On March 7, 2017, the Appeals Court affirmed a Superior Court decision ruling an insurance company under the standard Massachusetts auto policy, had no obligation in settling total loss property damage claims to pay sales taxes if claimants could not show they paid a sales tax for a replacement vehicle.
In this appeal, Ramirez v. Commerce Insurance Company, Mr. Ramirez had filed a class action claiming that the Commerce legally owed him the value of the sales tax as part of his property damage claim for the total loss of his motor vehicle. Mr. Ramirez also had asked for the Superior Court to allow him to represent in a class action all motor vehicle property damage claimants denied the value of sales tax payments for certain total losses by Commerce.[pullquote][W]e will pay damages to someone else whose auto…is damaged in an accident…Damages include any applicable sales tax[/pullquote]
The Ramirez decision marked the second time in two months the Appeals Court has had to rule on the applicability of the total loss rules arising under the standard Massachusetts auto policy and the regulations of the Commissioner of Insurance, 212 Code of Massachusetts Regulations (CMR) §133.00. See Agency Checklists January 27, 2017 article, “Appeals Court Takes Aim At “Retail Book Value” For Total Losses Under MA Auto Policy
Mr. Ramirez’ property damage claim
Mr. Ramirez’s property damage claim arose out of a January 2014 motor vehicle accident involving an insured of Commerce. Commerce’s insurance policy provided, as required by law, defense and indemnity benefits for third-party property damage claims. The property damage indemnity provision, found in all standard Massachusetts automobile insurance policies, states, in part, that Commerce (designated as “We”):
[W]e will pay damages to someone else whose auto or other property is damaged in an accident. The damages we will pay are the amounts that person is legally entitled to collect for property damage through a court judgment or settlement…Damages include any applicable sales tax and the cost resulting from loss of use of the damaged property.”
Commerce determined that its insured was liable for the property damage to Mr. Ramirez’s vehicle and had Mr. Ramirez’s vehicle repair costs appraised. The repair costs to Mr. Ramirez’s vehicle, in the appraiser’s opinion, exceeded the vehicle’s market value, and Commerce declared Mr. Ramirez’ vehicle a total loss.
Based on Commerce’s acceptance of its insured’s liability, Commerce became liable to pay the actual cash value of the Ramirez vehicle plus other related damages including sales tax and loss of use.
Commissioner’s auto repair regulation determines calculation of actual cash value for total losses
The standard Massachusetts automobile insurance policy does not define the term, “actual cash value” or provide any method for calculating actual cash value. Instead, the damages payable by Commerce were governed by the Commissioner of Insurance’s regulation entitled “Standards for The Repair of Damaged Motor Vehicles,” 211 CMR 133.00. Section 133.05(1) of this regulation requires that:
Whenever the appraised cost of repair plus the probable salvage value may be reasonably expected to exceed the actual cash value of the vehicle, the insurer shall determine the vehicle’s actual cash value.”
This regulation, as opposed to the policy, does supply a method for determining actual cash value. The commissioner’s regulation specifies actual cash value requires consideration of four factors:
- The retail value for an automobile of like kind and quality prior to the accident;
- The price paid for the automobile plus the value of prior improvements to the automobile at the time of the accident;
- The decrease in value of the automobile resulting from prior unrelated damage which is detected by the appraiser or for which a claim has been paid; and
- The actual purchase cost of an available automobile of like kind and quality.
Using these factors Commerce determined that the actual cash value for the automobile that Mr. Ramirez lost was $5,296.00.
Here, Mr. Ramirez elected to retain the title to the vehicle rather than transfer title to Commerce for salvage. Accordingly, Commerce obtained a salvage value as required under the Commissioner’s regulation, 211 CMR §133.05(2), that provides:
If the claimant retains title to the vehicle, the appraiser shall obtain bids from two geographically convenient license salvage companies. The average of the two bids shall be used as the salvage value.”
Commerce determined that Mr. Ramirez’ vehicle’s salvage value was $423.68. Deducting the salvage value from the actual cash value of the vehicle, Commerce offered Mr. Ramirez $4,872.32, comprising the actual cash value of $5,296.00 less the vehicle’s salvage value of $423.68.
