If a collision claim is adjusted on an actual cash value (ACV) basis, the adjustment is relatively simple. Repair costs are estimated. If covered repair costs exceed the ACV (which in California, is “fair market value”), the insurance company pays the claimant the fair market value of the vehicle less the deductible. If covered repair costs are less than ACV, the insurer pays repair costs less the deductible.
However, what happens if a policyholder purchases a replacement cost (RC) collision policy?
In California, CA Revenue and Taxation Code § 10902 (a) defines a “constructive total loss… [as a loss wherein] the repair value exceeds the market value of the vehicle less the anticipated salvage value” and CA Vehicle Code § 4453 (b) (1) defines a total loss salvage vehicle as a vehicle wherein “the cost of repairs exceeds the retail value of the vehicle.” However, things are not so clear in the insurance policies. In past claims, adjusters disputed the definition of a total loss, claiming that a total loss is not objectively defined in the policy, but is at the discretion of the claim adjuster [thus compelling the repair of vehicles for up to the deductible amount regardless of whether the -older- vehicle was worth less than the deductible on the accident date].
Hence, if a collision claim is adjusted on an RC basis, the adjustment is relatively difficult. If the vehicle is irreparable (say, it totally burns in a fire), then RC minus the deductible is paid. If a repair is possible, repair costs are estimated. If covered repair costs exceed the deductible, the insurance company pays the repair costs less the deductible. (This isn’t true RC in the sense of real property insurance… .)