American Family total-loss offers in Kansas: how the appraisal clause works

Kansas regulates first-party automobile total losses through three layered authorities: the Unfair Claims Settlement Practices Act at Kan. Stat. Ann. § 40-2404, the implementing claim-handling regulation at K.A.R. 40-1-34, and the attorney's-fee shifting statute at Kan. Stat. Ann. § 40-256, which awards reasonable attorney's fees when an insurer's refusal to pay was "without just cause or excuse." Kansas does not recognize a common-law first-party bad-faith tort — the Kansas Supreme Court declined to do so in Spencer v. Aetna Life & Casualty Insurance Co., 227 Kan. 914 (1980), leaving § 40-256 as the primary statutory lever. Kan. Stat. Ann. § 40-2404 — Unfair Claim Settlement Practices. The statute defines acts that constitute unfair claim settlement practices when committed flagrantly and in conscious disregard of the statute's provisions or its rules, or with such frequency as to indicate a general business practice, including: misrepresenting pertinent facts or insurance policy provisions; failing to acknowledge and act with reasonable promptness on claim communications; failing to adopt and implement reasonable standards for the prompt investigation of claims; refusing to pay claims without conducting a reasonable investigation; failing to affirm or deny coverage of claims within a reasonable time; not attempting in good faith to effectuate prompt, fair, and equitable settlements when liability is reasonably clear; and compelling insureds to institute litigation to recover amounts due. K.A.R. 40-1-34 — Unfair Claim Settlement Practices Regulation. The regulation adopts the NAIC Unfair Claims Settlement Practices Model Regulation (January 1981 edition) by reference, subject to the exceptions it lists as (a) through (q). Two of those exceptions replace the model's total-loss cash-settlement standards: K.A.R. 40-1-34(m). A cash settlement is based on the actual cost, less any deductible, to purchase a comparable automobile, determined by a source or method for statistically valid fair market value whose database provides values for at least eighty-five percent (85%) of all makes and models of private passenger vehicles for the last fifteen (15) model years, and which provides fair market values for a comparable automobile based on current data available for the local market area. K.A.R. 40-1-34(n). A total-loss settlement that deviates from those methods must be supported by documentation giving the particulars of the automobile's condition and the basis for the deviation, and any deviation from that cost, including a deduction for salvage, must be measurable, discernible, itemized and specified as to dollar amount. Right of recourse — K.A.R. 40-1-34(p). Kansas adds a right of recourse to the model regulation it adopts, as § 9(i). If the claimant notifies the insurer, within thirty (30) days after receiving the claim draft, that the claimant cannot purchase a comparable automobile for the amount of the draft, the insurer must reopen its claim file within five (5) business days. It must then either pay the claimant the difference between the market value it determined and the cost of a comparable vehicle of like kind and quality the claimant has located, or negotiate and effect the purchase of that vehicle for the claimant; or it may elect to offer a replacement vehicle. Kan. Stat. Ann. § 40-256 — Attorney's Fees. When it appears from the evidence that any insurer has refused without just cause or excuse to pay the full amount of a loss, the court shall allow the plaintiff a reasonable sum as an attorney's fee for services in the action. Unlike a bad-faith tort, § 40-256 does not require proof of insurer malice or recklessness — only that the refusal lacked just cause or excuse. The fee award is in addition to the contract damages and is the primary financial lever in Kansas first-party insurance litigation. Spencer v. Aetna Life & Casualty Insurance Co., 227 Kan. 914 (1980). The Kansas Supreme Court held that the tort of bad faith is not recognized in Kansas. The § 40-256 fee award and the Kansas Insurance Department's K.A.R. 40-1-34 enforcement track are the alternative levers. Kan. Stat. Ann. § 8-197 — Salvage Vehicle Definition. A late model vehicle (one from the model year of the damage or any of the six preceding years) is a salvage vehicle when the total cost of repair is 75% or more of its fair market value immediately before the damage, unless the damage was merely exterior cosmetic damage from windstorm or hail; a vehicle that the insurer determines is a total loss and for which the insurer takes title is also a salvage vehicle.