We will take an in-depth look at auto physical damage (APD) claims to ensure we recover all the claim elements to which taxpayers are entitled. This includes the fleet or transit managers’ expenses and their alignment with claim element entitlements, total losses, and routine items not covered by most policies, which are rarely seen on a claim demand.

Additionally, we will review loss of use and diminished value recoveries and explain why they should be included in your claim. If you’re a risk manager at a quasi-judicial revenue-producing agency, loss of revenue may be more appropriate than loss of use if the affected unit is revenue producing, i.e. charges a fee for services. Loss of use may be appropriate for the non-revenue producing units such as service or administration vehicles.

Lastly, based on your statute of limitations, can you and should 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.

Why Are We Leaving These Recoveries on the Table? 

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). In contrast, 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 are 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 from 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 units. As for diminution of value, the insurance industry makes this difficult to prove.

Furthermore, we are not lacking in claims, and recovering the damage or total loss takes significant time and resources. We also lack the extra staff to prolong the settlement and justify the costs.

The truth of the matter is, every injured party, including governmental agencies, is entitled to compensation for loss of use or loss of revenue and diminution of value in a not-at-fault auto accident. It does not matter if your fleet or transit department has a spare pool of vehicles, buses, and paratransit units. The fleet manager 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. Additionally, the value of the vehicle is reduced every time it is damaged.

By recovering these claim elements, you contribute to the general fund, thereby helping taxpayers while also assisting the fleet, operations, or transit manager in offsetting 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.

Why Aren’t Total Loss Supplements Part of Our Claims Strategy? 

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), which considers the time and materials required to remove and reinstall specialty equipment on a replacement vehicle. This can include items such as radios, lights, sirens, cameras, GPS, telematics, bicycle racks, wheelchair ramps, and the like. It also considers the costs for restriping, wrapping, or lettering the replacement vehicle. 

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. 

When you consider the time transit 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.

On total loss supplements, another interesting issue often overlooked is the examination of the total loss unit to determine which specialty pieces are adaptable to the replacement unit.

Take for example, the center control panel of a safety patrol or supervisors' unit which houses the emergency light switches, radio and possibly a siren, a bus or railcar that has a bicycle rack, or a cutaway with a wheelchair ramp, it may work in the 2014 Explorer, Custom Cutaway, Gillig, or MCI but not in the 2025 replacement unit. In those situations, leave it behind, add it to the total loss supplement, and let the carrier pay you its depreciated value.

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 vehicle is totaled, the adjuster will take your receipts for those items, possibly depreciate them, and include them in the final payout. Transit managers will be doing essentially the same thing.

Maximizing Returns: Understanding Your ROI 

Before we discuss the Return On Investment (ROI), we need to consider the statute of limitations and its impact on your claim 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 and governmental subdivisions from the statute of limitations. In those states, you can reopen claims as far back as your records of retention allow. 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 re-open? 

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.  

If your claims are pooled into a risk pool, they are similarly constrained and can only recover what they have paid out, plus the insured 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.  

Closing the Loop on Recovery: Turning Missed Opportunities into Revenue 

Diminution of value is calculated the same regardless of the vehicle type. It is first and foremost based upon the VIN number having a history. With today's tools, accident information can be secured faster than ever before. Once one of those agencies has the information, Inherent diminution of value exists.  

That is not to say that Inherent DV will not become apparent in other ways such as physical inspection upon resale (paint meters) or other disclosures you may be required to make due to state law.  

From there, DV is a calculation based upon modifiers of the vehicles' value, age, mileage, and the type and extent of damage. Let’s look at it this way; DV is the same regardless of who owns the vehicle. If you’re a person acting as an individual buying a two cars, as a fleet manager buying two utility body service vehicles, as a transit manager buying two buses or streetcars, if you pulled a history report and found one of the two was in an accident and damaged, you are going to offer less for the previously damaged one than the one that was never damaged.  

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 return over $2.3 million to taxpayers.  

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

The most cost-effective method, with the best ROI, is to hire a firm whose revenue is derived from what you are currently not recovering. These firms do exist, and since there is no cost to taxpayers, obtaining procurement approval 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 that the agreement generally cannot last more than 364 days. This is helpful when looking at jurisdictions that are contending with a statute of limitations. RFIs, RFQs, and RFPs can take some time to do. Each day a valuable file could drop off the scope of recovery.  

Using the pilot program lets you test the vendor while deciding whether they qualify as a sole source, can be piggybacked, or need to go through a full RFP — giving you the best of all options. 

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. 

About the Author:Michael Towers has been in the Damage Recovery space for over four decades; owning a Car Rental Agency and later a successful Damage Recovery Firm before selling out to Zurich. He currently is a lead contracted support specialist (SME) for the Alternative Claims Management sales team. He can be reached at: MTowers@AltClaim.com or 407-301-1115.