The Office General Counsel issued the following informal opinion on January 11, 2002, representing the position of the New York State Insurance Department.

Re: Settlements of Automobile Physical Damage Insurance Claims and Allowable Deductions under N.Y. Comp. Codes R. & Regs. tit. 11, §§ 216.0- 216.12 (2001)(Regulation 64).

Question Presented:

Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, §§ 216.0-216.12 (2001), may the hood of a car be the subject of a deduction for betterment and/or depreciation?

Conclusion:

No. The hood of a car is a crash part that may not be the subject of a deduction for betterment and/or depreciation, since it is not normally subject to repair and replacement during the useful life of the vehicle. However, a deduction for prior damage may be applied to the settlement under section 216.7(b)(12), provided that it is measurable, discernible, itemized and specified as to dollar amount and detailed in the claim file. Such deductions must be limited to the amount by which the resale value of the motor vehicle is increased by the elimination of the prior damage.

Facts:

In November of 2000, the inquirer filed a claim with an insurance company for repairs due to vandalism to the inquirer’s car, including three scratches on the hood of the car. The insurance company paid the claim. In March of 2001 a vehicle backed into the inquirer’s car at a stop sign and damaged the hood of the car. The inquirer filed another claim with the insurance company. As of March of 2001, the inquirer had not yet had the hood repaired. The insurance company deducted the cost of a new hood in the amount of $469.22 from the claim on grounds of "betterment". The inquirer would like to know whether the hood of a car may be the subject of such deductions for betterment and/or depreciation.

Analysis:

N.Y. Ins. Law § 3411(i)(McKinney 2000) provides that an insurer may not condition payment of a physical damage claim on the repair of the vehicle. See also N.Y. Comp. Codes R. & Regs. tit. 11, § 216.7(b)(18)(2001). An insurer may, however, inspect the vehicle whether or not repaired and the results of such inspection may determine the value of the vehicle in the event of a subsequent loss.

N.Y. Comp. Codes R. & Regs. tit. 11, § 216.7(b)(1)(2001) provides that an insurer is required to make a good faith offer of settlement on a physical damage auto claim sufficient to repair the vehicle to its condition immediately prior to the loss. If the vehicle was damaged prior to the loss, a deduction for prior damage under section 216.7(b)(12) of the Regulation may be appropriately applied to the settlement. See also N.Y. Comp. Codes R. & Regs. tit. 11, § 216.12 (2001).

Deductions for betterment and/or depreciation are permitted only for parts normally subject to repair and replacement during the useful life of the insured motor vehicle. N.Y. Comp. Codes R. & Regs. tit. 11, § 216.7(b)(11)(2001). The Department has opined that crash parts may not be the subject of such deductions for betterment and/or depreciation since they are not normally subject to repair and replacement during the useful life of the vehicle. Section 216.7(a)(6) defines the term "crash part" as:

Thus, in the present case, a crash part such as a hood may not be the subject of a deduction for betterment and/or depreciation since it does not meet the necessary criterion prescribed by the regulation. However, a deduction for prior damage may be applied to the settlement amount under section 216.7(b)(12), provided that it is measurable, discernible, itemized and specified as to dollar amount and detailed in the claim file. Such deductions for prior damage must be limited to the amount by which the resale value of the motor vehicle is increased by the elimination of the prior damage.

For further information, you may contact Attorney Pascale Joasil at the New York City office.