1 Briefing Reports "Auto Body Fraud" Introduction "Fraud On Wheels" Table Of Contents Part I--Auto Body Fraud Legislative Considerations/Auto Body Fraud Auto Body Fraud Issues Part II--Auto Insurance Fraud Summary of Findings/Auto Insurance Fraud Legislative Considerations/Auto Insurance Fraud Auto Insurance Issues Appendix A October 1999 Auto Body Hearing Transcript FRAUD ON WHEELS INTRODUCTION California's 26.6 million legally registered vehicles are targets for theft that cost consumers over $1 billion annually, according to state law enforcement officials. When auto insurance fraud and auto body repair fraud are added to theft losses, the total price tag to the law abiding public rises to as much as $9 billion, according to law enforcement officials. Regardless of what figures are used, law enforcement and insurer records underscore that a vehicle in California is a source point for illegal activity. In March 1999 the Senate Insurance Committee began investigating key aspects of vehicle theft and fraud for purposes of identifying proposals to reduce illegal conduct. Committee staff focused on auto body repair fraud, auto insurance fraud and vehicle thefts. Over 200 auto body shop owners, insurer representatives and consumers were interviewed--many of these individuals submitted documents to the committee for review. Committee informational hearings were held in October and November of The end result is Fraud on Wheels, a committee report with findings and recommendations as well as the transcript from the October hearing.. This report is divided into two sections: Part I concerns auto body fraud while Part II deals with auto insurance fraud and vehicle theft. Part II also contains a summary of the November hearing. PART ONE: AUTO BODY FRAUD Summary of Findings The complex world of insured auto body work is fraught with
2 legal and illegal practices that hurt not only motorists, but also auto body shop owners and insurers alike. Factors that affect the cost and quality of auto body repair have been the subject of a Senate Insurance Committee investigation since March Based on document reviews, extensive interviews with insurers, auto body shop owners, state regulators and consumers as well as testimony from the October 27, 1999 committee hearing, committee staff has documented the following findings: * In an 11/15/99 letter to the Committee Chair, Senator Jackie Speier, the Bureau of Automotive Repair (BAR) reaffirmed its controversial statements at the October hearing that 39% of auto body work in California involves some form of fraud. Several insurers at the hearing concurred. * The fraud uncovered by BAR generally concerned auto body shops that billed insurers and consumers for work that was not done. * Some shop owners contend that the overall rate of fraud is well below 39%. The owners say that BAR figures are based on targeted inspections triggered by complaints; i. e., BAR is only looking at " bad shops. " * BAR supports its 39% figure as follows: --In complaint-initiated undercover investigations of 130 vehicles, BAR found that 39% of the total billings were for work not performed; --The above investigation finding mirrors three other surveys: (1) in a 1993 nine-month reinspection program of 692 vehicles needing $2,000 or more in repair, an insurer found that 60% of the jobs involved fraud; and (2) the same insurer found that 40% of the vehicles had not been repaired according to the original invoice; and (3) a 1994 BAR inspection program conducted with insurers found that 40% of the 52 cars inspected were repaired fraudulently; --In discussions that BAR has had with insurers and auto body shop owners, the 39% figure was not disputed, according to BAR officials. --BAR admits that a lack of resources results in only about 40 vehicles per year being inspected after the work has been completed and repairs paid for by the insurer. BAR says it cannot pursue fraud charges against a shop unless the vehicle leaves the shop. * An Associated Press report on the October 27, 1999 hearing incorrectly reported that auto body fraud in California costs consumers $5 billion annually. The $5 billion total is a national figure, attributable to the Society of Collision Repair Specialists. Although AP issued a correction, committee staff could not locate any newspapers that ran the correction. For the record, a more accurate total for auto body fraud in California would be $500 million annually, according to state regulators and insurers. * According to auto body shop owners, insurers may foster an
