auto-dealershipIt is estimated that nearly 250,000 vehicles were damaged in Hurricane Sandy alone.  Carfax estimates over 100,000 of Sandy flooded vehicle are back on the road today. This is concerning, not only to the consumers that ultimately operate these potentially dangerous vehicles, but also to other motorists who share the roadways with such vehicles. An obvious question, then, is how do totaled vehicles, which should either be sold for parts only or belong entirely in a junkyard, find their way back into the stream of commerce and available for purchase to unsuspecting buyers? The answer to this question lies somewhere between the discrepancies amongst state law, and ambiguities in federal law pertaining to insurance companies, salvage auctions, and auto dealerships.

When an insured vehicle is deemed a total loss, insurance companies are often required to denote the loss on the vehicle’s title. While the majority of states regulate flood damaged vehicles through flood title branding, salvage title branding, or a combination certificate indicating both, it is not uncommon for an insurance company to fail in their adherence to title designation obligations. Such failure can result in the vehicle being sold at a salvage auction, and then subsequently resold, with a seemingly clean title. And while a car history report may reveal flood damage, an auto dealership may seek to secure a sale through the legal guise of proclaiming the protection afforded by the vehicle’s clean title in conjunction with obtaining the buyer’s signature on a salvage agreement.

Depending on the specific facts of the case, competing evidence may be presented from auto dealership expert witnesses, insurance industry experts, as well as automotive appraisal experts. Such experts have played an important role in cases where the consumer is alleging fraudulent misrepresentation against an auto dealership, or where the auto dealership is alleging the same against the insurance company. The significance of expert testimony has also been demonstrated in cases where the consumer is alleging the existence of a conspiracy between the auto dealership and the insurance company, or other parties involved in the chain of transactions.

In Pedroza v. Lomas Auto Mall, Inc., 600 F. Supp. 2d 1162 (D.N.M 2009), Plaintiffs, the purchasers of a salvaged vehicle, brought suit against an auto dealership, and others for (i) unfair trade practices; (ii) fraud; (iii) civil conspiracy; (iv) joint enterprise; and (v) fraud by joint enterprise. Initial allegations were eventually expanded to include claims, counterclaims, and third-party claims exchanged between the consumer, the auto dealership from which the consumer purchased the vehicle, various auto dealer service agents, and two insurance companies having interest and involvement in the matter. Expert testimony was presented from the named parties, including testimony from automotive insurance industry experts, automotive appraisal experts, and auto dealership experts. For example, testimony was presented regarding the repair estimate being based on an erroneous understanding of a report prepared by a party opponent’s expert. Likewise, expert testimony was also presented from an auto dealership expert, who testified that Lomas Auto Mall and Lohman Motors were essentially the same entity, and therefore a future judgment award would be appropriately sought from either.

With a multitude of salvaged vehicles finding their way back into the hands of consumers, and therefore on our roadways, it is expected that litigation, similar to the matter in Pedroza, will maintain their presence within our courts. And because vehicles will often exchange hands several times before reaching a consumer, it can be equally expected that complex litigation, involving multiple parties and numerous claims directed at one another, will continue to ensue. Accordingly, by initially having a full understanding of the chain of transactions pertaining to the vehicle at issue, and therefore knowledge as to all interested parties and potential claims, litigators will best be prepared to secure the appropriate legal support services, such as expert witnesses.

By: Alicia McKnight, J.D.