6th Circuit Rules Auto Insurer Must Cover Taxes, Fees for Replacement Vehicle
A recent ruling by the 6th U.S. Circuit Court of Appeals has clarified that an auto insurance policy requires the insurer to compensate the policyholder for sales taxes and mandatory fees when purchasing a replacement vehicle after the original vehicle has been declared a total loss.
The case involved Jeremy Marchek, who was in an automobile accident that significantly damaged his vehicle. His insurer, United Services Automobile Association (USAA), declared the vehicle a total loss and paid Marchek $24,881, which was the vehicle’s pre-accident value minus a $100 deductible. Marchek sued, claiming that the insurance policy required USAA to cover not just the vehicle’s actual cash value but also the sales tax and government fees necessary to purchase a replacement vehicle.
The U.S. Circuit Judge Chad A. Readler, writing for the panel, focused on the policy language defining actual cash value (ACV) as “the amount that it would cost, at the time of loss, to buy a comparable vehicle.” Readler examined the dictionary definitions of key terms and concluded that “the amount it would cost to buy a comparable vehicle” means the total quantity of money required to acquire possession of a comparable vehicle, which includes sales taxes and mandatory fees.
In Michigan, where the case originated, vehicle purchasers must pay a six percent sales tax and certain fees when registering a new vehicle. Readler noted that these costs are part of “the quantity of money needed to acquire ownership of a vehicle.” The court rejected USAA’s argument that a Michigan statute governing salvaged vehicles dictated how insurance companies should calculate ACV, finding that the statute did not apply to the calculation of ACV in this context.
The 6th Circuit’s decision reversed the lower court’s dismissal of Marchek’s complaint and remanded the case. This ruling implies that insurers in similar situations must consider the total financial outlay required for a policyholder to legally acquire a replacement vehicle, including taxes and fees.
The case is Marchek v. USAA (MiLW 01-108542, 12 pages). Legal experts are watching this decision closely as it may impact how insurance companies calculate payouts for total loss claims in the future.
