What is salvage

Salvage – A Case Presented

Vehicle owners are subjected to huge financial losses by the non-life insurers during claims. Non-cancellation of the RC of vehicles involved in accidents with extensive damages would leave the vehicle owners vulnerable to future consequences.

1. When a vehicle meets with an accident and suffers damages beyond repair (90% damage), the vehicle should be declared as TOTAL LOSS.
2. When the aggregate cost of retrieval and/or repair of the accident vehicle exceeds 75% of the Insured's Declared Value (IDV) of the vehicle, the vehicle should be declared as CONSTRUCTIVE TOTAL LOSS (G.R 8 of the India Motor Tariff).

In either case, the claim amount to be paid to the Insured (registered owner of the vehicle) would be the IDV minus the value of the wreck alone without the Registration Certificate of the vehicle. The Insurer is required to cancel the Insurance Policy and intimate the registered owner of the vehicle as well as the concerned Regional Transport Authority (RTO) regarding such cancellation (G.R. 24(A)(d) of the India Motor Tariff). Further, the RC of the vehicle must be cancelled with the RTO and the vehicle salvage must be crushed and disposed of.

In the event of theft of a vehicle, after the Police authorities have submitted a report that the vehicle is not traceable, the claim of the vehicle must be settled as TOTAL LOSS by the Insurer and the RC of the vehicle must be cancelled as per the provisions of the MV Act.

PRACTICE: The Insurers obtain the RCs of stolen vehicles from the vehicle owners in violation of the prevailing laws. The Insurers insist that the vehicle owners’ handover the salvage along with requisite documents to release the agreed lower amount. Later on, they would shift the onus of not cancelling the RC to the vehicle owner.

RESULTS:

1. In obedience to sections 53, 54 & 55 of the MV Act 1988, the RCs of the such vehicles must be suspended and cancelled by the RTOs. this is not happening.
2. Are the Insurers compelling the IRDA approved surveyors to under estimate the vehicle repair cost by applying inapplicable deductions like depreciation, salvage value, compulsory excess, to avoid their liability on TOTAL LOSS/CONSTRUCTIVE TOTAL LOSS?
3. They are delaying claims settlement (under one pretext or the other) and compelling owners to accept a lower claim amount under the heads Net of salvage loss/ Cash loss/Salvage loss not prescribed under any law.
4. The vehicle owners are forced to give a consent letter/full and final settlement discharge voucher for a lower settlement value well in advance of the actual payment which the Supreme Court has held that such a discharge voucher where there is no discharge of duty to be null and void.

In all the above situations, the RC of the vehicle is kept alive along with the vehicle owners’ signatures on the blank Transfer forms (Form No. 29 & 30). The Insurers sell the salvage along with documents to the salvage buyers who in turn repair them with sub-standard /refurbished parts. Such vehicles improperly repaired in violation of the provisions of the MV Act 1988 are unsafe for use in public.

The RCs of such vehicles retained by the Insurers/salvage buyers can be used to sell stolen vehicles. The Engine No. and the Chassis No. in the RCs are embossed on stolen vehicles of the similar make and model and they can be sold through used car dealerships. This is the only reason most of the stolen vehicles especially in Delhi are not traced. Imagine the plight of the gullible buyers of such stolen/accident vehicles.

The RTOs explain that the Insurers do not intimate them about cancellation of Insurance policies of stolen and TOTAL LOSS vehicles and hence, they are unable to initiate any action against such vehicles. But, an FIR is filed against every stolen / accident vehicle and an inspection report of the vehicle is given by the jurisdictional Inspector of Motor vehicles. Therefore, the explanation of the Transport department cannot be taken at its face value.

The remedy to this social problem would be:

1. that the Insurers must intimate the concerned RTO about cancellation of a Motor Insurance Policy with reasons.
2. that the RTOs must suspend/cancel the RCs of the accident / stolen vehicles.
3. that the information of stolen/accident vehicles be made accessible/available to the general public which would discourage sale of repaired wreck/stolen vehicles.
4. that the Police Dept., The Transport Dept. and the Insurers be interconnected to maintain transparency, thereby avoiding such incidents.
5. that the IRDA would enforce all applicable provisions of law and work towards the safety of the common man because this is not just the monetary issue, but it also involves many lives.

Failure to observe the remedies referred to above would:

1. encourage sale of repaired wreck about which the buyer would never know.
2. facilitate misuse of vehicles in anti-social activities leaving vehicle owners at the mercy of law.
3. multiply theft of vehicles and misuse of RCs to sell stolen vehicles as used ones.
4. the repaired wreck suffering irrepairable deformities and which hasn't undergone a road-worthiness check by the concerned Dept. would lead to fatal vehicle accidents.
5. add to the already existing alarming levels of pollution owing to the wreck repaired improperly in contravention of the provisions of the MV Act 1988.

CONCLUSION:

Insurance salvage disposal in India for registered motor vehicles is governed by the provisions of MV Act, 1988 which regulate the salvage disposal under Sections 52, 53, 54 and 55. These provisions are for public safety and to ensure fit vehicles ply on the road. All vehicles which are unfit or temporarily unfit need to cancel or suspend their RCs. The insurers & surveyors should consider these provisions at the time of salvage disposal.

Using the MV Act 1988 provisions the above codicil is prepared and it will aid the surveyors & insurers to comment on the state of damaged vehicles – whether Total Loss or Constructive Total Loss (CTL). Using the categories provided in codicil the insurers can take action mandated by the registration authorities and can make arrangements for salvage disposal.

Presently no codicil exists and no one used the provisions of MV Act, 1988.The Indian insurers must study these provisions and look for means of implementation in their interest. At present, it appears, no rule being followed for salvage disposal. Sometimes Section 55 of MV Act, 1988 is used for salvage disposal but the insurers are unsure whether the cancellation of RC is necessary before the disposal of vehicles. This lead to gaping loopholes in salvage disposal and some anti-social elements have misused the salvage causing troubles for surveyors and insurers.

The issue was brought to the notice of the IRDA, The General Insurance Council and The Transport Commissioner. The challenge is how to stop these illegal practices and save people?