September 30, 1998 98-R-1130

FROM: Kevin E. McCarthy, Principal Analyst

RE: Rebuilt Salvage Vehicles

You asked for a description of (1) Connecticut's law on sales of rebuilt salvage vehicles, (2) similar laws in other states, and (3) the effect proposed federal law on the subject would have on Connecticut's law.

SUMMARY

Connecticut law deals with salvage vehicles as a class rather than specifically with rebuilt salvage vehicles. If a vehicle is considered a total loss for insurance purposes, the title must be stamped “salvage.” The vehicle must undergo a safety inspection before it can be re-registered or retitled. Dealers must inform prospective buyers that a vehicle has been totaled under certain conditions. The law has separate provisions regarding vehicles that are so badly damaged that they can only be used for parts.

While most states require some type of disclosure of a vehicle's history on its title, the requirements vary significantly from state to state. This memo describes the provisions of the laws in Georgia, Illinois, Massachusetts, New York, and Washington. These states vary among themselves in the scope of their laws, for example whether they apply to all salvage vehicles or only those under a certain age. Some, but not all, of the states require that a rebuilt vehicle undergo a safety inspection before it is re-titled. Several states require that a rebuilt vehicle itself, as well as its title, indicate that the vehicle has been rebuilt.

Two bills before Congress deal with titling damaged passenger vehicles, whether or not rebuilt. S. 852 and H.R. 1839 would provide one-time grants to states that participate in a national titling system. Neither bill would affect the state (other than through foregoing the grant) if it chose not to participate in the national system. The state could receive the grant without substantively changing its law, so long as the titles that it issues are marked as being out of compliance with the national system. Alternatively, it could conform its titling statutes to conform to the bills' provisions. Among other things, this would exclude certain vehicles covered by current law that requires stamping of salvage vehicle titles, while including others that are currently not subject to the law. S. 852 has been voted out by the Senate Commerce Committee; H.R. 1839 has passed the House. Although the bills are very similar, it is not clear that Congress will pass a bill in the time remaining in this session.

CONNECTICUT LAW

Under CGS § 14-16c, if an insurance company or self-insurer takes possession of a vehicle that has been declared a total loss, it must stamp the title with the word “salvage.” It also must stamp the title or any copy of it with a warning that the vehicle must undergo a safety inspection under CGS § 14-103a to be registered or retitled. If the vehicle has ten or more major component parts (such as the engine or transmission) that are damaged beyond repair, the title must be stamped “salvage parts only.” In either case, the insurance company or self-insurer must give the original title to any purchaser and make a copy for itself. The purchaser's name and address must be listed on the back of the original and the copy. The vehicle cannot be driven on the highway, except by a dealer or repairer to drive it to the safety inspection.

An insurance company or self-insurer can only sell totaled or salvaged vehicles or any parts of a vehicle to a dealer, repairer, or vehicle recycler licensed by the Department of Motor Vehicles (DMV). Dealers who have DMV permits to auction vehicles can only sell vehicles with titles stamped “salvage parts only” to vehicle recyclers.

CGS § 42-225 requires dealers to disclose to consumers the fact that a used vehicle has been declared a constructive total loss under certain circumstances. Under CGS § 38a-353, a damaged vehicle is considered to be a constructive total loss if the cost of repairing or salvaging it exceeds its total value. The dealer must make this disclosure if: (1) the vehicle's title has been stamped “totaled,” “salvaged,” or words to that effect; (2) the vehicle's bill of sale states that it has been declared a constructive total loss; or (3) the vehicle's seller or the lending institution that holds title to the vehicle notifies the dealer that it has been declared a constructive total loss.

Under CGS § 14-65 if a vehicle with a title marked “salvage parts only” is sold at auction, it must be sold separately from other vehicles that have not been totaled or salvaged. Under Conn. Agencies Regs. § 14-65-1, any vehicle with a title marked salvage or the equivalent that is put up for auction must pass a safety inspection under CGS § 14-103a. If the vehicle is offered at a dealer to dealer auction, the auctioneer must announce the vehicle's condition. If the auction is open to the public, the auction dealer must make the vehicle available for inspection for at least one full business day before the auction takes place. The dealer also must provide prospective purchasers with a written statement of the vehicle's condition, including whether it is fit for operation. The successful bidder has a right to inspect the vehicle after buying it, and if the vehicle does not conform to the statement, the bidder can withdraw his bid.

LAWS IN OTHER STATES

While most other states have laws requiring that the title of a salvaged vehicle be stamped as such, the laws vary significantly in the scope and specific requirements.

