AAI Urges Changes in Iowa Claims Handling Regulation

April 23, 2003

A pending Iowa regulation that would reportedly regulate the way insurers settle automobile claims is flawed and should be changed, according to the Alliance of American Insurers (AAI).

“In its current version, IAC 191-15 would force insurers to pay third-party claimants for diminished value,” said Bill Schroeder, vice president of the Alliance’s Midwest Region, in testimony submitted today to a departmental hearing on the subject. “There is no contractual requirement to pay anything to a third party. As such, payment of diminished value is a tort claim and a matter of negotiation.

“In addition, the regulation appears to place the burden of proving diminished value on the insurance company, in direct contravention to existing case law, which clearly places the burden of proof on the claimant.”

Instead, the Alliance is advocating an amendment to the proposed regulation that would permit a claim for diminished value “if the third-party claimant proves that repairs did not fully restore the vehicle to its pre-accident condition as measured by market value. Each insurer shall maintain a system of supervision and control to ensure compliance with this rule.”

“Courts of law in no fewer than 12 states have failed to uphold the concept of alleged diminished value,” added Kirk Hansen, Alliance director of claims. “A vehicle that is properly repaired generally does not lose value, even if it has been in an accident. Though there are well over 60 million automobiles in the country that have been repaired as a result of accidents, none of the price appraisal guides, such as the NADA Official Used Car Guide or Kelley’s Blue Book, consider prior accidents when publishing the value of used cars. In addition, there are no used car dealers that sell a class of ‘diminished value’ cars.

“The changes in claim settlement practices that would be mandated by this regulation in its current iteration will only increase insurers’ claims costs with no corresponding improvement to the process for claimants.”

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