3 environment for fraud through their " direct repair programs " (DRPs). A DRP is an agreement between an auto body shop and an insurer where the insurer promises to refer customers to the shop in return for discounted rates on labor and parts and a guarantee on work performed. " Padded " billing occurs when the shop needs to offset dollars lost to DRP discounts. The cost of being a DRP shop may include working at low labor rates; paying for towing and rental car expenses of the insured; and discounting parts used in repairs. * Some insurer DRPs require the use of imitation (aftermarket) parts which are as much as 60% cheaper than original factory equipment. An October 1999 Illinois court ruling moved that State Farm owed policyholders some $1.2 billion for using imitation parts that failed to restore damaged vehicles to their pre-loss condition. State Farm, which has suspended its aftermarket requirement, has appealed the ruling. * Current law requires the insured to cover the cost of the policy deductible. Insurers encourage consumers to get a high deductible to bring down premiums. However, when faced with a $1,000 deductible, the insured may turn to the auto body shop for a price break on the work. To keep the business, shops sometimes absorb part or all of the deductible and pad the repair bill to make up the difference. * Insurers routinely deny shops the right to participate in a DRP even though the shops meet equipment and training standards. The California Autobody Association (CAA) recently reported that 79% of its members who responded to a survey indicated that they have been denied participation in a DRP. By limiting DRP participation, insurers are able to refer a high volume of insureds to favored DRP shops. * Insurers conduct prevailing labor rate surveys to help them determine what rate they will pay a DRP in a geographic area. Shop owners say insurers gravitate to the lowest labor rates often associated with shops willing to cut prices to get more business. The lowest labor rates become the DRP rate that is applied to all shops that want to be considered for a DRP contact. The labor rate in parts of Los Angeles and the Riverside area is $30/hour compared to $52/hour to $56/hour in Northern California. Insurers say the claims bills are comparable between Northern and Southern California despite the difference in labor rates. This difference is known as " funny time " and, as such, speaks to the volatile nature of pricing insured auto body work. * The BAR contends that some insurers will not fully cooperate with BAR if the shop under investigation is a DRP shop with the insurer. According to BAR, the insurer says policyholder and claim documents are confidential material that may not be shared with a state regulator. Conversely, BAR says that some insurers are highly cooperative in helping BAR investigate auto body fraud. * Insurers inspect a certain percentage of vehicles that are
4 repaired by both DRP and non-drp shops. However, the percentage of vehicles inspected varies among insurers, from a low of ten percent to a high of 58%. BAR officials claim that insurers with high inspection rates have fewer fraud problems that come to BAR's attention. But the major insurer of vehicles, such as State Farm and Allstate, say that it is statistically valid to inspect less than 25% of vehicles if the total number of vehicles inspected is large. * While DRPs vary from one insurer to the next, insurers do agree that DRPs save time and money because the claims process is accelerated. Additionally, insurers require DRP shops to guarantee their work, thus providing the consumer with assurance that the vehicle will be repaired to acceptable standards. * State disclosure laws designed to protect insured vehicle owners often fail to provide meaningful protections. While the law prohibits an insurer from requiring an insured to have a vehicle repaired at a specific shop, it does allow the insurer to use promotions that greatly influence the consumer's decision. For example, the insured is usually informed that if a DRP shop is selected, there will be no need for a claims adjuster to view the vehicle and the work will be guaranteed. Conversely, if the insured does not use a DRP, the inference is that there will be time delays and work that cannot be guaranteed. * Practically anyone may qualify to be registered by BAR to operate as an auto body repair dealer. The chief requirements are payment of a $200 annual registration fee and possession of certain repair equipment reflecting an investment of about $5,000. Lack of performance standards is cited by registrants as a reason why shoddy auto body repair work occurs; i.e., people doing the work lack skills and proper equipment. * While the majority of auto body fraud is financial, BAR reports that shoddy work does occur and, in some cases, may pose a safety risk to the motorist. For example, a frame that is not properly straightened could cause the vehicle to swerve at high speeds, or fail to protect the occupants upon impact. Given that the vast majority of damaged vehicles are never inspected, it is impossible to quantify the risk posed by poor auto body work. * Committee staff reviewed recent court cases where the plaintiffs charged they were not told by car dealers that the vehicles they bought had been subjected to significant damage. In two cases the vehicles had bent frames and were unsafe to drive; i.e., they could not be driven straight at freeway speeds. The auto body work in these cases exceeded $12,000 per vehicle. If a vehicle owner believes his or her car has been repaired correctly, then there is no law that requires the owner to disclose prior damage when subsequently selling the vehicle to another party, even if the repair bill was $5,000, $15,000, etc. * In California about one of eight cars damaged in an accident
