My car lost value in a rear-ending, but the insurer won't write it off

Special to The Globe and Mail, Written by Jason Tchir, 2017-08-22

"I was rear-ended in stop-and-go traffic on the highway. I wasn't at fault. The car's residual value is greatly affected and I would like to have it written off - but the insurance company wants to repair it. It has overappraised my car at $11,800 and says repairing it will cost $8,100. But I checked with several dealerships who say my car was worth only $6,000-$9,000 before the accident and will be worth $3,000-$4,000 after the repairs. I have a loan of $10,150, but I'm willing to meet somewhere in the middle at $10,000 - between the repairs and the cost of the rental car, it's already costing the insurance company at least that much. How can they do this to me?" - Sylvanna, Toronto

If your car is in a crash in Ontario, you have no right to a write-off.

"Here's a situation where a person says, 'I've got this loan and a write-off suits me better,'" said Pete Karageorgos, director of Ontario consumer and industry relations with the Insurance Bureau of Canada (IBC). "Typically, the insurance company will say, 'We'll do what's in the policy.'"

So what does the Ontario Automobile Insurance Policy say? Section 7.7 of it states, "We will pay the lower of the following: The cost to repair the loss or damage, less the deductible; or the actual cash value [ACV] of the automobile at the time it was damaged or stolen, less the deductible."

In other words, they'll do what's cheapest.

If repairs will cost more than the ACV - what it should cost you to replace your car with the same model from the same year with similar mileage and options - then your insurance company will usually write it off. It takes the car, declares it salvage and gives you the cash.

But, according to the policy, the decision is entirely up to the insurance company. Section 6.6 of the policy states, "We have the right to repair, replace or rebuild the automobile rather than pay for the damage."

"If they're going to write off the vehicle, they do it based on safety issues and cost," said Viraf Baliwalla, founder of Automall Network, a Toronto auto broker. "If repairs are going to cost 72 or 75 per cent of the cost of the vehicle itself, they will typically end up writing it off because you're going to have other problems down the road."

Loan exception?

One thing that doesn't factor into the decision? What you owe on the vehicle.

"The law doesn't care about your debt," said Maurice Bramhall, a Toronto appraiser. "The law in Ontario has a process by which the insurance company does its damage appraisal and determines the repair-ability - they can say whether it's repairable or not."

While the insurance company has the right to decide whether or not to write off your car, you can submit an appeal under the Insurance Act if you disagree with its estimates of the damage or the ACV. "For this process, each side will appoint an appraiser, and both appraisers will either agree on a value, or if they disagree, will both agree to appoint an umpire who will make a final decision in the matter," the Financial Services Commission of Ontario said in an e-mail statement.

An appraiser could cost $300 or more and there are no guarantees of the outcome. The appraiser could agree with the insurance company - or may find more damage that could push up the repair costs enough to make the insurer decide to write it off.

Diminished value

So, if your insurance company is repairing your car so it looks and runs as it did before the crash, what's the problem? Stigma, Karageorgos said.

"As long as you have the proper quality of repairs done, most people won't know the difference - but in this day and age, searches can be done," Karageorgos said. "I can choose between a car that was in an accident and a car that was never in an accident. And I might get a better deal on the car that was in the accident, even though those two cars will both last just as long on the road."

The difference between what your car is worth before and after a crash is called diminished value (DV).

"It can be fixed properly but people will say, 'What if there's an extra rattle?'" Baliwalla said. "So because of that, they won't pay the same."

Basically, it means your vehicle has depreciated faster because of the crash, even when you've done absolutely nothing wrong.

"Here in Ontario, insurance companies won't cover diminished value," said Michael Alexander, a Toronto lawyer who handles insurance claims. "If the amount is under $25,000, you can try to get it back by suing whoever hit you in small claims court. If it's over that, you'll have to hire a lawyer and go to Superior Court."

While there were two successful court cases in British Columbia where drivers sued the Insurance Corporation of British Columbia (ICBC) for diminished value, ICBC does not pay for it for all accidents. In the United States, Georgia requires insurance companies to offer compensation for it.

But taking the at-fault driver to court doesn't mean you'll win, Bramhall said.

"You may get a judge that says, 'You know what? This is a normal risk to driving - your vehicle was five years old, correctly repaired and you've made no complaints,'" Bramhall said.

What's your car really worth?

Don't base the value of your car - before or after the crash - on what dealerships tell you, Bramhall said.

"Going to a car dealer and asking, 'What's the value of my car?' is a little like talking to the tiger who's got you in his mouth ready to eat you," Bramhall said. "The dealer has no interest in offering fair value - the more they can downplay the value, the more they'll make when they sell to a wholesaler."

So how much less is your car actually worth? It depends on the damage - and how much it was worth before the crash.

"In general, you could say that DV is about 10-30 per cent of the vehicle value. However, I've seen it where DV is more than 50 per cent of the vehicle value," Baliwalla said.

New luxury cars, such as a Bentley, tend to suffer the most because people in the market for them will want to pay for a new car, Baliwalla said.

"But if the vehicle is only worth $10,000 or $11,000 as it stands, it may be that there's some diminished value - but the longer you keep it, it will go down to next to nothing," Baliwalla said.

And, after repairs, that car should have the same lifespan.

If you get in another crash, insurance companies don't look at diminished value - they will cover the ACV of the car as if it hadn't been in an accident, Bramhall said.

And, if repairs were done properly, your $10,000 car might look better than other cars its age.

"Unless you're immediately looking at selling it, you haven't really lost anything," Baliwalla said. "You're probably put back in a better position than before."