The term “totaled” is derived from the insurance term “total loss”. When a commercial truck is declared as totaled after an accident, the damaged vehicle is sold as salvage, and the insurer pays the truck’s actual cash value (or ACV) to the owner, lienholder(s), or a combination of the two. Owners whose trucks are totaled are allowed to negotiate with the insurance carrier for the ACV compensation, but are second in line behind lienholders for recovered money. Insurance companies exercise their right to declare a truck as totaled to protect their economic interests, though it’s commonly mistaken to be a characterization of the truck’s road-worthiness. Before they exercise this right, they will take these three considerations into account. Read on to learn about how insurers determine that a commercial truck is a total loss.
Cost Of Repairs
Typically, commercial trucks are declared as totaled when the cost of repairs is higher when compared to the value of the truck itself. But, practically speaking, it doesn’t always make economic sense to repair a damaged truck, even if repairs are less than its ACV. Commercial trucks are large vehicles, which are expensive to fix. A large Mercedes 4×2 truck worth $200,000 requiring $150,000 in repairs will typically be considered to be totaled even though the cost to repair is less than its ACV before the accident. Insurers will often consider such a truck to be totaled, even though the repairs are only 75% of ACV. In determining whether or not a commercial truck is a total loss, insurance carriers will calculate the cost of repair/actual cash value ratio, which is called the total loss ratio or damage ratio. After calculating this ratio, the company will compare it to their limits as set internally by themselves. The formula for calculating this ratio and criteria for determining whether a commercial truck is totaled vary from company to company.
Damage To The Vehicle
A severe amount of unibody damage to a truck will lead to it being totaled. This is because unibody damage to a commercial truck can be costly and complicated to repair. The damage may also be severe enough that state and federal laws require the vehicle to be declared as totaled due to compromised safety or other reasons.
State Statutes and Regulations
Some states have laws governing how insurance calculate and compare cost of repairs vs. actual cash value of vehicles before declaring them as total loss. These states essentially regulate how high this ratio needs to be in order for an insurer to be allowed to declare a truck as totaled and be eligible for a certificate of or title to the salvage vehicle. This set percentage of cost to repair/actual cash value is called Total Loss Threshold (or TLT). In states where the percentage of TLT is dictated by the statutes, an insurer must consider what the law says before declaring a truck as totaled; and they cannot just use their own formula as set internally.
But, it’s also worth noting that there are specific exceptions to these laws particularly when it comes to older vehicles. For example, there are certain states with specific laws that allow insurance carriers to declare a truck or any other vehicle a total loss even if the cost of repair plus its salvage value is considerably less than the ACV. Such exceptions can complicate matters when it comes to understanding the amount of money you can recover as ACV for your truck.
What’s more, in some states, drivers have recourse when their truck is totaled and have a say in determining what happens to the damaged vehicle. In these states, the policyholder can request the title and totaled truck be returned to them; and in such a case, the insurance carrier will return the damaged vehicle and deduct the salvage value from the claim.
So, there are many factors that come into play when it comes to declaring a commercial truck a total loss. Understanding all the rules, thresholds, and criteria used in in the process. But, whether or not you understand the procedure behind it, one thing you must do when your truck is totaled is to question and negotiate the ACV on your totaled vehicle. This is because the insurance carrier will typically make a conservative initial offer. And even when you negotiate for a fair amount, the at-fault party and their insurance company or attorney will always question the amount of money you are looking to recover. In these such instances, engaging the services of an insurance agent or a lawyer who has a working knowledge and experience in truck accidents and insurance can be very handy. This professional can help you negotiate and achieve a successful subrogation claim that truly compensates you for your loss.