Question: My car has been declared a total loss. Now my car insurance company is deducting things like rust and what I’d call very minor damages or imperfections on the car that were there previous to the accident from the amount they’ll give me. I don’t like that, can they really do that?
Answer: Yes, your car insurance company can deduct for rust and previous damage when determining the actual cash value (ACV) of your vehicle. Rust, scratches, dents and other imperfections speak to the whole condition of your vehicle and thus its worth.
If you were trying to trade in the car or sell it, the prospective buyers would certainly take into account rust spots, and any minor damages it might have, and use that to barter with you and bring down the price for the vehicle.
Insurers are the same. They only want to pay you what the condition of the car deems it to be worth if it were up for sale today. They pay for the condition your car was in the moment before the accident since that is what its ACV is based on.
The insurance company deducts these damages with the belief that you knew about them and chose not to have them repaired, or that you neglected your car resulting in the rust, with the knowledge that your car is worth less than if you had elected to make the needed repairs.
Any deductions taken off for the pre-existing damage or the general condition of the car (prior to the accident) should be itemized with a specific dollar amount that your insurer is taking off their ACV settlement for them.
Most states don’t have a law that specifies how much car insurance companies can deduct for prior condition and previous damage. You can, however, check with your state’s insurance regulator to see if there are any particular laws or guidelines that auto insurers must follow in regards to this issue. It appears you may be located in New Jersey, in which case you'd contact their Department of Banking and Insurance (DOBI).
What you can do to get a higher settlement for your totaled vehicle is to negotiate with your car insurance company. You can negotiate both on what they say your car was worth (before taking off for the pre-existing damage), and then if you feel their deductions are high, you can also try and negotiate down the deductions with them.
Your best bet would be to get documentation from a local dealer saying what your car would’ve been worth and what they would’ve deducted for your rust and other damages. If it’s substantially different from what your insurer is offering you for ACV, try to negotiate with them to subtract less for the various issues, and thus give you more in total for your car’s actual cash value.