CAADE Total Loss and Valuation 5 — Questions and Answers
Question 1: A vehicle sustains flood damage and is declared a total loss. Before determining ACV, the appraiser should consider that flood vehicles:
- Always retain at least 50% of their pre-loss value due to mechanical reuse potential
- May have hidden latent damage to electronics and mechanical systems not immediately visible (Correct answer)
- Are valued the same as collision-damaged vehicles of similar age and mileage
- Automatically receive a 25% ACV reduction under federal insurance regulations
Correct answer: May have hidden latent damage to electronics and mechanical systems not immediately visible
Flood damage causes latent corrosion and electronic damage that may not be immediately apparent, requiring careful consideration in the ACV determination and salvage value.
Question 2: Under most state insurance regulations, how long does an insurer typically have to make a total loss settlement offer after receiving all required documentation?
- 5 business days
- 30 calendar days
- Within a reasonable time as defined by the state's prompt payment statute, often 15-30 days (Correct answer)
- 60 calendar days regardless of state
Correct answer: Within a reasonable time as defined by the state's prompt payment statute, often 15-30 days
Most states require insurers to make a settlement offer within a defined timeframe (commonly 15-30 days) after receipt of complete documentation under prompt payment laws.
Question 3: In an appraisal dispute over a total loss ACV, the 'appraisal clause' in most auto policies typically allows:
- Either party to demand independent appraisers with a neutral umpire resolving disagreements (Correct answer)
- Only the insurer to select an appraiser to resolve disputes
- The insured to sue immediately in small claims court without prior negotiation
- A state insurance department adjudicator to set the final value
Correct answer: Either party to demand independent appraisers with a neutral umpire resolving disagreements
The standard appraisal clause allows each party to select an independent appraiser, and if they disagree, a neutral umpire resolves the dispute.
Question 4: Which of the following is an example of a 'prior damage' deduction in a total loss settlement?
- Reducing the settlement because the vehicle model has a poor safety rating
- Reducing ACV by the cost to repair pre-existing unrelated damage documented before the current loss (Correct answer)
- Adding to salvage value because undamaged parts can be resold
- Increasing the settlement because the vehicle had custom equipment
Correct answer: Reducing ACV by the cost to repair pre-existing unrelated damage documented before the current loss
Prior unrepaired damage that existed before the covered loss reduces ACV because the vehicle's pre-loss value was already diminished by that damage.
Question 5: A vehicle is declared a total loss but the insured disputes the ACV, claiming the insurer's comparable vehicles are not truly comparable. The insured's strongest argument would be based on:
- Emotional attachment to the vehicle and years of ownership
- Documented evidence that the comparables differ in condition, mileage, options, or local market area (Correct answer)
- The vehicle's original purchase price paid several years ago
- The cost of a brand-new replacement vehicle of the same model
Correct answer: Documented evidence that the comparables differ in condition, mileage, options, or local market area
A successful ACV dispute requires showing that the insurer's comparables are not truly equivalent in condition, mileage, equipment, or geographic market.
Question 6: When total loss vehicles are sold through an insurer-retained salvage pool, the primary purpose is to:
- Allow insureds to repurchase their own vehicles at a discount
- Obtain competitive salvage bids to maximize recovery and offset claim costs (Correct answer)
- Provide free replacement vehicles to other policyholders
- Comply with state requirements for vehicle disposal
Correct answer: Obtain competitive salvage bids to maximize recovery and offset claim costs
Salvage pools aggregate totaled vehicles and sell them competitively to dismantlers and rebuilders, maximizing salvage recovery to offset the insurer's total loss payout.
Question 7: The term 'agreed value' in an auto insurance policy means the insurer will pay:
- The ACV determined at the time of loss, subject to depreciation
- A pre-agreed amount stated in the policy if a total loss occurs, with no further depreciation (Correct answer)
- The cost to replace the vehicle with a like-kind and quality substitute
- Whatever amount the insured and adjuster negotiate after the loss
Correct answer: A pre-agreed amount stated in the policy if a total loss occurs, with no further depreciation
An agreed value policy guarantees a specific settlement amount agreed upon when the policy is written, providing certainty and eliminating ACV disputes.
CAADE Total Loss and Valuation 5
A vehicle sustains flood damage and is declared a total loss.
Before determining ACV, the appraiser should consider that flood vehicles: