OGC Opinion No. 04-02-18: Calculation of Total Loss Payment and Regulation 64

OGC Op. No. 04-02-18

The Office of General Counsel issued the following informal opinion on February 19, 2004, representing the position of the New York State Insurance Department.

Re: Calculation of Total Loss Payment and Regulation 64

Question Presented

When calculating the settlement payable for the total loss of an automobile of the current model year, does the reasonable purchase price include monies paid as sales tax?

Conclusion

Yes. Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 216.6(b) (2000), actual cash value, unless otherwise specifically defined by law or policy, includes all monies paid or payable as sales tax item repaired or replaced.

Facts

No specific facts were provided.

Analysis

In New York, most motor vehicle physical damage insurance policies are written on an actual cash value basis. N.Y. Comp. Codes R. & Regs. tit. 11, § 216.6(b)(2000) defines the term "actual cash value" in pertinent part as follows:

(b) Actual cash value, unless otherwise specifically defined by the law or policy, means the lesser of the amounts for which the claimant can reasonably be expected to:

(1) repair the property to its condition immediately prior to the loss; or

(2) replace it with an item substantially identical to the item damaged. Such amount shall include all monies paid or payable as sales taxes on the item repaired or replaced . . . (Emphasis added)

To effectuate this provision, § 216.7 provides minimum standards for the settlement of motor vehicle physical damage claims. Section 216.7(c)(1) provides that in a total loss situation, if the insurer elects to make a cash settlement, the insurers minimum offer must be one of the enumerated valuation methods, subject to applicable deductions. Section 216.7 also provides that the other provisions of Regulation 64 apply to motor vehicle physical damage claims except to the extent that they are inconsistent with the specific provisions of section 216.7.

With regard to a total loss of a private passenger automobile of the current model year, § 216.7(c)(3) states that the insurer shall pay to the insured the reasonable purchase price to the insured on the date of loss of a new identical vehicle, less any applicable deductible and an allowance for depreciation in accordance with the schedule that appears in § 216.7(c)(3).

Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, §§ 216.6(b) (2000), sales tax is viewed as a component of the actual cash value of the motor vehicle. Accordingly, if the insurer offers the insured the actual cash value of the vehicle, all monies paid or payable as sales taxes on the replaced vehicle must be included in the settlement.