5 is declared a total loss, that is, the insurer declares that the cost of fixing the vehicle exceeds a set percentage of its market value--this percentage is usually about 75% to 80% of market value. * Thousands of Californians rely on total loss vehicles for transportation. The DMV reports that each year about 146,000 vehicles are newly registered with a title indicating the vehicle had either been declared a total loss by an insurer, or that it was pieced together from junk parts. There are 2.06 million vehicles on California roads with a "salvage " or " prior junk " title. * Some salvage or junk vehicles may be perfectly safe to drive. However, the CHP has documented cases where total loss vehicles were sold at auction as salvage even though the vehicle appeared to be beyond repair due to heavy frame damage. Practically anyone may buy a salvage vehicle at an auction. Unlike vehicles that are significantly damaged and then repaired, salvage and junk vehicles come with a branded title that alerts the buyer to the car's prior accident history. * At time of vehicle registration, the CHP inspects one out of every seven of these salvage and junk cars and trucks to determine if the vehicle is comprised of stolen parts. These vehicles must have basic safety features such as brakes and wipers, but there are no safety checks done to determine if the frame, bumper or hood are in sound condition. The BAR contends that salvage and junk vehicles should undergo a frame inspection. Legislative Considerations 1. Require insurers to inspect a percentage of all vehicles subject to auto body repairs and require that the insurers inspect the work of all shops, not just DRP shops, in which they have authorized work. The percentage of vehicles to be inspected would vary according to the market share of the insurer and its inspection methodology. The Department of Insurance could determine the percentage with assistance from BAR. 2. Require BAR to inspect completed auto body work on 1,000 vehicles annually. An insured vehicle owner would have 60 days after his/her vehicle has been repaired to call BAR toll-free to request that the vehicle be inspected. Knowledge of the tollfree number and inspection program would be from mandated information in a " Consumer Bill of Rights " (see recommendation #3) that would be required to be presented to policyholders by insurers upon issuance of a policy. Inspections would be limited by resources and done on a geographic quota system through BAR's 11 field offices, or BAR could also target its inspections to those counties where fraud is most prevalent. Inspections could be funded by auto body shop registration fees, or a one-time General Fund appropriation if the inspection program were limited to a one-year pilot project. 3. Require insurers to give an insured a " consumer bill of
6 rights " at the time an auto policy is issued. This information fact sheet would explain that an insurer cannot require that the vehicle be repaired at a specific shop; that an insurer may recommend shops if requested to do so; and it would also explain a consumer's rights on the use of original equipment parts vs. aftermarket parts; new vs. used parts; and towing and rental car charges. 4. Require an insurer to disclose to an insured on either the " consumer bill of rights " (#3) or in a separate stand alone document signed by the insured that the policy does not cover the cost of a rental car when repairs are being made to the insured's vehicle if this condition exists in the policy coverage. Policies that provide for rental care coverage would not trigger this disclosure. 5. Ban the practice of insurers requiring auto body shops to pay for an insured's expenses for rental cars and/or towing as a condition of doing business with the insurer. 6. Prohibit an insurer from denying an auto body shop the right to contract with the insurer's direct repair program if the shop meets the insurer's standards for ownership of equipment, staff training, quality of work and history of compliance with the law. Insurer denials should be in writing so that the auto body shop owner understands the specific reason for the denial. 7. Require BAR to develop licensing standards for auto body shops, including ownership of specified equipment and proficiency testing of personnel. 8. Require the Department of Justice to investigate the methodology used by insurers to set auto body shop labor rates to determine if insurer actions are a restraint of trade. Require repair shop rates to be posted and restrict insurer rate surveys to posted labor rates. 9. Require that significant frame vehicle damage that is repaired be disclosed to the DMV for purposes of becoming part of the vehicle's history and that the vehicle title be branded as " prior frame damage." 10. Restrict the sale of salvage vehicles to " qualified " repairers. 11. For a one-year period require the CHP to check and report on the vehicle history of any vehicle involved in a fatal accident for purposes of determining if the vehicle had a prior " salvage " or " junk " history. 12. Require the Department of Insurance to investigate complaints from auto body shops that give credible evidence that an insurer may be in violation of the steering law. Auto Body Fraud Issues Auto body repair is a world of " haves " and " have nots. " The " haves " are auto body shops that have agreements with an
