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Can an Insured Dispute a Carrier’s ACV Appraisal of a Vehicle? 

The carrier says that a totaled food truck, which is two years old and has driven 22,000 miles, has depreciated over 30%. It bases the price on a "market survey." Can the insured dispute the appraisal based on actual physical depreciation?
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can an insured dispute a carrier’s acv appraisal of a vehicle? 

The insured is a food service company using large delivery trucks made for their industry. The vehicle operating hours are more delivery than hauling, so the mileage is uncommonly low. These vehicles have an exceptional life expectancy given their low mileage. 

A unit, around two years old with 22,000 miles on the odometer, was totaled. It cost six figures when new but the carrier's offer has depreciated the unit over 30%. This type of vehicle—if used for different purposes—would be driven hundreds of thousands of miles through the course of its life. It is my understanding similar vehicles come with two-year and 250,000-mile warranties. 

The carrier has obtained a "market survey" as the basis of their price. That apparently is their basis for the settlement offer. 

Q: Can the insured dispute the actual cash value appraisal due to the food truck's low mileage and base the value on actual physical depreciation rather than a market survey? Also, where can the insured order an appraisal?

Response 1: The ACV of an automobile or truck is not the replacement cost less physical depreciation but its fair market value. That is, what a willing buyer would pay a willing seller for that truck in the condition that it was in prior to the destruction.

Determining that value for a unique item is often difficult and takes some expertise. That is why policies include an appraisal provision that can be invoked by either the insured or the insurer. The appraisal provision states that each party—insured and insurer—will select a representative and they will, in turn, select a neutral umpire. That group of three will determine the value of the vehicle that is binding on both the insurer and insured.

If you think the insurer is wrong in its valuation, the appraisal provision is your insured's remedy. I suggest you consider the appraisal provision. 

Response 2: I would remind the carrier that ACV is not defined. The industry definition is today's replacement cost less depreciation. We do use a straight depreciation, but that is also tempered with the age, obsolescence, use and condition of the property. A general survey will not give them accurate numbers.

Response 3: Have you tried Nada and Edmunds for ACV valuations that may be more appropriate? They may be using another much lower valuation site.

Response 4: Ask the client's certified public accountant about the depreciation claimed. Did the client write-off 30% depreciation on tax forms? That gain in theory could sync up with the insurer write-off.

Can the insurer locate a similar unit of like kind, quality and condition in the market? If so, is that the price of that unit? That is typically what the insurer will pay.

Response 5: Market value—what a willing buyer would have paid for the truck—is the common measure of ACV for vehicles. Mileage is always a big factor in vehicle resale value. Insurers and valuation services typically find comparable sales and use those to determine value. 

The comps they are using from their market survey should be reviewed. Did they have similar mileage? If not, what kind of adjustment was made for lower mileage? Truck dealers can be consulted for their opinions on what a similar low mileage truck would have sold for. And the insured can look for comparable trucks with low mileage to see what it would cost them to find something similar. 

Response 6: What is the expected life in terms of service as in years compared to mileage? I would reach out to management on this issue. Since this is food delivery, I am presuming the box portion is recoverable as that may be a significant aspect of the valuation. That leaves the chassis to be assessed for value.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.