Totaled Vehicles And Insurance Compensation

How much should a person be compensated when their vehicle is declared a total loss?   A better question is – what are the elements that make up the total amount to be compensated?

This issue is discussed in a 2020 opinion from the United States Fifth Circuit.  The opinion is styled, Jessica Singleton and Tony Cooper v. Elephant Insurance Company.

When an insured automobile is so damaged that it would cost more to repair than to replace, it is usually deemed a total loss.  The insurance company then reimburses the policyholder for the value of the vehicle, with the expectation that the policyholder will probably use this money to purchase a replacement.  Of course, purchasing and registering the replacement vehicle requires the payment of taxes and fees to the state.

Singleton and Cooper are two policy holders with Elephant who each owned a vehicle that had been declared a total loss.  The policies provided that, in the event of a total loss, Elephant’s liability would be limited to the “actual cash value of the stolen or damaged property at the time of the loss, reduced by the applicable deductible … and by its salvage value if the policy holder or owner retained the salvage.”  The policies also stated that the “actual cash value is determined by the market value, age and condition of the auto … at the time the loss occurs.”  The policies provide that any disputes will be governed by Texas law.

When Singleton and Cooper totaled their respective vehicles and were paid by Elephant, Elephant did not compensate them be the taxes and fees attendant to replacing their vehicles in Texas.  This lawsuit resulted.

The District Court dismissed the lawsuit for failure to state a claim upon which relief could be granted.  This Court sustains that decision per the following.

Under Texas law, if language in an insurance policy “is worded so that it can be given a definite or certain legal meaning, it is not ambiguous and we construe it as a matter of law” pursuant to Texas Supreme Court decisions.  “Whether a contract is ambiguous is itself a question of law,” and “ambiguity does not arise simply because the parties offer conflicting interpretations.”  Rather, “ambiguity exists only if the contract language is susceptible to two or more reasonable interpretations.”  A provision in an insurance policy is interpreted according to its “plain language,” and “we assign terms their ordinary and generally accepted meaning unless the contract directs otherwise.”  “If the contract language is not fairly susceptible of more than one legal meaning or construction, . . . extrinsic evidence is inadmissible to contradict or vary the meaning of the explicit language of the parties’ written agreement.”

The policy provision at issue limits Elephant’s liability for a totaled car to the “actual cash value” of the car at the time of the accident, minus the deductible. The question in this case is entirely about the term “actual cash value.”

Although the policy defines certain terms, it does not define “actual cash value.”  Instead, it states only that the “actual cash value is determined by the market value, age and condition” of the vehicle at the time of the accident.  The Court thus construes “actual cash value” according to its “ordinary and generally accepted meaning.”  Singleton and Cooper do not dispute that, under Texas law, actual cash value is equivalent to fair market value.  The Supreme Court of Texas has stated that, in the case of “marketable chattels, for which market value can be determined,” “actual cash value . . . is market value.”  Used automobiles are indisputably marketable.  Indeed, Texas courts have repeatedly suggested in the car-insurance context that the policy term “actual cash value” is equivalent to market value.

Texas law defines “fair market value” as “the price the property will bring when offered for sale by one who desires to sell, but is not obliged to sell, and is bought by one who desires to buy, but is under no necessity of buying.”  This definition plainly excludes taxes and fees that are remitted to the state. That the state collects taxes and fees from the buyer is irrelevant to the question of fair market value because those amounts are not part of the price paid to the seller.  Singleton and Cooper rightly observe that negotiating parties may consider the tax rate when agreeing on a price, but that indicates only that taxes are a factor that influences market value, not that taxes should be added to the price when calculating market value.

As a result, the District Court was correct in dismissing the lawsuit.

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