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

Toyota stated that it stopped production and sales of some of its best model cars to concentrate on the repairs of the recalled vehicles. The many angry customers out there want some answers. Reports indicated that communication is difficult, and systems to handle such a mass of communication are overloaded. From a broader perspective, sources say the company’s market has dropped 18 percent, or $28.2 billion. There are approximately 4.2 million vehicles affected by the floor-mat recalls, and approximately 2.3 million affected by the gas-pedal recall. Some models will be subject 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 floor mats and the gas pedal. Therefore, we have a new perspective toward our investigations of crashes involving Toyotas that are the makes and models included in the recall and details of the accident that could make them suspect for further investigation. What about the vehicles that have previously been involved in accidents? Should insurers reopen those files and pursue subrogation? Were extensive damages wrongly paid by the insurer, who covered the party deemed “at fault” at the time of the original investigation? It’s evident that this will impact several areas of the casualty industry. Simply put, damages, subrogation, and settlements will all be affected not only for current, but also past and future accidents involving Toyotas.

This also leaves us with questions surrounding the diminished value of the vehicles. In determining that a vehicle is a total loss, what is the value? Can we apply this diminishing value factor when we are establishing what the insured’s or claimant’s vehicle is worth? How does this affect the resale and salvage value?

Nick Zorn is an auto manager for Pilot Catastrophe, where he services some of their major accounts. He has been in the industry for more than 17 years and says that there will be an impact in the value of the vehicle, but that he views this as more of an issue for CCC, other auto programs, or resources used, such as NADA. The appraisers use these programs as a reference or guideline, and it will be up to them to make changes as they deem necessary. Zorn added that the recall will likely impact the value of Toyota products.

Claim Department Issues

As this new information has come to light, we find that casualty insurers and claim departments will find the need to develop a matrix or protocol of processes to effectively handle their claims involving Toyota vehicles. They are also faced with the situation of revisiting old claims that may involve the acceleration or floor-mat issues associated with the recalled Toyotas.

“It is something that needs to be given consideration when investigating accidents involving the recalled vehicles,” said Ken Carter, CPCU, a corporate casualty manager. “Anyone involved in investigating accidents has always encountered various versions of a person involved in an accident alleging that the accident was due to a mechanical issue such as the ‘accelerator sticking’ or some other mechanical problem.

“This is where a thorough investigation and adjuster documentation comes in to play,” he continued. “As far as accidents past, it will be difficult to further investigate those because of the likelihood that the vehicle would not be available for a re-inspection. It is possible that it is even destroyed or, if drivable, has a considerable amount of additional mileage that would impact the results of any investigation. The situations that the claim departments are facing are new and are in the discussion stage at this time.”

Carter advised that his company is involved in a specialty program that includes the insuring of dealerships, some of which are Toyota branded. The dealerships were placed on notice regarding possible product liability claims—yet another issue to be examined in 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 a whole in these times. Plaintiffs’ lawyers across the country are bombarded with calls as others are gearing up to be busy for quite some time to come. The claims range from lower vehicle values or diminished value, to injuries and even fatalities. In these early stages, it is difficult to determine what the fallout will be.

Legal experts indicate that owners will have difficulty in recovering if they cannot prove that their vehicles experienced the sudden acceleration problem. The fear and mental anguish may not be enough. In most states, if there is no consequential injury involved, 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 are concerned, it is his experience is that “without any damages, a claim for mental anguish could be made if it is proven that the person was placed in the zone of danger and suffered some type of mental anguish as a result.” He states that proving these types of damages can be difficult. Since November, at least 10 lawsuits seeking class-action status have been filed.

In my own research and investigation, I continued to run across numerous mentions of an accident in San Diego, Calif. The accident involved a Lexus, which is manufactured by Toyota, in which the driver and passengers involved in the accident included an off-duty California highway patrol officer, his wife, daughter, and brother-in-law. The driver made a frantic 911 call, which is cited in several articles and has now been made public. In it, the driver is panicked and states, “We’re in a Lexus … we’re going north on 125, and our accelerator is stuck … we’re in trouble … there’s no brakes … we’re approaching the intersection … hold on and pray … and pray ….” The called ended with a horrific crash that killed all four passengers. The Lexus struck another vehicle, continued on through a fence, rolled over, and burst into flames.

I spoke with Tim Pestotnik, attorney at San Diego, Calif.-based Pestotnik and Gold, who was retained by the two families involved in the terrible crash. Pestotnik spoke to me about his concerns that it took such a long time for Toyota and the National Highway Traffic Safety Administration (NHTSA) to recognize the problem and take action. Pestotnik said he has been in repeated contact with Toyota regarding the matter. NHTSA conducted six separate investigations about the consumer complaints of the unintended acceleration, and none of them found defects in the Toyotas. In three of the cases, petitions for further investigation were filed. However, the petitions were denied because of a “need to prioritize NHTSA’s limited resources.”

Pestotnik remains concerned that the recall does not include Lexus, although it is manufactured by Toyota and was involved in his case. He notified Toyota following the accident and prior to the recall, and said that he was first told that it was the floor-mat issue. His client’s floor mats were not in the car at the time of the crash. He has since been advised that the issue is the CTS-manufactured component that is involved with the problem and that CTS did not manufacture the sensor for the Lexus. On CTS Corporation’s web site, the company disclosed that they are not responsible for the accelerator issues in these vehicles.

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

Given all of these considerations, this issue is certain to impact our industry in a manner that no one can possibly predict at this time. Regardless of whether you are a claim professional serving the property or the casualty side of the business, we must remember that it is a customer- and people-dependent profession. I am certain that, as this story progresses, there will be much news to report. The ramifications to the industry will likely be widespread, and this is just the beginning.