From the December 2012 issue of Claims Magazine • Subscribe!

Storm-Damaged Cars Could Resurface in Used Car Market

The economic damage from Superstorm Sandy could hit $50 billion, making it the second most expensive storm in U.S. history, ranking right behind Katrina, according to forecasting firm Eqecat. 

The cost to insurance companies could range from a low of $10 billion to as high as $20 billion, and vehicles will account for a significant part of the loss. In fact, there is a potential that an estimated 80,000 to 100,000 vehicles from storm-affected states will be declared total losses. Unfortunately, there is also a chance that a lot of these total losses will resurface in the used car market. Here’s what you need to know now. 

The two major causes of total loss will be flooding and damage from falling trees. While falling-tree damage can be easily spotted, once flood damage is cleaned up, it becomes more difficult for the unwary buyer to detect. Vehicles totaled out by insurance companies will most likely carry a “salvage” or “branded” title indicating that the vehicle was declared a total loss. 

However, a process known as “title washing” allows unscrupulous car dealers and individuals to remove salvage branding from car titles to minimize their losses. Titles are washed by transferring a salvaged vehicle to a state that doesn’t recognize the damaged-title brand. When the state issues a new title, it may no longer show that the car had been salvaged. The seller will just keep moving the vehicle from state to state until the branding is gone. Once that happens, the vehicle’s history will have been “washed” clean.

What’s Wrong with “Flood” Cars?
When water rises to the dashboard, reaching expensive and complex electrical parts, most insurers deem the car more expensive to repair than the vehicle is worth. The reasoning is that water will get into and corrode all electrical connections and damage vital engine and airbag components. Interior components like seats have padding that absorb the dirty flood water like a sponge, and once dried, retain the lingering odor of that water. Door panels and other nooks and crannies may not fully dry initially, causing black mold spores to grow. Unwitting buyers of flood vehicles from Hurricane Katrina wound up with vehicles that had continual electrical and drivability problems and exposed them to the potential health hazard of black mold.

Buyers, Beware 
Car buyers can safeguard themselves from this scam by first finding out if the prospective vehicle was registered in one of the hard-hit areas. Using the 17-digit Vehicle Identification Number (VIN), consumers can perform an online title search. This can also help buyers determine if the vehicle has recently changed hands, or has several previous state titles, which could be an attempt to cover up the clues of flood damage. Of course, the best thing consumers can do is have a qualified mechanic inspect the vehicle for evidence of flooding. A mechanic will charge an inspection fee of $100 or more to disassemble key components and look for evidence of water damage. That’s inexpensive insurance that could save you thousands in repair bills down the road. 

There are an estimated 36 million used cars sold each year—and making sure consumers (and insurers) don’t get stuck with a flood-damaged car takes a little work. But, when you consider that a car is most likely the second largest purchase most of us will make, spending a little money doing a title search or having a mechanic do an inspection is money well spent.

Statements and opinions expressed in this article are solely those of the author. They are not offered as and do not constitute legal advice or opinion of Mitchell International Inc.

Page 1 of 2
Comments

Resource Center

View All »

Contractors General Liability Coverage 102

What is a prior work exclusion? Which option is right for my client? Why do...

Sign up today to get a 50% matching credit -...

Insurance marketing sometimes seems like it's a game of swings and misses, but we're here...

Guide: 5 Steps to Selling Cyber

Cyber risk and data security is on the agenda of every business owner and executive....

Citation Correlation

Do rigger and signalperson qualifications correlate with the cause of crane and rigging accidents? ...

Complete Guide to Electronic Signatures in Property & Casualty Insurance...

In property and casualty insurance, closing new business quickly is key. Learn how to leverage...

INSTANT ACCESS: Complimentary Sales Closer Questionnaires

Help property owners or managers compare your commercial residential property insurance coverage vs. the competition....

Determining Vacant Property Perils and Valuations

Are your clients fully covered for Vacant Properties? In this economic climate, your insureds may...

Risk Management for Law Firms

This package of 3 concise risk management articles offers straightforward content and practical suggestions law...

Guide: Top 15 E&O Risks-And How To Avoid Them

Accidents happen. But when it's an errors and omissions oversight, that accident can open your...

We'll Show You How to Reach Your Sales Goals

Whether you work alone or have a team of agents working for you, we can...

Claims Connection eNewsletter

Breaking news on disasters, fraud, legal trends, technology, and CE initiatives for the P&C claim professional – FREE. Sign Up Now!

Claims-Handling Guidelines

Claims Magazine is providing the following free guidelines and regulations in order to help adjusting professionals stay abreast of each state’s unique property and casualty claim-handling requirements.

View our State Guidelines »

Advertisement. Closing in 15 seconds.