7 insurer to fix vehicles under conditions specified by the insurer. These agreements, usually known as direct repair programs (DRPs), offer the shop an opportunity to increase business since insurers will recommend DRP shops to insured parties who need their damaged vehicle repaired. Insurers have the power to pick and choose what shops they want in their DRP, therefore, the " have nots " are shops that cannot get into a DRP and that must depend solely on word-of-mouth, advertising and reputation to attract business. The number of DRP auto body shops in California is unknown. The Bureau of Automotive Repair (BAR), which regulates auto body shops, has some 7,000 licensees, but no record of which ones have a DRP contract. The California Autobody Association (CAA) with some 1,000 members reports that 16 percent of its members have no DRPs while 86 percent have a DRP with at least one insurer and 40 percent have DRPs with two or more insurers. Allstate established the DRP concept in 1976 as a means of controlling costs and quality of work. Other major insurers have followed suit, although most did not create DRPs until the early 1990s. DRPs vary in form from one insurer to the next; therefore, any debate on the worth of DRPs should consider the fact that not all insurer DRPs are alike. For example, some insurers allow, even require DRP body shops to use aftermarket parts such as sheet metal fabricated by a company other than the car's original manufacturer in the repair of hoods, side paneling, etc., while other insurers specifically disallow parts other than those that come from the original manufacturer--these parts are known as OEM(original equipment of the manufacturer). Based on committee staff interviews with over 30 auto body shop owners, including DRP and non-drp shops, compelling arguments may be made both in favor of DRPs as well as against DRPs. Some DRP shop owners were reluctant to identify insurers they believed were " unfair " to them for fear of reprisal; i.e., they would lose their DRP contract. However, these shop owners, in an " off the record agreement with staff, " did cite specific insurer policies they contend force other shops to " cut corners " to meet work quotas and cost limits. Other DRP shops supported the business relationships they have with insurers as being good for them and consumers as well. Summary of arguments in favor and against DRPs PROs. To obtain a DRP, a shop must satisfy insurer requirements for formal training of shop personnel and use specific equipment to make complex repairs such as straightening a frame. DRPs promote quality work. The DRP shop is hooked up electronically with the insurer and that serves to speed up the work approval process. This electronic relationship saves time and money, benefiting both insurer and the insured. The electronic relationship precludes the need for an insurance claims adjuster to inspect the vehicle; i.e., the shop owner
8 functions as the adjuster. The DRP shop saves the insurer and the insured both time and money. The DRP shop will agree to a labor rate set by the insurer, an agreement that serves to keep costs down and to prevent a shop from padding an invoice with work that was not required. This provision keeps premiums down. The DRP agreement may require a shop to cut costs by using generic car parts such as sheet-metal door panels and fenders which are less costly to purchase than an original equipment manufactured (OEM ) part. Non-OEM parts, often called aftermarket parts, save the insurer and the insured money. DRPs provide auto body shops with a steady stream of business so that the shop grows financially strong. Insurers routinely inspect the work of DRP shops and, consequently, shops strive to do good work in order to maintain their relationship with the insurer. In conclusion, supporters contend that DRPs result in quality work at a low cost. CONs? DRPs force shops to work at discounted labor rates, thus pressuring shops to make repairs quickly so that loss of income may be compensated for by increased business. Quick work promotes shoddy work. While insurers save money by reducing the number of claims adjusters in their employ, body shop owners must devote more time to processing claims. Some insurers are passing costs on to DRP shops without compensation; for example, the shop may be responsible for free towing, free storage of vehicle and free rental car while the insured car is being repaired. If the shop owner balks, he or she may lose the DRP. Some insurers pressure shops to use aftermarket parts, such as bumpers, when OEM bumpers would be easier to install. Furthermore, insurers require DRP shops to provide a written warranty of all work performed, including cases when aftermarket parts were used against the wishes of the shop owner. Some insurers require shops to discount new OEM parts five to ten percent, further eroding any profit the shop might earn on a repair job. The shrinking bottom line at DRP shops has promoted creative and possibly illegal ways to cut costs, or increase income as follows: --inflating estimates; --charging for unneeded parts; --using inferior paints and materials; --charging for OEM but using cheaper aftermarket parts;