Ga. Code § 40-3-36 treats a vehicle as salvage if (1) it has been damaged so as to require the replacement of two major components (Georgia's list of major components differs from Connecticut's) or (2) its owner retains possession of it after his insurance company declares it a total loss. The owner must return the vehicle's license plates to the DMV and apply for a salvage certificate of title. He cannot operate the vehicle or transfer it until he obtains the salvage tile. If an insurance company acquires a damaged vehicle that has been declared a total loss, other than a recovered stolen vehicle, it must mail the original title to the DMV to be cancelled.

The DMV must inspect a vehicle that has a Georgia salvage title or an out-of-state title indicating that it is salvage or rebuilt before the vehicle can receive a title allowing it to be operated. The inspection must include a verification of the vehicle identification number and the title or bills of sale of the major components. The inspection must take place before the vehicle is repainted. The application for a new title must include a photograph of the vehicle before it was repaired. Any rebuilt vehicle must meet state safety standards and the department can order additional repairs before re-titling it. If the vehicle needed the replacement of two or more major components to be made operable, the new title must be stamped “rebuilt” and the word “rebuilt” must be permanently affixed to a doorjamb. If the inspection shows that the vehicle cannot be repaired, it can only be junked or sold for parts.

Ill. Rev. Stat. Ch. 625 para. 5/3-301 requires that the titles to the following types of vehicles be marked “salvage” (1) vehicles that are declared a total loss by an insurance company, (3) vehicles that suffer flood damage that amounts to 33.3% or more of their fair market value, and (3) vehicles in commercial fleets that incur damage equal to 33.3% or more of their fair market value.

If such a vehicle is rebuilt its owner must obtain a new title. The application for the new title must include, among other things:

1. a list of all the essential parts that have been replaced and bills of sale for these parts;

2. the identification numbers of the vehicles from which these parts were obtained; and

3. a safety certificate issued by the secretary of state.

These requirements do not apply if the rebuilt vehicle is more than eight years old.

Under Mass. Gen. Laws. § 90D-20 et seq., if an insurer takes possession of a totaled vehicle, it must surrender the existing title and apply for a new, salvage vehicle title. If the vehicle owner retains possession of the vehicle, or if it was uninsured, he must take these steps. These requirements do not apply to vehicles more than ten years old and certain other vehicles.

If the vehicle owner transfers it to anyone other than a dealer, the new owner must obtain a new salvage title. Any transferor of a salvage vehicle must inform a buyer of the vehicle's condition.

If the owner rebuilds a salvage vehicle, he must have it inspected before it can be sold or transferred. The inspection application must include the bills of sale for the major component parts used to restore the vehicle and the identification number of the vehicle from which they were taken. The vehicle must be examined to determine whether any of the parts were stolen. The statute explicitly states that this is not a safety inspection and it does not impose any liability on the state or its employees. If the vehicle passes the inspection, it receives a new title labeled “reconstructed.”

Under N.Y. Veh. and Traffic Code § 429, if an insurer acquires a salvage vehicle in settlement for a damage or theft claim, it must give the title to the DMV. If an individual acquires a salvage vehicle he must give the title to DMV. No one can advertise or sell a salvage vehicle without disclosing any security interests in the vehicle to prospective buyers.

New York has specific provisions for fleet vehicles that become severely damaged, which apply to fleets of 25 or more vehicles that are self-insured. A vehicle is considered severely damaged if the engine must be replaced in order to make it operable, or if the damaged vehicle is worth less than 60% of its fair market value before the accident. The owner must notify the DMV before transferring such a vehicle or its major components. It must deliver the title to the department. If the owner does not comply with these requirements, any subsequent buyer can rescind his purchase and recover the purchase price from the original owner.

When anyone acquires a salvage or severely damaged fleet vehicle, it must submit an a statement to the DMV, which serves as an application for title if the vehicle is subsequently rehabilitated. The vehicle generally must be inspected by the DMV before a new title can be issued. However, an inspection is not required of a recovered stolen vehicle acquired by an insurance company if:

1. No major component of the vehicle was replaced after the theft,

2. The repairs cost less than $1,000 or less than one-quarter of the amount of the settlement,

3. The vehicle identification number and other identifying numbers are intact, and

4. An officer of the company swears to an affidavit certifying these facts.

DMV can also exempt other vehicles from the inspection requirement on the basis of their age.

