Georgia’s insurance commissioner has directed auto insurers to include the full amount of taxes that would be paid on a replacement vehicle when settling total loss claims.

John F. King said he issued the directive after learning about “confusion among Auto Insurers” about the correct method for calculating taxes.

John King

“Allow me first to reiterate that the purpose of insurance is to make insureds whole again following a covered loss,” King said in his directive. “In the case of first-party auto insurance claims, to make an insured whole, an insurer must properly calculate taxes to be paid by the insured when replacing a lost vehicle.”

As of April 1, King wrote, insurers who use the cash equivalent method of settlement “must calculate the actual taxes required to be paid by the insured when replacing the total loss vehicle.”

Insurers who do not heed the directive may face sanctions, which could range from a formal letter of reprimand to a mandated change in business practice to monetary penalties, depending on the nature of the violation, King’s office said.

“It’s important to note that most cases do not require severe sanctions but are resolved simply by our Department contacting the company in question,” Weston Burleson, director of communications and legislative affairs for the commissioner’s office, told Repairer Driven News.

“Before this particular Directive, our Regulations were vague on this particular subject. After April 1, a violation of this Directive will be able to trigger action on our part,” Burleson said.

Instructions for consumers who want to file a complaint are available at the commissioner’s website, https://oci.georgia.gov/how-do-i-file-complaint

The commissioner noted that some carriers might be basing their tax payments on an amount lower than the agreed-upon value of the vehicle.

“This method fails to make the insured fully whole because it does not accurately provide for the unique cash value of the lost vehicle that the insurer has already determined.”

Georgia’s Rule 120-2-52-.06 regulates how total loss vehicle claims are to be handled. The rule states, in part,

“The insurer may elect to pay a cash equivalent settlement based upon the actual cost less any deductible provided in the policy, to purchase a comparable automobile by the same manufacturer, same model year, with similar body style, similar options and mileage, including all applicable taxes, license fees and other fees incident to the transfer of ownership of a comparable automobile. The amount payable on taxes, license fees, and transfer fees shall be limited to the amount that would have been paid on the totaled, insured vehicle at the time of settlement.”

According to Insurance Journal, the issue arose after CBS46, an Atlanta television station, reported that some drivers had been underpaid by hundreds of dollars after their cars were totaled.

CBS46 reported one case in which Progressive paid $19,700 to settle a claim over a 2016 Toyota Prius, but included just $1,050 for taxes, about $250 less than the state’s 6.6% ad valorem tax. The carrier had used the state Department of Revenue’s web-based estimator to come up with a lower amount, the station reported.

“They were gaming the system,” King told CBS46. “If they continue engaging in this practice, they’re going to get sanctioned.”

The inclusion of the full transaction costs, including taxes, in actual cash value (ACV) calculations is at the heart of a class action suit filed against GEICO in Texas.

In that case, Angell et al v. GEICO, an attorney for the plaintiffs asserted that the insurer owes its customers tens of millions of dollars. GEICO is appealing the class certification order.

More information

Class status granted in Texas ACV lawsuit against GEICO

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Featured image: The Georgia State Capitol in Atlanta. (Susanne Neumann/iStock)