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The basic scenario and question

My car was "totaled" by my insurance company, but they did so only after repairs were made. They wound up paying the body shop for the repairs, as well as paying us their salvage value for the car. Both payments were significantly above the value of the car, so of course the combined payment was well above the value of the car.

This is in the State of Washington. The insurance company is under no obligation to total a car. The law simply provides for them to do so at their option under certain circumstances.

I cannot figure out why the insurance company did this. Is there a way that someone involved in this, either at the insurance company or the body shop, or perhaps both in collusion, managed to illicitly make money from this situation? Or is the insurance company simply not managing their claims correctly?


More details

  • The car's blue book value was about $6000 (to be clear: both Kelly Blue Book and Edmunds gave this value for a car in good condition; i.e. this value does not take into account the damage that existed)
  • The cost of the repairs was about $7000
  • The salvage value paid to me was about $9000 (the difference between this and the blue book value relates to how the policy is actually written, which in theory would help reduce the likelihood of totaling the car)
  • The car was repaired and, as near as I could tell, to a high level of quality/competence (i.e. so it's not like there was a fake invoice for the body shop repairs…they really did do the work).
  • The car actually had almost $14,000 worth of work done at the body shop; this all started because it had been rear-ended by another driver, with that driver's insurance company paying for those repairs. Prior to that collision, the car had damage caused by heavy snow falling from a building's roof onto it, which I had not planned to fix, but then decided since it was at the body shop anyway, I would go ahead and file a claim for that under my own policy. I assume that the rear-end damage is not relevant at all to my question, as the payment for that was entirely from the other insurance company, but I mention it just in case my assumption is wrong.

The car was a battery-electric vehicle (Nissan LEAF). Blue book was relatively low in part because that model/year suffers from short-lived batteries, and indeed I was looking at the possibility of having to spend another $8000 (or more) to replace the battery if I was going to keep using the car.

From my perspective, I'm ahead at least $17000, between the salvage payment and the cost of the battery I no longer have to purchase. Money I can now spend toward a replacement vehicle that will work much better for me than that car.

But it seems to me that the insurance company has paid out $9000 more than they needed to. They were under no obligation to total the car and could have simply paid for the repairs and let me keep the car. Their net cost now is at best around $10,000 (their total payments of $16,000, less the $6000 value of the car). And of course, since the car's title now is denoted as "salvage", it's unlikely they could even get the blue book value of $6000 for the car, so that figure is optimistic for them.

That means their net cost was at least $3000 more than it should/could have been (i.e. as compared to just paying for the repair), and probably significantly more than that. That alone argues against the insurance company choosing that outcome.

But beyond that, how does someone at the body shop and/or the insurance company itself wind up making extra money on the deal? The insurance company is already down the $3000 compared to what they could have done. Is someone scamming the insurance company by somehow invoking the salvage/total process and then skimming even more money off the already-imbalanced accounting? If so, where did that extra money come from? Did they misrepresent the costs to the insurance company, such that the insurance company wound up paying out even more money than I'm aware of?

Naturally, I understand that this community can't know what actually happened at the insurance company and/or the body shop. I am asking to find out whether there is a well-known, well-understood scam that causes this sort of non-intuitive outcome to occur.

Obviously it's always possible regardless that the insurance company is just behaving incompetently. I'm wondering though if there's an alternative explanation that at least rationalizes the outcome.

