South Dakota bill setting total loss threshold approved by Senate, moves to House

A South Dakota bill that would ban insurance companies from declaring a motor vehicle a total loss unless the cost of repairs meets or exceeds 75% of the actual cash value was approved by the Senate on Tuesday and moved to the House. 

SB 227 was introduced by Sen. Steve Kolbeck (R-District 2) on Feb. 4. After a 4-2 approval by the Senate Transportation Committee, it was passed to the Senate floor, where it passed 27-6. 

The bill allows insurers to declare a total loss under the 75% threshold only if they receive a written request from the vehicle owner. 

During a Senate Transportation Committee hearing, Kulback said he recently experienced an issue with an insurance company following a collision his son was involved in. 

“His car was gone, and he didn’t get paid for over 90 to almost 120 days,” Kulback said. 

He said the bill was filed to deal with a growing issue facing South Dakota vehicle owners. 

“After a motor vehicle accident, the auto insurance carrier holds the power over your claim,” Kulback said. 

A shop provides a professional estimate to repair the vehicle to pre-accident condition, and the insurance company compares that estimate against the vehicle’s value before the collision, he said. 

“It is entirely up to your insurance carrier whether your vehicle is a total loss or if they will pay the cost to repair your vehicle,” Kulback said. “If the insurance company decides to declare your vehicle a total loss, that decision is final.” 

If a total loss, the carrier will typically sell to an auction company, which issues the owner a check for the pre-accident value. 

In Kulback’s son’s case, the check didn’t come immediately. 

“When your insurance company sells your vehicle to the auction company, you immediately lose ownership of your vehicle,” Kulback said. “Even though he hadn’t been paid, he did not have ownership of that vehicle, nor did he have money to buy a new one.”

Most insurance companies don’t declare a total loss if damages don’t meet at least 75%, he said. 

“However, national insurance companies have started declaring vehicles total loss at less than 75% damaged,” he said. 

The bill intends to give some control back to the vehicle owner, he said. 

Rep. Tim Walburg (R-District 8), a co-sponsor of the bill, said he’s also faced issues with a total loss vehicle. 

“I was a victim of an auto crash, and my insurance carrier wanted to total it out, but it was still repairable,” Walburg said. 

In some cases, consumers are forced by insurance companies to settle, he said. 

“My vehicle is my property, and I should have the right, within my insurance that I pay for every six months to a year, if it is within that frame, where it can be fixed and it’s not a total loss. I should be able to have that fixed and get my property back,” Walburg said. 

Justin Smith, lobbyist for the South Dakota Auto Body Association (SDABA), said the association supports the bill on behalf of customers who have encountered these issues. 

“This problem only really started to develop in the last five or so years, and it’s only with a couple of outlier insurance carriers who are national and started to do this on a more frequent basis,” Smith said. 

He said the bill gives customers the power to decide whether they want to accept a settlement from the insurance company. 

“We are not here today arguing that insurance carriers are bad guys, or have issues that are fraudulent or anything like that,” Smith said. “It is a consumer protection measure to give you control over your motor vehicle.”

Seventeen other states have launched similar bills, he said. He added, for example, states like Alabama and Kansas already have statutes that allow vehicles to be automatically salvaged at a certain percentage of damage. 

South Dakota’s code is open-ended and completely gives control to the insurance carrier, he said. He added that insurance contracts also do not dictate a damage threshold for total loss. 

“The insured have no ability to negotiate on the issue,” he said. 

Automotive News recently ran an opinion piece looking at how current market shifts have some franchised dealerships retailing branded or salvaged titles. 

The piece follows an Automotive News article that explores the shift in the market. 

“Once, insurance companies totaled cars because of body and frame damage from severe crashes, but now they write off easily repairable cars because of lesser impacts that impair expensive electronics,” the article says. “That leaves franchised dealers facing a stark choice: Expand into once-untouchable inventory or watch budget-conscious buyers disappear​ to Facebook Marketplace, independent used-car dealers, and national chains specializing in repaired branded-title cars.”

South Dakota also passed a bill last year to curb repair insurance fraud. The bill was supported and lobbied for by SDABA.

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Photo of South Dakota capital courtesy of Gabriel Shakour/iStock