CAIA Subrogation and Salvage 4 — Questions and Answers
Question 1: Which party typically handles the sale of salvage vehicles on behalf of the insurer?
- The insured's repair shop
- A licensed salvage auction company (Correct answer)
- The state DMV
- The at-fault third party
Correct answer: A licensed salvage auction company
Insurers commonly use licensed salvage auction companies to maximize recovery from the sale of totaled vehicles.
Question 2: Under what circumstance may an insurer be required to pursue subrogation on behalf of the insured even if the insurer does not want to?
- When the insured demands it and state law requires the insurer to do so (Correct answer)
- When the vehicle was less than two years old
- When the at-fault party's insurer is insolvent
- When the claim involves comprehensive coverage only
Correct answer: When the insured demands it and state law requires the insurer to do so
Some states require insurers to pursue subrogation at the insured's request, particularly when significant unrecovered losses remain.
Question 3: A vehicle has an ACV of $10,000 and repair costs of $7,800. The salvage value is $2,500. Should the adjuster declare it a total loss?
- No, because repair costs are less than ACV
- Yes, because repair costs plus salvage value exceed ACV (Correct answer)
- No, because the salvage value offsets the repair costs
- Yes, because any vehicle with damage over $5,000 is a total loss
Correct answer: Yes, because repair costs plus salvage value exceed ACV
When repair costs ($7,800) plus salvage value ($2,500) equal or exceed ACV ($10,000), a total loss declaration is economically justified.
Question 4: What is a 'keeper vehicle' in the context of automotive total loss claims?
- A vehicle retained by the insurer for fleet use
- A totaled vehicle the insured chooses to keep by accepting a reduced settlement (Correct answer)
- A vehicle kept at the repair shop pending claim approval
- A rental car provided during the claim process
Correct answer: A totaled vehicle the insured chooses to keep by accepting a reduced settlement
A keeper vehicle is one the insured elects to retain after a total loss; the settlement is reduced by the salvage value since the insured keeps the vehicle.
Question 5: What happens to the insurer's subrogation rights if the statute of limitations expires before the insurer files suit against the at-fault party?
- The insurer can file for an extension from the state insurance department
- The subrogation claim is barred and the insurer loses its right to recover (Correct answer)
- The insurer can still recover through arbitration regardless of the deadline
- The at-fault party's insurer must pay voluntarily
Correct answer: The subrogation claim is barred and the insurer loses its right to recover
If the insurer fails to file a subrogation action before the statute of limitations expires, the right to recover is permanently lost.
Question 6: Which of the following best describes 'inter-company arbitration' in auto subrogation?
- A process where insurers resolve subrogation disputes without litigation (Correct answer)
- A method for calculating salvage bids at auction
- A regulatory review of subrogation practices by state authorities
- A negotiation between the insured and the at-fault driver
Correct answer: A process where insurers resolve subrogation disputes without litigation
Inter-company arbitration, such as through Arbitration Forums, allows insurers to resolve subrogation disputes quickly and cost-effectively without going to court.
Question 7: If a vehicle is declared a total loss but the insured still owes $5,000 on an auto loan, and the ACV is $4,000, what product would have covered the $1,000 gap?
- Uninsured motorist coverage
- GAP insurance (Correct answer)
- Collision deductible waiver
- Rental reimbursement coverage
Correct answer: GAP insurance
GAP (Guaranteed Asset Protection) insurance covers the difference between a vehicle's ACV and the remaining loan balance when ACV is less than what is owed.
CAIA Subrogation and Salvage 4
Which party typically handles the sale of salvage vehicles on behalf of the insurer?