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When the check won't buy you another car


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Question: I live in New York and my car got totaled.  I used my collision coverage and was paid by my insurance company what it said was the fair market value for the vehicle.  However, I’m unable to find a replacement vehicle for this amount. What is the right of recourse I’ve heard mentioned?  Is it unique to New York?

Answer:  The “right of recourse” that you’ve heard about refers to a New York insurance regulation that helps consumers remedy a situation such as yours where they are unable to find a comparable vehicle with the amount of the settlement check. 

Pursuant to New York Insurance Regulation 64 (11 NYCRR Part 216), you have 35 days from the date of the mailing of your settlement check to notify the car insurance company in writing that you’re unable to find a comparable vehicle with the amount you received for your vehicle.

This will prompt the New York car insurance provider to reopen its claim file for your total loss settlement.  The law then requires the insurance provider to either:

  • Identify and offer an amount sufficient to close the gap so your can purchase a comparable vehicle; or
  • Pay the difference between the amount of the original claim payment and the cost of a comparable vehicle (same year, make, model, condition and similar mileage) that is available for sale (found by you or the insurer). 

If you chose the latter, the insurer, upon your consent, may purchase the vehicle for you instead of paying you the difference. That, of course, would require you to return the original settlement payment back to your car insurance company.

If you’re still within that 35-day window, you need to take action by putting in writing that you want to invoke your “right of recourse” because you’ve been unable to find a substantially similar vehicle with the claim amount you received for your vehicle.

Before sending the letter, I’d recommend you double-check if your insurance company previously located a comparable vehicle for you that would have been covered by the original payment amount.  If it had and that vehicle was available for purchase for a full three days after you were informed of it, then you will be viewed as having forfeited your right of recourse and will be unable to invoke it now.

The right of recourse is not unique to New York.  There are other states that have this general concept as part of their state or insurance law, though details vary. 

For example, Illinois offers a right of recourse to its consumers.  The law here, though, says if you can’t find a comparable car that you must notify the insurance company within 30 days of your settlement. 

In Illinois, besides paying the difference or buying you a comparable car, the car insurance company can invoke the appraisal portion of your policy.

In other states, such as California and Texas, insurance regulators say in this type of situation you should try to negotiate with your car insurance provider to give you a bigger settlement.  If that doesn't work, you need to invoke the appraisal provision of your policy. This requires you and your car insurance company to each pick an appraiser -- and each pay for your appraiser.

The appraisers then chose an umpire.  The appraisers review your claim, and the umpire rules on any disagreements between the appraisers.  The cost of the umpire is split between you and your insurance company.

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