We are going to take an in-depth look at auto physical damage claims to ensure we are recovering all the claim elements the taxpayers are entitled to. This includes the fleet managers’ expenses and their alignment to claim element entitlements, total losses, and the routine things not covered by almost every policy, and as such hardly ever seen on a claim demand.

Additionally, we are going to go over loss of use and diminished value recoveries and why they should be a part of your claim. Lastly, based upon your statute of limitations, should you and can you go back and recover from the at-fault carrier those items that were previously overlooked. Finally, I will outline several options for implementing these recovery strategies.

Common Barriers to Recovery

We all encounter auto claims when another party has caused damage to one of our vehicles. Some of us are self-insured and handle recoveries from the at-fault party’s carrier using in-house staff or a third-party administrator (TPA), while others have fleet insurance through a risk pool or carrier with a deductible.

Regardless of how your claims recoveries are handled, one common issue we see almost every time is that loss of use and diminution of value is typically not requested in claims submitted by governmental agencies.

One would ask why. Well, the reasons are varied. If your fleet is insured, there are typically no policy provisions to cover these elements. Some assume they are not entitled to recover loss of use because the fleet manager has spare vehicles. 

Others have tried or been told by the insurance carriers that they are not entitled to loss of use because they have spare vehicles. As for diminution of value, the insurance industry makes this difficult to prove. Add to the fact that we are not lacking in claims and recovering for the damage or total loss takes significant time and resources, and we don’t have the extra staff to prolong the settlement and justify the costs. 

Entitlement to Compensation for Fleets

The truth of the matter is, every injured party, including governmental agencies, is entitled to compensation for loss of use and diminution of value in a not-at-fault auto accident. It does not matter if your fleet manager has a spare pool of vehicles. They will be the first to tell you that most of the fleet cannot be rented through a local agency, and as a result, the taxpayers incur loss of use costs 365 days a year. 

To give you a benchmark, take a routine radio motor patrol unit (RMP). The unit with the police package has an acquisition cost of roughly $40,000.By the time you add the lights, sirens, computers, radios, and other equipment, that unit's holding costs go up to $80,000. 

Add a few of these vehicles in the mix, then fire apparatus and an ambulance or two, and you're funding several hundred thousand dollars in spare units. Additionally, reduction of the vehicles’ value occurs every time it is damaged.

By recovering these claim elements, you contribute to the general fund, thus helping the taxpayers while also helping the fleet manager offset some of the costs associated with maintaining a spare pool fleet. If they only needed a pool for routine preventive maintenance, their fleet could be marginally smaller. While the reality is a pool fleet is needed and the costs can’t be avoided, we can help offset some of those costs.

Another claim element we routinely see that is not requested is what we call total loss supplements. They are part and labor estimates over and above the vehicle’s actual cash value (ACV) that considers the time and materials to remove and reinstall specialty equipment on a replacement vehicle. 

This can include items like radios, lights, sirens, prisoner cages, stretchers and defibrillator mounts, cameras, GPS, pumps, welding equipment, telematics, and the like. It also considers the costs for restriping or lettering the replacement vehicle. 

When you consider the time fleet or public works staff spend on these tasks, and their hourly costs, it amounts to quite a bit of uncompensated taxpayer dollars that the at-fault carrier should be held accountable for paying. The best way to document this is to take each vehicle class that has specialty equipment, create a list with the most equipment in that class, and attach the costs or time associated with the removal and reinstallation of those items.

On total loss supplements, this is another interesting issue that is often overlooked: when looking at the total loss unit, see what specialty pieces are adaptable to the replacement unit. Take, for example, the center control panel of a police patrol unit, which houses the switches, radio head unit, and siren head control unit. If it works in the 2014 Explorer but not in the 2023 replacement unit, leave it behind, add it to the total loss supplement, and let the carrier depreciate it.

Why remove something that will end up in a dumpster? Treat it the same as your kid’s first car, with a high-end stereo and chrome rims (I know, I’m dating myself). If their car gets totaled, the adjuster will take your receipts for those items, maybe depreciate them, and add them to the final payout. You will be doing essentially the same thing.

Statute of Limitations and ROI

Before I get to the return on investment (ROI), we need to consider the statute of limitations and how they affect claims recovery. If you are considering pursuing any part of these claim elements, you should consider not only adding them to new claims, but also past claims up to the statute of limitations. 

If you did not exhaust limits or sign a release on the initial recovery, you can reopen those claims and submit a supplemental request for compensation. Some states have laws exempting municipalities from the statute of limitations. In those states you can reopen claims as far back as your records retention is. 

As an example, Texas has a two-year statute of limitations, but municipalities are exempt. They enjoy a 10-year records retention policy so this means there could be substantial taxpayer proceeds available for recovery. 

What is your statute of limitations and how many claims can you potentially reopen?

By now you are likely wondering what the ROI is for adding these to our claim submissions. Can my TPA or Risk Pool add them to the claim if requested? If your TPA works for you, they can seek recovery but are generally not very effective at recovering these items. 

Risk pools often limit recovery to what was paid out plus the insured’s deductible. So, you might be asking, are there other options I can pursue other than changing my current process? These are all very relevant questions.

To answer the first question: Yes, the ROI is there. By accurately calculating your downtime and securing a good diminished value evaluation, the ROI is there. For example, we worked with a medium-sized county outside Atlanta, where the statute of limitations is four years. By reopening past claims, we were able to recover and give back to the taxpayers over $2.3 million.

You can also hire a damage recovery firm specializing in this type of work. This allows you to keep your current processes and utilize them to overlay and enhance your efforts. Make sure they are 100% performance-based, with no monthly or per-file fees. If you choose to have them recover the damages, they should recover them at no cost to the taxpayers. 

The most cost-effective method, with the best ROI, is to hire a firm where their revenue is derived from what you are currently not recovering. These firms do exist, and since there is no cost to the taxpayers, getting procurement to approve with minimal red tape should be relatively straightforward. 

That being said, procurement is generally the most difficult part of implementing any new program or vendor. What makes this program easier to implement than ordering uniforms or work gloves is the unique nature of what it provides. 

As a result of that, most jurisdictions have what is called a “pilot program.” This is where, for unique opportunities and products, a municipality can enter into an agreement without doing an RFP or piggybacking and test out the product or program. 

The key to this is the agreement generally cannot last more than 364 days. This is helpful when looking at jurisdictions that are contending with a statute of limitations. RFI’s RFQ’s and RFP’s can take some time to do. Each day a valuable file could drop off the scope of recovery. Utilizing the “pilot program”  while deciding if the vendor meets “sole source” or you can piggyback or have to send it out for a full RFP, you get the best of all worlds.

I hope this has given you a different perspective on auto physical damage claims and how, as a risk professional, you can positively affect the bottom line at budget season.