There are approximately 150,000 automobile collisions in Canada every year. In a substantial number of cases, at least one of the vehicles involved is damaged beyond repair. Hopefully, this never happens to you, but in this article we’ll discuss what happens when a vehicle is damaged beyond repair in a collision and what your rights and responsibilities are as a consumer.
What to do if you’re involved in a collision
If you’re involved in a collision in which your car is severely damaged, you must immediately report the accident to the police. If you can do so safely, move your vehicle off the road and out of the line of traffic. Turn on your hazard lights or use cones or warning triangles if you have them.
You should record as many details of the accident as you can while the incident is still fresh in your mind, including:
Other helpful tips are:
What Happens When Your Vehicle is a Total Loss?
After the accident, an insurance claims adjuster will inspect your vehicle and determine whether it can be repaired or whether it is labelled a "total loss". A vehicle is considered to be a total loss (or a write-off) when the cost of repairs is greater than the current value of the vehicle. It may also be considered a total loss if the necessary repairs can’t be carried out safely or economically.
If you’re in an at fault accident, and you have purchased Collision coverage, and your policy is in good order, your insurance company will pay for the cost of replacing the vehicle based on its current value, minus your deductible. If you’re not at fault you are covered under the Direct Compensation coverage of your policy.
How is the Settlement Amount Determined?
The current value of the vehicle is considered to be the amount that the vehicle could have reasonably been sold for prior to the claim. The value is determined by the retail selling price of a similar vehicle, while taking into account considerations such as mileage, condition of the vehicle, upgrades, prior damage and so on.
If your vehicle is considered a write off, your insurance company will calculate the vehicle’s cash value, including taxes and offer you a cash settlement for that amount. It is then your responsibility to buy a replacement car with the cash settlement.
The insurance company takes possession of your written-off vehicle, and brands it according to one of two classifications based on the extent of the damage:
What if I want to keep my car?
If you want to keep your damaged vehicle after your claim has been settled, you can request that your insurance company allow you to keep it. In this case, your cash settlement will be reduced by the amount the insurance company would have recouped by salvaging the vehicle. Keep in mind that if your car has been branded as "irreparable", you can never repair and drive it, you will only be allowed to salvage it for parts.
"Salvage" vehicles must be repaired and pass a rigorous inspection before they can be legally driven. In the vast majority of cases, it simply doesn’t make financial sense to keep your damaged vehicle.
What if I Disagree With the Cash Settlement?
If you disagree with the amount of the cash settlement you receive for your car, you have the option of discussing the matter with your claims representative. Before you do so, you should gather as much information as you can to prove your argument, and make sure you have receipts and signed statements to verify your claims.
Other information that may be considered relevant to your claim would include proof of the actual prices of similar vehicles from car dealers or trade magazines, or blue book value. It’s best to list several prices to give a realistic value range.
If you’ve had work done on the vehicle that increases its value, you should let your insurance company know and provide documentation. Work that increases your vehicle’s value includes upgrades or additions to your vehicle, but does not include the normal repairs that are required to keep the car running smoothly.
If you and your insurance company disagree on the value of the car, you have the right to seek arbitration. Arbitration is the process of bringing in a neutral third party to settle the dispute. The arbitrator will examine the facts of the case and make a decision in favour of the consumer or the insurance company. Arbitration may or may not be binding on the parties involved, depending on your original agreement.
If you still disagree, and the Arbitrator’s decision is not binding, you can contact the General Insurance OmbudService (GIO) for dispute resolution. This service is completely free of charge and is available to any insurance policy holder in Canada. As a last resort, you can seek outside legal advice.
Hopefully, you will never be involved in a collision that involves the complete loss of your car, but in all cases, the best course of action is to communicate clearly with your insurance representative and make sure they are aware of all the facts in your case. If you have any questions, your insurance representative can answer them or find you the information you need.