Georgia’s Insurance Commissioner, John F. King, has issued a directive requiring auto insurers to include the complete amount of taxes due on a replacement vehicle when settling total loss claims. The directive comes in response to what King described as “confusion among Auto Insurers” regarding the proper tax calculation method.
“Allow me first to reiterate that the purpose of insurance is to make insureds whole again following a covered loss,” King stated in his directive. “In the case of first-party auto insurance claims, to make an insured whole, an insurer must properly calculate taxes to be paid by the insured when replacing a lost vehicle.”
Effective April 1, the directive mandates that insurers utilizing the cash equivalent settlement method “must calculate the actual taxes required to be paid by the insured when replacing the total loss vehicle.” Insurers who fail to comply could face sanctions, ranging from a formal reprimand to mandatory changes in business practices or financial penalties, depending on the violation’s severity, according to King’s office.
Weston Burleson, director of communications and legislative affairs for the commissioner’s office, told Repairer Driven News, “It’s important to note that most cases do not require severe sanctions but are resolved simply by our Department contacting the company in question.” Burleson added, “Before this particular Directive, our Regulations were vague on this particular subject. After April 1, a violation of this Directive will be able to trigger action on our part.”
Consumers seeking to file a complaint can find instructions on the commissioner’s website at https://oci.georgia.gov/how-do-i-file-complaint.
The commissioner noted that some insurers might be calculating tax payments based on a value lower than the agreed-upon value of the vehicle. “This method fails to make the insured fully whole because it does not accurately provide for the unique cash value of the lost vehicle that the insurer has already determined.”
Georgia’s Rule 120-2-52-.06 governs the handling of total loss vehicle claims. The rule stipulates, “The insurer may elect to pay a cash equivalent settlement based upon the actual cost less any deductible provided in the policy, to purchase a comparable automobile by the same manufacturer, same model year, with similar body style, similar options and mileage, including all applicable taxes, license fees and other fees incident to the transfer of ownership of a comparable automobile. The amount payable on taxes, license fees, and transfer fees shall be limited to the amount that would have been paid on the totaled, insured vehicle at the time of settlement.”
According to Insurance Journal, the issue came to light after CBS46, an Atlanta television station, reported that some drivers had received underpayments, sometimes by hundreds of dollars, following the total loss of their vehicles. CBS46 reported one case where Progressive settled a claim for a 2016 Toyota Prius for $19,700 but only included $1,050 for taxes, exceeding the state’s 6.6% ad valorem tax by roughly $250. The insurer had used the state Department of Revenue’s web-based estimator for a lower figure, the station reported.
“They were gaming the system,” King told CBS46. “If they continue engaging in this practice, they’re going to get sanctioned.”
The inclusion of all transaction costs, including taxes, within actual cash value (ACV) calculations is also central to a class action lawsuit against GEICO in Texas. In the case of Angell et al v. GEICO, the plaintiffs’ attorney alleges the insurer owes its customers tens of millions of dollars. GEICO is appealing the class certification order.
