How do insurance companies decide to total a car in Texas? The short answer is insurance companies can choose to repair your car up until the cost to repair exceeds the fair market value of your vehicle. However, insurance companies will usually total a vehicle when repairs exceed 50% – 75% of the value.
It’s important to know whether the insurance company will be totaling your car after an accident. First, it gives you the opportunity to get an early jump start on researching comparable vehicles to present to the insurance company in order to increase your offer on the actual cash value of the car. Second, it will give you more time to shop for a replacement vehicle while the insurance company performs their investigation and estimate of the damages. Third, it may help to avoid accruing additional costs such as storage fees that the insurance company may refuse to pay if you failed to properly mitigate your damages by leaving your car at a storage facility for an unreasonable amount of time.
Texas Law on When a Car is Totaled
Texas law mandates how insurance companies determine when to total a vehicle and provides a formula, as indicated in the Texas Transportation Code. According to Texas Transportation Code Section 501.091(15), a salvage or “totaled” vehicle has damage to or is missing a major component part to the extent that the cost of repairs, including parts and labor other than the cost of materials and labor for repainting the motor vehicle and excluding sales tax on the total cost of repairs, exceeds the actual cash value of the motor vehicle immediately before the damage. In other words, the Texas total loss formula to determine whether a damaged vehicle must be a total loss is:
Cost of Repair > Actual Cash Value
If the total cost of repairs is greater than the actual cash value (ACV) or market value of car, then the insurance company will total the car. For example, if your 2008 Honda Accord has an actual cash value of $4,500 and the cost to repair it is $5,000, then your car would be totaled.
$5,000 > $4,500
Please keep in mind that insurance companies may decide to total a vehicle when the damages are less than the actual cash value. The Texas Transportation Code just provides a damage threshold in which a vehicle will be considered totaled.
Texas courts have also examined when a vehicle is totaled. In Canal Ins. Co. v. Hopkins Towing, No. 12-06-00411 (Tex. App.-Tyler 2007), the court ruled that a vehicle “is a total loss if a reasonably prudent uninsured owner, desiring to restore the property to its preincident condition, would not utilize that property for such restoration. Logic dictates that, absent other factors, a reasonably prudent uninsured owner would not repair a vehicle where the repair costs exceeded the vehicle’s preincident fair market value.” The court’s rationale in this case reinforces the Texas Transportation Code’s definition that a vehicle is totaled when the cost of repair exceeds the fair market value.
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