not legally responsible for paying you for what we call the loss use of that vehicle or the rental value of that vehicle, and they would oftentimes use that excuse to deprive people of a rental car, which deprived them of a mode of transportation.

But that law changed within the last decade. Finally, that particular issue was addressed by the Texas courts and it was found that that was unfair so that now, the law is that the other person’s insurance company is legally responsible to pay you for the lost use of your vehicle or the rental value of your vehicle for some reasonable period of time following the crash, which can vary from case to case. So, that’s a really big win for consumers in Texas.

Aaron Von Flatern: Yeah, and this question of which insurance company covers the total loss, just like in a repairable vehicle situation sometimes misleads people because they have a deductible right on their own policy, how does that usually play out for them?

Josh Fogelman: So yeah, first of all, this question is really only relevant for people who have full coverage on their vehicle, they have collision insurance on their vehicle. So if you have that type of coverage, then you have a contractual right with your own insurance company that forces them to accept responsibility for moving the ball forward for you and replacing your vehicle. If somebody else caused the crash though, you could also opt not to go through your own insurance company, but instead force the other driver’s insurance company to pay for the replacement value of your vehicle, and people oftentimes don’t really know which way to go down and the simple answer is, there’s no simple answer. It’s really like many things in the law, a balancing of factors in pros and cons.

So, if the main benefits of using your own insurance company are that you have a contractual relationship with them, they are legally bound to do the things that the contract mandates they do. If you have rental car coverage, they are mandated to put you into a rental car per the terms of the contract, they are mandated to replace your vehicle for fair market value without really asking many questions about the nature and circumstances of the crash. So that can result in a smoother transaction of getting their vehicle replaced and giving yourself into a rental car, particularly in situations where the person who you believe caused the crash is denying or disputing responsibility.

A big downside though, of using your own insurance company is, oftentimes you’ll end up having to pay a deductible and while you might get that back later, once the insurance companies have duked it out, that can be a pretty significant out of pocket expense for many people who just philosophically or financially don’t want that burden. So, just like there are pros and cons with using your own insurance company, there are also pros and cons of trying to rely on the other person’s insurance company to take care of you. You don’t have a contractual relationship with the other driver’s insurance company, which means technically, under the law, they have no legal obligation to pay you anything until you have gone to trial and secured a judgment against their insured.

Practically speaking, if the facts are really clear and their insured is accepting responsibility and falling on the sword and doing the right thing, that won’t really be a problem, but you really get into a sticky situation where their insured is refusing to cooperate or refusing to accept responsibility. Oftentimes, one of the main downsides of using the other driver’s insurance and relying on them is they’re going to want you to give a recorded statement, and you know, we just don’t like that. People tend to say things that come back to haunt them down the road. So that can be a big downside and also the fact that they don’t have a contractual relationship with you means that they can drag their feet in delay, and that can drag on for a long, long time. So, most of the time, unless the insurance company has already accepted responsibility and things are looking good, we advise our clients who have full coverage to just do the safest thing and go through their own insurance company.

Aaron Von Flatern: So I wanted to shift gears for a second and ask you about a unique situation where, and this happens as vehicles are getting more and more expensive, that the total loss threshold keeps going higher and higher. Let me explain that for a second. So an insurance company is going to pay you a total loss when the vehicle is, it costs more to repair than it would cost to replace it. But they also will do that when the cost of repair is 75%, roughly 70%-75% and each insurance company has their own threshold of that market value. And so, on an expensive vehicle, let’s say it’s a $60,000 vehicle and you get a repair estimate of say, $35,000 to repair the vehicle. Any rational person is going to say, “Gee, I don’t think I want that vehicle back after all that. Who knows what kind of electronical gremlins are going to be in there, what kind of hidden property damage, frame damage might be causing me alignment problems down the road, I’m going to have trouble selling this thing, I really don’t want that vehicle back, I’d rather they just total it.” And the total loss threshold might be something like $40,000 or $42,000. So, Josh, how would a person, if they wanted to try to persuade an insurance company to total their vehicle, how would they approach that?

