In light of the recall of virtually millions of vehicles,Toyota executives find themselves in a nightmare, and theramifications are not yet clear. Historically, recalls of thismagnitude will continue to be far-reaching and lengthy over time.In the days of newly emerging details, a deluge of informationregarding either repairing gas pedal systems or replacing thementirely to get customers back on the road is the primary focus. Wehave now shifted from what was thought to be a relatively easy fixof a floor mat problem to also include a gas pedal problem.

Toyota stated that it stopped production and sales of some ofits best model cars to concentrate on the repairs of the recalledvehicles. The many angry customers out there want some answers.Reports indicated that communication is difficult, and systems tohandle such a mass of communication are overloaded. From a broaderperspective, sources say the company's market has dropped 18percent, or $28.2 billion. There are approximately 4.2 millionvehicles affected by the floor-mat recalls, and approximately 2.3million affected by the gas-pedal recall. Some models will besubject to both.

Insurance Implications

Let us turn our attention to different aspects of the problem:issues associated with claim-handling, subrogation, and litigation.It has been established that there is a problem with both the floormats and the gas pedal. Therefore, we have a new perspective towardour investigations of crashes involving Toyotas that are the makesand models included in the recall and details of the accident thatcould make them suspect for further investigation. What about thevehicles that have previously been involved in accidents? Shouldinsurers reopen those files and pursue subrogation? Were extensivedamages wrongly paid by the insurer, who covered the party deemed“at fault” at the time of the original investigation? It's evidentthat this will impact several areas of the casualty industry.Simply put, damages, subrogation, and settlements will all beaffected not only for current, but also past and future accidentsinvolving Toyotas.

This also leaves us with questions surrounding the diminishedvalue of the vehicles. In determining that a vehicle is a totalloss, what is the value? Can we apply this diminishing value factorwhen we are establishing what the insured's or claimant's vehicleis worth? How does this affect the resale and salvage value?

Nick Zorn is an auto manager for Pilot Catastrophe, where heservices some of their major accounts. He has been in the industryfor more than 17 years and says that there will be an impact in thevalue of the vehicle, but that he views this as more of an issuefor CCC, other auto programs, or resources used, such as NADA. Theappraisers use these programs as a reference or guideline, and itwill be up to them to make changes as they deem necessary. Zornadded that the recall will likely impact the value of Toyotaproducts.

Claim Department Issues

As this new information has come to light, we find that casualtyinsurers and claim departments will find the need to develop amatrix or protocol of processes to effectively handle their claimsinvolving Toyota vehicles. They are also faced with the situationof revisiting old claims that may involve the acceleration orfloor-mat issues associated with the recalled Toyotas.

“It is something that needs to be given consideration wheninvestigating accidents involving the recalled vehicles,” said KenCarter, CPCU, a corporate casualty manager. “Anyone involved ininvestigating accidents has always encountered various versions ofa person involved in an accident alleging that the accident was dueto a mechanical issue such as the 'accelerator sticking' or someother mechanical problem.

“This is where a thorough investigation and adjusterdocumentation comes in to play,” he continued. “As far as accidentspast, it will be difficult to further investigate those because ofthe likelihood that the vehicle would not be available for are-inspection. It is possible that it is even destroyed or, ifdrivable, has a considerable amount of additional mileage thatwould impact the results of any investigation. The situations thatthe claim departments are facing are new and are in the discussionstage at this time.”

Carter advised that his company is involved in a specialtyprogram that includes the insuring of dealerships, some of whichare Toyota branded. The dealerships were placed on notice regardingpossible product liability claims—yet another issue to be examinedin the industry.

Litigation Concerns

More than likely, the larger issue will be the litigation issue.It is safe to say that our society has become more litigious as awhole in these times. Plaintiffs' lawyers across the country arebombarded with calls as others are gearing up to be busy for quitesome time to come. The claims range from lower vehicle values ordiminished value, to injuries and even fatalities. In these earlystages, it is difficult to determine what the fallout will be.

Legal experts indicate that owners will have difficulty inrecovering if they cannot prove that their vehicles experienced thesudden acceleration problem. The fear and mental anguish may not beenough. In most states, if there is no consequential injuryinvolved, then there is no recovery, as stated by Frank Henderson,a Cornell Law School professor and product liability expert.Attorney Thomas Little of Smith, Spiner, and Peddy, a Birmingham,Ala. firm said that as far as product liability claims areconcerned, it is his experience is that “without any damages, aclaim for mental anguish could be made if it is proven that theperson was placed in the zone of danger and suffered some type ofmental anguish as a result.” He states that proving these types ofdamages can be difficult. Since November, at least 10 lawsuitsseeking class-action status have been filed.

In my own research and investigation, I continued to run acrossnumerous mentions of an accident in San Diego, Calif. The accidentinvolved a Lexus, which is manufactured by Toyota, in which thedriver and passengers involved in the accident included an off-dutyCalifornia highway patrol officer, his wife, daughter, andbrother-in-law. The driver made a frantic 911 call, which is citedin several articles and has now been made public. In it, the driveris panicked and states, “We're in a Lexus … we're going north on125, and our accelerator is stuck … we're in trouble … there's nobrakes … we're approaching the intersection … hold on and pray …and pray ….” The called ended with a horrific crash that killed allfour passengers. The Lexus struck another vehicle, continued onthrough a fence, rolled over, and burst into flames.

I spoke with Tim Pestotnik, attorney at San Diego, Calif.-basedPestotnik and Gold, who was retained by the two families involvedin the terrible crash. Pestotnik spoke to me about his concernsthat it took such a long time for Toyota and the National HighwayTraffic Safety Administration (NHTSA) to recognize the problem andtake action. Pestotnik said he has been in repeated contact withToyota regarding the matter. NHTSA conducted six separateinvestigations about the consumer complaints of the unintendedacceleration, and none of them found defects in the Toyotas. Inthree of the cases, petitions for further investigation were filed.However, the petitions were denied because of a “need to prioritizeNHTSA's limited resources.”

Pestotnik remains concerned that the recall does not includeLexus, although it is manufactured by Toyota and was involved inhis case. He notified Toyota following the accident and prior tothe recall, and said that he was first told that it was thefloor-mat issue. His client's floor mats were not in the car at thetime of the crash. He has since been advised that the issue is theCTS-manufactured component that is involved with the problem andthat CTS did not manufacture the sensor for the Lexus. On CTSCorporation's web site, the company disclosed that they are notresponsible for the accelerator issues in these vehicles.

Nevertheless, Pestotnik will pursue this issue on behalf of hisclients. He began his battle with Toyota prior to the recall andasserts that “this will be of a larger magnitude than the Firestonerecall and I see it being more in similarity to the tsunami of thetobacco litigation.” Pestotnik has received many calls from thepublic but, at this time, his primary concern is for his clientsand resolution of this case. He did, however, question whether the“fix” that Toyota released would indeed be a sufficientsolution.

Given all of these considerations, this issue is certain toimpact our industry in a manner that no one can possibly predict atthis time. Regardless of whether you are a claim professionalserving the property or the casualty side of the business, we mustremember that it is a customer- and people-dependent profession. Iam certain that, as this story progresses, there will be much newsto report. The ramifications to the industry will likely bewidespread, and this is just the beginning.