9 --pulling out dents and paint, but charging for new parts. A shop that has highly trained personnel and state of the art equipment, but no DRP contract, may go out of business because it fails to get referrals from insurers. In conclusion, DRPs are eliminating auto body shop profits, thus forcing shops to cut corners to meet expenses, resulting in haphazard work practices and, in some cases, fraud. State Regulations Cover DRPs California Code of Regulations, Title 10, Chapter 5, Subchapter 7.5 (Fair Claims Settlement Practices Regulations), Section (e) reads as follows: (e) No insurer shall: (1) require that an automobile be repaired at a specific repair shop; or (2) direct, suggest or recommend that an automobile be repaired at a specific repair shop unless, (A) such referral is expressly requested by the claimant; or, (B) the claimant has been informed in writing of the right to select the repair facility; and, (C) the insurer that elects to repair a vehicle or directs, suggests or recommends that a specific repair shop be used, shall cause the damaged vehicle to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by these regulations. The DOI enforces the referral regulation, known as the "steering law." However, when the California Automobile Association (CAA) complained in a 11/21/97 letter to DOI about insurers that it alleged were illegally referring insureds to DRP auto body shops, the DOI declined to investigate, stating that it would only investigate complaints filed by an insured, not an auto body shop. DOI Commissioner Chuck Quackenbush, in a 1/19/98 letter to CAA, noted that DOI investigations have revealed that past complaints about violations of the steering law " have come from autobody shops, or their associations, whose members are losing market share to insurer referred shops." The Commissioner added, " This (DRP) results in a faster repair process for the consumer, lower costs for the insurer and savings, which are passed along to the consumer by way of lower premiums for physical damage coverage. So long as the requirements of Section 2695.(e) are met, this is not an illegal practice. " The Commissioner indicated DOI would conduct a Market Conduct review of steering law practices if " an outside entity " provided DOI with " company names. " CAA, instead, said it has taken its concerns to the Attorney General who currently has the matter of " restraint of trade " under consideration. Committee staff interviewed two auto body shop owners who refused to enter into DRP contracts. These shops thrived because they had reputations for doing excellent repair work.
10 However, the owners supplied the committee with letters from their customers who wrote that their insurers had urged them not to do business with these shops. The insurers in question may have violated the steering law. Committee staff has asked these consumers to file their complaints with DOI. BAR Fights Auto Body Fraud BAR program manager Allen Wood has indicated that up to 40 percent of the auto body work performed in California is fraudulent. He says that a common practice is to pull out the dents in a door panel, repaint it, but then charge the insurer for a new door panel. Other violations include covering up cracks in the frame while charging the insurer for the full cost of repairing the frame. In the aforementioned case, the shop owner is gambling that no one will inspect the " doctored up " frame. BAR catches fraud by obtaining permission from insurers and insureds to use a damaged vehicle in a sting-style operation. In these cases BAR investigators, who know what damage was done to the car, tear the car apart after it is fixed to determine if, in fact, door panels are new, the frame is properly fixed, etc. BAR reports that from July 1996 through March 1999, it received 605 complaints with subsequent investigations leading to $101,029 in refunds to complainants, $176,473 in work that had to be redone at BAR request, and $62,841 in lowered repair costs. During this time period BAR filed 126 criminal actions and 142 administrative actions. Entry to licensed auto body work does not weed out those who lack skills to do the work. For example, in 1996 the chair of this committee, then Assemblywoman Jackie Speier, obtained a BAR license to repair vehicles despite the fact that she had no training, or equipment to do such work. Speier said she got the license to prove how BAR authorization does not carry any consumer protection with it. Little has changed since 1996 other than that the auto body repair business must now prove it has certain equipment that BAR says represents a investment of $5,000 to $10,000. The annual license, called a " registration, " costs $200 and is issued to the business. The State Farm Settlement On October 8, 1999 an Illinois judge ruled that State Farm committed fraud by forcing its DRP and non-drp shops to use aftermarket fenders, hoods and trim that the insurer " knew " were inferior to OEM parts. A class action lawsuit had accused State Farm of failing to return damaged vehicles to their pre-loss condition; i.e., the use of non-oem parts were not as good as OEM parts. The judge's award of actual and punitive damages in this case coupled with a jury damage award brought the total award to State Farm customers to $1.2 billion. State Farm has appealed the decision and it has tabled its aftermarket policy. In 1995 State Farm settled a California class action suit where the insurer was hit for not informing policyholders of auto
