GEICO total-loss offers in Rhode Island: how the appraisal clause works

Rhode Island regulates first-party automobile total losses through five layered authorities: the motor vehicle damage appraiser licensing chapter at R.I. Gen. Laws §§ 27-10.1-1 et seq. (license from the insurance commissioner after an examination), the Unfair Claims Settlement Practices Act at R.I. Gen. Laws § 27-9.1 (a public-enforcement statute administered by the RI Department of Business Regulation, with no private right of action), the implementing claim-handling regulation at 230-RICR-20-40-2.8 ("Standards for Prompt, Fair and Equitable Settlements Applicable to Automobile Insurance," part of 230-RICR-20-40-2), the bad-faith refusal-to-pay statute at R.I. Gen. Laws § 9-1-33 (compensatory and punitive damages plus reasonable attorney's fees on a finding of bad-faith refusal), and the common-law bad-faith tort recognized in Bibeault v. Hanover Insurance Co., 417 A.2d 313 (R.I. 1980). Rhode Island's MVDA license requirement gates the appraisal-clause appraiser role; SecondAppraisal Inc supplies the market research and valuation analysis a Rhode Island MVDA-licensed appraiser, or an appraiser "allowed by mutual agreement of both the parties" (§ 27-10.4-1(b)(10)), may rely on, rather than serving as the appraiser of record. R.I. Gen. Laws §§ 27-10.1-1 et seq. — Motor Vehicle Damage Appraisers. No person may act as an appraiser for motor vehicle physical damage claims on behalf of an insurance company, or a firm or corporation engaged in the adjustment or appraisal of motor vehicle claims, without a license from the insurance commissioner, issued only upon passing the commissioner's examination. Violations are subject to administrative penalties under § 42-14-16. Under § 27-10.4-1's independent appraisal process, each side selects its own disinterested Rhode Island licensed appraiser, or an appraiser "allowed by mutual agreement of both the parties" (§ 27-10.4-1(b)(10)), so the license requirement also reaches the appraiser the policyholder names. R.I. Gen. Laws § 27-9.1 — Unfair Claims Settlement Practices Act. The statute prohibits acts that constitute unfair claim settlement practices, including: misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverage at issue; failing to acknowledge and act with reasonable promptness upon pertinent communications about claims; failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims; refusing to pay claims without conducting a reasonable investigation; failing to affirm or deny coverage of claims within a reasonable time after completing the investigation; not attempting in good faith to effectuate prompt, fair, and equitable settlement when liability has become reasonably clear; and compelling insureds, beneficiaries, or claimants to institute suits by offering substantially less than the amounts ultimately recovered. Under § 27-9.1-3, those acts are improper claims practices when committed flagrantly and in conscious disregard of the chapter or with such frequency as to indicate a general business practice, and § 27-9.1-1 provides that nothing in the chapter creates or implies a private cause of action — enforcement runs to the RI Department of Business Regulation. The direct private remedies for first-party bad-faith conduct in Rhode Island are R.I. Gen. Laws § 9-1-33 (statutory bad faith) and the common-law tort recognized in Bibeault. 230-RICR-20-40-2.8 — Standards for Prompt, Fair and Equitable Settlements Applicable to Automobile Insurance (part of 230-RICR-20-40-2, Unfair Property/Casualty Claims Settlement Practices). The regulation establishes specific standards for first-party automobile total-loss settlements: (A)(1) Total-loss designation. An insurer may not designate a vehicle a total loss if the cost to rebuild or reconstruct it to pre-accident condition is less than seventy-five percent (75%) to eighty percent (80%) of its fair market value immediately before the damage, unless the owner agrees in writing ((A)(3)). (A)(2) Fair market value. Fair market value is the retail value of the vehicle as set forth in a current edition of a nationally recognized compilation of retail values commonly used by the automotive industry; an entity qualifies by a filing with the Department. (A)(5)(a) Taxes and fees. A cash settlement is based on fair market value less any deductible, including all applicable taxes, title, registration and other fees incident to transfer of evidence of ownership of a comparable automobile. (A)(5)(b) Deductions. Any deductions or betterment from fair market value, including deduction for salvage, must be measurable, discernible, itemized and specified as to dollar amount and appropriate in amount. (B)(2) Right of Recourse. If the insurer is notified within thirty-five (35) days of the receipt of the claim draft that the insured cannot purchase a comparable vehicle for the fair market value, the insurer must reopen its claim file and either locate a comparable vehicle available through licensed dealers, pay the difference or negotiate and effect the purchase, offer a replacement, or conclude the loss settlement under the policy's appraisal section — unless its settlement documentation gave written notice of a specified comparable vehicle, identified by VIN, that could have been purchased for the fair market value. R.I. Gen. Laws § 9-1-33 — Bad-Faith Refusal to Pay. The statute lets an insured sue its insurer when it is alleged the insurer wrongfully and in bad faith refused to pay or settle a claim, or otherwise wrongfully and in bad faith refused to timely perform its obligations under the policy; the insured may also claim compensatory damages, punitive damages, and reasonable attorney fees. Bibeault v. Hanover Insurance Co., 417 A.2d 313 (R.I. 1980) — Common-Law Bad-Faith Tort. In an advisory opinion to the United States District Court, the Rhode Island Supreme Court recognized the common-law tort of insurer bad faith in the context of the wrongful refusal to pay an uninsured or underinsured motorist claim: the plaintiff must show the absence of a reasonable basis for denying benefits and the insurer's knowledge or reckless disregard of that lack, and no tort liability arises on a fairly debatable claim. § 9-1-33 (enacted in 1981) codified the cause of action. Bartlett v. John Hancock Mutual Life Insurance Co., 538 A.2d 997 (R.I. 1988), held that the bad-faith claim must be severed from the breach-of-contract claim and cannot proceed until the insured proves a breach of the contract, so the insurer need not produce its claim file until the contract claim is resolved. R.I. Gen. Laws § 31-46-1 — Salvage Title. An insurance company that takes possession of a vehicle declared a total loss in settlement of a claim must, within ten (10) days, deliver the certificate of title to the division of motor vehicles and obtain a salvage certificate of title. The percentage rule is in R.I. Gen. Laws § 27-9.1-4(a)(29), and 230-RICR-20-40-2.8(A)(1) and (3) apply it: an insurer may not designate a vehicle a total loss if the cost to rebuild it is less than 75% to 80% of its fair market value, unless the owner agrees in writing. Rhode Island requires a Motor Vehicle Damage Appraiser license to act as the policyholder's named appraiser under the policy's appraisal clause. SecondAppraisal Inc is not licensed in Rhode Island; the policyholder must retain a Rhode Island MVDA-licensed appraiser, or an appraiser "allowed by mutual agreement of both the parties" (§ 27-10.4-1(b)(10)), if invoking the appraisal clause, and our market-research and valuation analysis serves as one of the foundations of that licensed appraiser's independent opinion.