Wash. Rev. Code § 46-12-005 defines a salvage vehicle as one that undergoes damage so that its owner or insurer determines that parts and labor costs make it uneconomic to repair. This definition and the related laws only deal with vehicles that are less than six years old. The owner or insurer must obtain a salvage title to the vehicle, and the Department of Licensing must affix a label to the driver side doorjamb indicating that the vehicle had been declared a total loss.

The department must inspect a salvage vehicle that has been rebuilt. The inspection must check the vehicle's identification number and, if the vehicle was previously registered in another state, verify that its license plates had been issued by that state. The vehicle must be issued a new title indicating that it had been rebuilt after being declared salvage. The law also requires that a new title be issued for a vehicle if its engine is replaced, even if the vehicle had not been declared salvage.

PROPOSED FEDERAL LEGISLATION

Because titling requirements vary from state to state, unscrupulous rebuilders can “wash” a vehicle's title. They do this by retitling a severely damaged vehicle in a state with lax standards so that the vehicle's damage history does not appear on the new title. Two bills currently before Congress seek to address this issue.

Description. This bill, introduced by Sen. Lott, provides grants to states to encourage participation in a national system that would establish uniform definitions for certain terms, such as “rebuilt salvage vehicle,” used on passenger vehicle titles. In the original version of the bill, a vehicle would have been considered salvage if: (1) an insurance company acquired it in settlement of an accident claim, (2) the cost of repairing a damaged vehicle equaled 80% or more of its retail value, or (3) the vehicle's owner declared it to be salvage. Sen. Lott subsequently amended the second provision down to 75% of the vehicle's value. The bill only applies to vehicles less than seven years old unless they are worth more than $7,500.

Under the bill, states that choose to participate would receive a grant for their cost of participating in the National Motor Vehicle Title Information System. Starting one year after passage, participating states would be required to notify vehicle owners in writing that the

These standards would require that:

1. the title indicate whether a vehicle was salvage, rebuilt, non-repairable, or flood-damaged;

2. this information be conveyed on any subsequent title;

3. vehicles designated as non-repairable be ineligible for new titles; and

4. salvage vehicles that are rebuilt undergo a theft inspection before being eligible for a new title.

Under the bill, rebuilt salvage vehicles also would have to undergo a safety inspection, if required under state law. However the inspection would have to conform to federal criteria. The vehicle would have to bear a sticker on the passenger doorjamb and on a window indicating that it had been rebuilt and whether it had passed the safety inspection. Anyone transferring a rebuilt salvage vehicle would have to inform the new owner of the vehicle's status, if he has actual knowledge of this fact.

The bill provides for a civil fine of up to $2,000 and criminal penalties of a fine of up to $50,000, imprisonment for up to three years, or both, for violations of its provisions. It authorizes state attorneys general to bring suit in state or federal court on behalf of state residents.

Effect on Connecticut Law. If the bill passed and Connecticut did nothing, it would merely forego the one-time grants that the bill provides to participate in the National Motor Vehicle Title Information System. While the bill does not specify the amount of the grants, the Congressional Budget Office anticipates that they would be $300,000 per participating state.

Under the original version of the bill, if the state chose to participate in the program, it would have to conform its law to the bill with regard to: (1) key definitions such as “rebuilt salvage vehicle,” (2) the form of the title, and (3) titling and anti-theft inspection requirements. This would require Connecticut to limit CGS § 14-16c to vehicles that were under seven years old or worth more than $7,500. On the other hand, the state would have to expand CGS § 14-16c to cover any vehicle that met the bill's age or value criteria that was (1) acquired by an insurance company, even if it had not been totaled, and (2) retained by the owner after sustaining damage equal to 75% or more of its fair market value. Under the current version of the bill, states would be eligible even if they did not amend their laws to comply with these provisions, so long as they marked their titles as not being in compliance with the national system.

Description. This bill, introduced by Rep. White, closely parallels S.852 although it defines a salvage vehicle as one that has incurred damage with a repair cost equal to 80%, rather than 75%, of its market value. It requires the owner of a damaged vehicle to apply for a salvage or non-repairable vehicle title if his insurance company does not take possession of the vehicle. It prohibits registration of a salvage vehicle until it has been rebuilt. It requires, as part of the anti-theft inspection, that the vehicle owner identify the damage, list major replacement parts, provide proof of ownership of these parts (through such documents as bills of sale), and attest that none of these parts were stolen. The vehicle must also be inspected to determine that its identification numbers have not been altered.

Effect on Connecticut Law. H.R. 1839 would have effects similar to those of S. 852. But the House bill allows for title disclosure in addition to the disclosures that it mandates. It specifically allows for a disclosure that a vehicle has passed a state safety inspection that does not meet federal criteria.

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