Damages For Motor Vehicle Loss Of Use And Settlement Of Claims For Motor Vehicles

DEPARTMENT OF INSURANCE

P.O, Box 517

FRANKFORT. KENTUCKY 40602-0517

(502) 564-3630

GEORGE NICHOLS III, COMMISSIONER

PAUL E. PATTON, GOVERNOR

The following Advisory Opinion is to advise the reader of the current position of the Kentucky

Department of Insurance ("the Department") on the specified issue. The Advisory Opinion is not

legally binding on either the Department or the reader.

Kentucky Department of Insurance

Advisory Opinion 98-05

In re: Damages for motor vehicle loss of use and settlement of claims for motor vehicles

RELEVANT FACTS AND STATUTES: This advisory opinion is a supplementary interpretation of KRS

304.39-115 regarding loss of use of a motor vehicle and of 806 KAR 12:095 (Section 7) Standards

for Prompt, Fair, and Equitable Settlements Applicable to Motor Vehicle Insurance.

The Department has received an increasing number of complaints from third party claimants

regarding total loss automobile settlements and the loss of use portion of their claim. Typically

these complaints involve an initial offer to settle the total loss automobile claim which is

accompanied by a demand from the insurer that the claimant immediately return the rental car

which has been provided by the insurer pursuant to KRS 304.39-115. This practice may place

individuals and families at an unfair disadvantage, as without transportation, they may be

unable to evaluate their loss and enter into good faith negotiations. They may be pressured or

forced into accepting an offer that does not accurately represent the diminution in value they

have suffered.

THE DEPARTMENT'S POSITION: This advisory opinion shall serve as a reminder to all carriers

conducting property and casualty business in this state of 806 KAR 12:095 (Section 7) Standards

for Prompt, Fair, and Equitable Settlements Applicable to Motor Vehicle Insurance

be pressured or

forced into accepting an offer that does not accurately represent the diminution in value they

have suffered.

THE DEPARTMENT'S POSITION: This advisory opinion shall serve as a reminder to all carriers

conducting property and casualty business in this state of 806 KAR 12:095 (Section 7) Standards

for Prompt, Fair, and Equitable Settlements Applicable to Motor Vehicle Insurance. It is the

opinion of this Department that third party total loss offers and settlements should be based on

the cost of a comparable motor vehicle in the local market just as first party total loss offers and

settlements are. The determination of the difference between the fair market value of the

vehicle immediately before and immediately after the loss should include the same

considerations. "Comparable" means the same manufacturer, same year, similar body style,

options, customization, tire tread, mileage and condition. This is not, however, an exclusive list

of factors to consider in determining the cost of a comparable motor vehicle in the local market.

The comparison should be fully documented in the claim file.

KRS 304.39-115 provides that the claim for loss of use of a motor vehicle is limited to reasonable

and necessary expenses for the time necessary to repair or replace the motor vehicle. The claim

for loss of use does not automatically terminate' upon the communication of an offer by an

insurer to the claimant. This is especially so if the offer is not properly based upon a comparable

motor vehicle in the claimant's local market.

The Department will begin enforcing this interpretation immediately. Naturally, the Department

will also focus on this issue in market conduct examinations.

_________________________

George Nichols III

Commissioner

Date: 12/15/98