West Virginia total-loss appraisal: how the appraisal clause works

West Virginia regulates first-party automobile total losses through layered authorities: the unfair claim settlement practices provision at W. Va. Code § 33-11-4(9), § 33-11-4a (complaints by third-party claimants), the total-loss valuation statute at W. Va. Code § 33-6-33, the implementing claim-handling rule at 114 C.S.R. 14, and the "Hayseeds damages" rule of the Supreme Court of Appeals of West Virginia in Hayseeds, Inc. v. State Farm Fire & Casualty Co., 177 W. Va. 323, 352 S.E.2d 73 (1986). Under Hayseeds, a policyholder who substantially prevails in a property damage suit against its insurer recovers reasonable attorneys' fees, net economic loss caused by the delay in settlement, and damages for aggravation and inconvenience; McCormick v. Allstate Insurance Co., 197 W. Va. 415 (1996), held that this recovery does not require a showing of bad faith. W. Va. Code § 33-11-4(9) — Unfair Claim Settlement Practices. The statute lists practices no person may commit or perform with such frequency as to indicate a general business practice, including: misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue; failing to acknowledge and act reasonably promptly upon communications with respect to claims; failing to adopt and implement reasonable standards for the prompt investigation of claims; refusing to pay claims without conducting a reasonable investigation based upon all available information; failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed; not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear; and compelling insureds to institute litigation to recover amounts due by offering substantially less than the amounts ultimately recovered. W. Va. Code § 33-11-4a — Complaints by Third-Party Claimants (Enrolled Committee Substitute for Senate Bill 418, 2005). Under § 33-11-4a(a), "A third-party claimant may not bring a private cause of action or any other action against any person for an unfair claims settlement practice"; the third-party claimant's sole remedy is an administrative complaint with the Insurance Commissioner, filed no later than one year after discovery of the practice, and the Commissioner closes the complaint if the person substantially corrects the circumstances or offers a reasonable resolution within sixty days of notice. Before 2005, Jenkins v. J.C. Penney Casualty Insurance Co., 167 W. Va. 597, 280 S.E.2d 252 (1981) — a third-party action against a tortfeasor's insurer — had recognized that "an implied private cause of action may exist for a violation by an insurance company of the unfair settlement practice provisions of W.Va. Code, 33-11-4(9)," and McCormick v. Allstate (1996) applied Jenkins to an insured's first-party claim. Section 33-11-4a's bar is written for third-party claimants. 114 C.S.R. 14 — Claim-Handling Regulation. The regulation, effective April 24, 2006, establishes specific standards for first-party automobile total-loss settlements. The primary substantive provision is § 114-14-7.4 ("Adjustment of total losses"), which structures the methodology as follows: § 7.4(a)(1) Official Used Car Guide. For a cash settlement, the insurer must use the most recent version of an "Official Used Car Guide" approved by the Commissioner as a guide for setting the minimum value of the vehicle (W. Va. Code § 33-6-33 says the same); any downward deviation from the guide's retail value must be supported by documentation, and deductions must be "measurable, discernible, itemized and specified concerning dollar amount." § 7.4(a)(2) Dealer quotations. If the guide does not contain the vehicle's retail value, the insurer must secure dealer quotations on the retail value of similar vehicles and base the settlement upon them. § 7.4(a)(3) Written explanation. The insurer must provide a reasonable written explanation of the cash-settlement base figure and any adjustments. § 7.4(a)(4) Tax reimbursement. The rule adds five percent of the cash settlement value "as reimbursement to the claimant for the excise tax imposed by the state." W. Va. Code § 33-6-33, as it now reads, adds to the agreed cash settlement "an amount equal to the consumers sales tax set forth in §11-15-3c (b) of this code." § 7.4(b) Replacement-vehicle option. The insurer may offer a comparable replacement vehicle in lieu of cash settlement. § 7.4(c)-(d) Current-model-year and salvage-value rules. Special rules apply to current-model-year vehicles and to salvage-value deductions. § 7.4(e) Partial-loss provisions also apply (with five additional working days), including § 7.3(f)'s "measurable, discernible, itemized and specified as to dollar amount" requirement for prior-damage deductions. Hayseeds, Inc. v. State Farm Fire & Casualty Co., 177 W. Va. 323, 352 S.E.2d 73 (1986). Syllabus point 1: "Whenever a policyholder substantially prevails in a property damage suit against its insurer, the insurer is liable for: (1) the insured's reasonable attorneys' fees in vindicating its claim; (2) the insured's damages for net economic loss caused by the delay in settlement, and damages for aggravation and inconvenience." McCormick v. Allstate Insurance Co., 197 W. Va. 415 (1996) — a first-party automobile total-loss case — held that recovering these damages does not require a showing of bad faith. Punitive damages require more: under Hayseeds syllabus point 2, the refusal to pay must be "accompanied by a malicious intention to injure or defraud." W. Va. Code § 17A-4-10 — Total Loss Definition. Section 17A-4-10(a) defines a "total loss" as a motor vehicle "which has sustained damages equivalent to seventy-five percent or more of the market value as determined by a nationally accepted used car value guide," or a flood-damaged vehicle, and sets the title and salvage-certificate steps that follow payment of a total loss claim.

Jenkins v. J.C. Penney Casualty Insurance Co., 167 W. Va. 597, 280 S.E.2d 252 (1981), arose from a third-party action against a tortfeasor's insurer. Its syllabus holds that "an implied private cause of action may exist for a violation by an insurance company of the unfair settlement practice provisions of W.Va. Code, 33-11-4(9)," which "cannot be maintained until the underlying suit is resolved," and that "more than a single isolated violation" must be shown to meet the general-business-practice requirement. In 2005, W. Va. Code § 33-11-4a barred third-party claimants from bringing such an action and gave them an administrative complaint instead. Hayseeds, Inc. v. State Farm Fire & Casualty Co., 177 W. Va. 323, 352 S.E.2d 73 (1986), syllabus point 1: "Whenever a policyholder substantially prevails in a property damage suit against its insurer, the insurer is liable for: (1) the insured's reasonable attorneys' fees in vindicating its claim; (2) the insured's damages for net economic loss caused by the delay in settlement, and damages for aggravation and inconvenience." Syllabus point 2: an insurer is not liable for punitive damages for refusing to pay a property damage claim "unless such refusal is accompanied by a malicious intention to injure or defraud." McCormick v. Allstate Insurance Co., 197 W. Va. 415, 475 S.E.2d 507 (1996), arose from a first-party automobile total-loss claim. It held that Hayseeds damages do not require a showing of bad faith, that punitive damages for failure to settle a property dispute require "actual malice," and that a policyholder's Jenkins claim rests on a violation of § 33-11-4(9) arising from a general business practice rather than on substantially prevailing.