What is a total loss?

February 5, 2010 by Zale.

When you have been involved in an accident and your vehicle has been damaged, the question of whether or not the vehicle is a total loss often comes up. Generally the average individual has not had to deal with this situation before. Therefore, I would like to take a few moments and touch on the topic. I will refer to Tennessee law, however, many of these principles are fairly universal.

What is a “Total Loss”? It is when the value of the repairs exceeds a certain percentage of the value of the vehicle. In Tennessee there is a statue which addresses this. Tenn. Code Ann § 55-3-211(9) defines a “salvage vehicle”, which is what your damaged vehicle has now become, as:

“…any passenger motor vehicle which has been wrecked, destroyed, or damaged to the extent that the total estimated or actual cost of parts and labor to rebuild or reconstruct the passenger motor vehicle to its pre-accident condition and for legal operation on the roads or highways exceeds seventy-five percent (75%) of the retail value of the passenger motor vehicle, as set forth in a current edition of any nationally recognized compilation (to include automated databases) of retail values.”

Therefore, in my experience, the 75% mark in Tennessee is generally threshold for a total loss. For example, if you vehicle is worth $10,000 and the value of the repairs is $7,500, its a total loss.  However, I do not know of any rule preventing an insurer from using a lower threshold.

What often complicates this process is the way most vehicle damage estimates are written. Most of them are written with the anticipation that there will be at least one additional estimate written, that additional estimate is called a supplement. So, if the shop writes a $6,800 estimate for the above vehicle, it may not technically be a total loss at the time the estimate is written. This occurs because most insurance companies want their estimates to be written on “visible damage”. After the shop tears down the vehicle, that is when they can see the additional damage and the supplement is written. Therefore, just because the initial estimate says $6,800, that does not mean that that is the maximum amount of the damage to the vehicle. It just means that is the visible damage to the vehicle.  (At one time, appraisers could use their experience and common sense to write estimates of hidden damage, but rarely do companies allow them to use their common sense any more.)

Based on the above, I have seen shops write, what I thought, were intentionally low initial estimates and then issue three to four supplements after having the vehicle in the shop. Some of those vehicles might have been better off as total losses, but then the shop would not have gotten paid to fix them.

So there’s the basic concept of a total loss, which often goes unexplained to the average consumer.  If you have any questions as to a related topic, such as the evaluations run by the insurers or determining the retail or market value of your vehicle, please feel free to post a comment.

Posted in Insurance Practices, Insurance Law | No Comments »