Josh Fogelman: So if you’re arguing with your insurance company about whether your vehicle is a total loss versus repairable, one tool that you can use is to tell your insurance company or the other person’s insurance company, “Look, we are going to assert a claim for the diminished value of the vehicle. We’re going to go and hire an expert who’s going to come and look at the vehicle, once it’s been put back together, and identify the fact that now that car facts is going to show this car has been wrecked or any third party inspector for a purchaser who might want to buy that vehicle is going to identify that it was significantly damaged in the past, that the market value of that vehicle is substantially lower than it would have been had the vehicle never been in a crash. And sometimes, particularly in nicer vehicles or specialty vehicles, the diminished value that follows a significant collision can be so much that it tips the scale in favor of the vehicle going from being repairable in the insurance company’s eyes to a total loss in the insurance company’s eyes.

Aaron Von Flatern: Yeah, that can be a big win for us. We are personal injury lawyers. We don’t technically work on property damage cases, but we view this area of the law holistically and our clients, we take all of their struggles and try to help them with it, so even if we’re not getting paid on the vehicle repair side, we’re definitely going to help them to make those arguments and sometimes make them ourselves where necessary, and certainly help connect them to experts that for a few hundred dollars can actually improve their case by thousands.

Josh Fogelman: I’ve got a question for you, Aaron. Do you ever have to talk to clients about whether or not they should hire a lawyer just for the property damage aspect of their claim?

Aaron Von Flatern: Yeah, all the time. I think there’s an unfortunate situation in personal injury law where a lot of lawyers have been very standoffish and they approach this like, “If I can’t make money, then I don’t even want to take the call.” Here at FVF Law, we have always been trying to provide a public service to people, even on cases that… We can only make money on the personal injury cases, that’s what our business is, but when people call us with property damage issues, we are certainly going to sit there and talk to them, if you were at Nordstrom’s and you asked for where the bathroom is, can you imagine someone turning to you and saying, “Well, our job is to sell clothes, we’re not here to tell you where the bathroom is.” So we have all this information about property damage, total losses, rental cars. Obviously, we are going to give that information to anybody who calls us, and if they’re not hurt, they don’t have an injury claim, that’s fine. Maybe someday they’ll know somebody who needs our services, and they’ll send them our way.

Josh Fogelman: Right. One of the big issues that we have, and why so many lawyers will turn away people who are just looking for help on their property damage is, lawyers work on the contingency fee basis. They get paid a percentage of what they’re able to recover, and there’s just usually not a lot of room to fight about the value of a property damage, so it’s really, really hard for a personal injury lawyer to add the kind of value to a property damage case that they can to a personal injury case. Unfortunately, in Texas, a person whose car has been totaled by the carelessness of someone else doesn’t have the right to collect and recover their attorney’s fees that they have spent trying to be made whole.

So, they don’t really have a great choice about hiring a lawyer. They’re either going to have to pay out of pocket an hourly fee or a retainer, or they’re going to have to hire a lawyer on a contingency fee and they’re never going to get that money back. So, it’s really a zero sum game for the client, which is unfortunate. But as you said, Aaron, here at FVF Law, we really like to take the time to educate our clients, even if there’s not an injury event, because we think that making informed decisions is the only way to not get taken advantage of.

Aaron Von Flatern: This has been another episode of Summary Judgment, I hope you found it valuable. You can also check us out on Facebook or on the web at www.fvf.law.

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Fogelman & Von Flatern is a personal injury law firm that believes it matters why we practice law: to make sure good people in unfair circumstances who want reasonable options are taken seriously, especially by their attorney. We value transparency, compassion, and justice, and we strive to embody that in our practice. At FVF, you can trust that you've got the best people on your case, for the right reasons.

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