11 insurance coverage changes, including the use of cheaper aftermarket parts in the repair of damaged vehicles. During the 1999 trial a State Farm representative noted that the use of aftermarket parts has saved $1.3 billion from 1987 to State Farm also argued that its policies require the use of aftermarket parts that are of " like kind and quality " to factory original parts and the use of such parts are to be clearly disclosed on invoices. State Farm has issued a field memo ordering claims representatives to " temporarily " stop using aftermarket parts.finally, State Farm recently settled out of court with an Illinois auto body shop owner who had won a $24.3 million jury damage verdict over his claim that the insurer was steering business away from his shop. The Aftermarket Quality Argument In February 1999 Consumers Union (CU), in its publication, Consumer Report, released a study it had done on the quality of OEM vs. non-oem fenders and bumpers. The major conclusion was that the non-oem bumpers and fenders were inferior to OEM parts. Specifically, the non-oem bumpers fit poorly and provided poor, low-speed crash protection while the non-oem fenders also fit poorly and were subject to rusting more often than the OEM fenders. The CU report also charged that most auto insurers favor non-oem parts because they are 20 percent to 65 percent cheaper than OEM parts, yet the savings to insurers have not been passed on to policyholders. The non-oem fenders in the CU study were certified by the Certified Automotive Parts Association (CAPA) which subsequently challenged some of CU's findings. In a letter published in the April 1999 issue of Automotive Body Repair News, CU rebutted all of CAPA's challenges. ( Copies of CAPA's challenges and CU's rebuttal are attached to this briefing report.) What is CAPA? CAPA is an independent, nonprofit organization, which certifies the quality of certain sheet metal and plastic auto parts. The certification includes assessing maker specifications in terms of matching those of the original manufacturer. Key CAPA-certified parts include fenders and hoods--capa does not certify bumpers, which were a subject of the CU study. CAPA has decertified some parts because of poor construction. CAPA was the brain child of a State Farm research director. Formed in 1987 CAPA is partially funded by insurers who currently occupy a majority of the nonprofit's board seats. State Farm is represented on the CAPA board as are other major auto insurers such as Allstate and USAA. What Auto Body Shops Say About Aftermarket Committee staff asked auto body shop owners for their opinions on the value of aftermarket parts and the worth of a
12 CAPA-certified aftermarket part vs. one that was not certified. The responses were as follows: --Aftermarket parts do not fit as easily as OEM parts, so it takes longer to install them. --I prefer to use OEM whenever possible--the fit is better. --CAPA parts represent big dollar savings compared to new factory parts. --The proliferation of aftermarket parts has made it difficult to tell if a salvage door panel is OEM or non-oem. --This debate over CAPA vs. OEM is not a safety issue for the most part-we're talking about the difference between which will rust faster, not which will protect the driver from injury. --OEM is superior to aftermarket. --The two key safety parts to be concerned about are hoods and bumpers. Aftermarket hoods may be designed to fold into the windshield upon impact while an OEM hood will go down into the engine compartment. Some aftermarket bumpers are worthless. State law requires that the use of aftermarket parts must be identified on the repair invoice. Specifically, the auto body shop must identify each part as being one of the following: new, used, reconditioned, rebuilt, or an OEM crash part, or a non-oem aftermarket crash part. It should be noted that OEM parts may be used. For example, one insurer informed the committee that it did not allow the use of aftermarket parts in the repair of a vehicle; yet, it did allow use of OEM parts taken off another car. Again the origin of the part must be disclosed on the invoice. Are Salvage Vehicles Safe to Drive? The concept is simple: a vehicle that sustains major damage may not protect occupants as well if it is involved in a subsequent crash despite repairs that get the vehicle back on the road. In some cases, safety proponents argue that the vehicle should be bought back by the insurer and taken off the road, or the repaired vehicle should have its structural integrity--the frame--inspected by an entity such as BAR prior to its return to the road. In California an insurer has three options when an insured's vehicle sustains damage: (1) the vehicle can be repaired; (2) the insurer may replace the vehicle with a like vehicle; or (3) the insurer can pay the insured the fair market value of the vehicle and, thus, become the owner of the vehicle. As a rule the insurer selects the most financially feasible option. For example, a car worth $22,000 that sustains $12,000 in damage will be repaired while a car worth $4,000 that has $3,000 in mostly cosmetic damage will be " totaled. " It is misconception that the most severely damaged vehicle gets totaled, according to a representative of Insurance Auto Auction, the largest salvage pool company in the nation. When an insurer makes a settlement with the insured, the insured turns over the title to the vehicle to the insurer who, in turn, gives it to DMV, which then issues a " salvage certificate."