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    Did your insurer know that the body shop had already completed the repairs prior to listing as total loss? ie: is there a chance that a miscommunication led to the repair shop completing repairs, before the result came up as 'write-off', at which point the insurer made a good faith effort to pay for repairs that were ultimately unnecessary? Also - are you still in possession of the car? Jun 15 at 18:33
  • @Grade: Yes, the insurer was completely aware of the facts. They already had the final invoice from the body shop when they issued the decision to total the car. And no, I never regained possession of the car...it was delivered directly from the body shop to the insurer under the usual salvage process. Jun 15 at 18:39
  • No offense intended in cutting down the length of the question, but I think the portions removed don't really impact the answer at all. Core question remains. Jun 15 at 18:52
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    @PeterDuniho WAC 284-30-319 "...the insurer must adjust and settle vehicle total losses using the methods set forth in subsections (1) through (3) of this section." which are replacement vehicle, cash payment, or appraisal. WAC 284-30-320 says ""Total loss" means that the insurer has determined that the cost of parts and labor, plus the salvage value, meets or exceeds, or is likely to meet or exceed, the "actual cash value" of the loss vehicle." So I believe you are mistaken. Again, it's a consumer protection issue.
    – user71659
    Jun 15 at 19:17
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    @PeterDuniho No I am not. That is why I included the definition of total loss. It is strictly financial based, there is no discretion. This explains your situation completely: they realized too late that it met the financial threshold for a total loss (perhaps due to the fact they were unaware of pre-existing damage), the law requires they total it, so they were forced to, even after successful repairs.
    – user71659
    Jun 15 at 19:29
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The other repairs from the previous accident seem to have added value to the car. The insurance company gave you $7k to return the car to its pre-accident condition. In addition to that, you filed the other claim, which resulted in another driver's insurance putting in an additional $7k ("$14k worth of work total") to improve the car beyond its condition at the time of the accident. The fair value for your car is not the KBB value at the time of the accident ($6k), since your car is now in better condition than at the time of the accident. The car's list value should be somewhat higher than that, since it's a $6k car with an additional $7k worth of repairs. The insurance company must believe they can sell your car for more than $9k (otherwise they wouldn't have bought it from you), which is likely related to the value of all the repairs in total.

At the start, the insurance company's options are as follows:

  1. total the car, paying you $9k in exchange for a car worth near-$0
  2. repair the the car, paying you $7k but getting no car in return.

After you've made the repairs, you have a $6k car that has an additional $7k worth of repairs, possibly bringing its value north of $9k. The insurance company wanted to buy your car because they could likely sell it for more than $9k. This route minimizes the insurance company's loss - they pay you $7k for the repairs, but then make money on the totaled car.

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  • Insurance is under no obligation to make you better than you were before the accident. In fact, they have to be careful not to do so, in part because to do so creates taxable income and triggers, withholding, reporting and issues with their taxes.
    – user71659
    Jun 15 at 19:11
  • It isn't clear that the 7k of previous repairs would actually have improved value above KBB, but that is surely a possibility [7k of body work on such a small car does mean whole sections might be newly replaced and thus potentially worth more than the listed age of the car]. Jun 15 at 19:14
  • @user71659 Right, the insurance company was not obligated to total the car and buy it for $9k, they likely did so because they plan to sell it for more. They were obligated to repair the car for $7k, or total it for $9k, so they chose the first, less expensive option. Buying/totaling the car is an entirely separate transaction which the insurance company wants to turn a profit from. Jun 15 at 19:15
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    I think I understand what you're getting at here with this answer, but I've never found it to be the case that the cost of repairs to a car literally adds that cost to the total value of the car. It is in fact why I had originally chosen not to fix the snow damage; it would have meant putting much more money into the car that I felt I'd ever get back (my own deductible, never mind the insurance payment that didn't come directly from me). Jun 15 at 19:17
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    @Fattie The car was already sold for $9000 - the insurance company bought it. You're suggesting that something that already happened is impossible. Jun 15 at 20:21
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You're over-thinking it. The actual value of used, damaged, cars (not the hilarious "value we try to tell consumers") is basically zero or at best "a hundred dollars".

One of their computers simply wrote off a loser.

The insurance "industry" is a spectacular gravy train via government lobbying.

Buy shares in insurers. Or, if you're dumb, buy shares in companies that have to make and sell stuff.

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    This doesn't answer the question. Why wouldn't the insurance company let their customer keep the car, if it was worth $0 to them, rather than paying an extra $9000 to obtain it? Jun 15 at 20:14

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