Right to payment of sales tax amount calculated on vehicle’s actual cash value leads to suit
Mr. Ramirez did not dispute the total loss and salvage values provided by Commerce for computing his damages. However, he objected to Commerce omitting the Massachusetts sales tax from his damages. He based his objection on the policy which stated that Commerce would pay for its insured’s property damage liability including “any applicable sales tax.”
Commerce advised Mr. Ramirez it would not pay the sales tax’s value in its settlement because Mr. Ramirez had not provided it with any proof of any sales tax paid for the purchase of a replacement vehicle. Commerce also advised Mr. Ramirez that if he purchased a replacement vehicle Commerce would reimburse him for the sales tax amount withheld on his loss.
Mr. Ramirez files Superior Court class action over $300 sales tax dispute with Commerce
The actual sales tax involved in Mr. Ramirez’ dispute with Commerce amounted to approximately $304.00 based on the motor vehicle sales tax rate of 6.25% applied to the $4,872.32 net value after salvage of Mr. Ramirez’ vehicle.
On February 21, 2014, Mr. Ramirez sued in Superior Court seeking a ruling that the value of the motor vehicle sales tax was an element of total loss damages under Massachusetts automobile insurance policies even if the claimant purchased no replacement vehicle.
The Superior Court rarely hears disputes over a $300 claim. However, Mr. Ramirez filed his suit as a putative class action seeking not only to recover on his sales tax reimbursement claim but also seeking the court to certify a class of similar total loss claimants to whom Commerce had not paid the value of sales tax. Mr. Ramirez also sought treble damages and attorney fees under G.L. c. 93A for Commerce’s alleged unfair claim practices.
Mr. Ramirez’ legal position before the Superior Court was simple. Commerce had the legal obligation under its policy to pay damages on his third-party claim for the total loss of his automobile. The damages allowed under the Commerce’s policy included not just the actual cash value of his vehicle, but also the value of the sales tax on the vehicles actual cash value–even where he has not purchased a replacement vehicle and paid a sales tax. [pullquote]A plaintiff who has retained the automobile as salvage must provide to the insurer proof of the payment of sales tax on a replacement automobile to recover the applicable sales tax[/pullquote]
Commerce’s contrary position was equally simple. Mr. Ramirez had no legal right under the policy or the commissioner’s regulations for reimbursement of a sales tax until he purchased a replacement automobile and incurred a sales tax.
Commerce moved to dismiss Mr. Ramirez’ amended complaint. The Superior Court denied stating that “Mr. Ramirez’s Amended Class Action Complaint states a claim upon which relief can be granted, and Commerce Insurance Company’s Motion to Dismiss is DENIED.”
Commerce had better luck ten months later when Mr. Ramirez moved for partial summary judgment on liability and Commerce filed a cross-motion for summary judgment. The Superior Court denied Mr. Ramirez’ motion and allowed Commerce’s motion dismissing Mr. Ramirez’ case.
Appeals Court finds no right to sales tax damages if claimant has not incurred an expense
Mr. Ramirez appealed the Superior Court’s decision and sought direct appellate review by the Supreme Judicial Court. That court denied the application and Massachusetts intermediate appellate court, the Appeals Court, heard Mr. Ramirez’ appeal.
Although the legal issues were simple, the consequences of Mr. Ramirez’ position being upheld by the Appeals Court were sufficiently concerning to the insurance industry that the Automobile Insurers Bureau filed an amicus brief with the Appeals Court supporting Commerce’s legal position.
In the Appeals Court, Mr. Ramirez argued that the phrase in the Massachusetts standard auto policy, “any applicable sales tax” applied to his total loss claim. He also argued that any ambiguity in the phrase should be resolved in his favor.
Commerce argued that its obligation under tort law only required that it pay incurred damages and until Mr. Ramirez incurred a sales tax obligation by replacing his prior vehicle he had suffered no compensable loss.
The Appeals Court agreed with Mr. Ramirez that the amount for any sales tax like damages for loss of use may be included as damages. The Appeals Court found that Mr. Ramirez’s argument, “goes awry, however, in assuming that he is automatically entitled to sales tax under this sentence of the policy without establishing that it is an element of the damages he incurred or will incur.”
The Appeals Court’s ruling stated explicitly in denying Mr. Ramirez’ appeal:
…a plaintiff who has retained the automobile as salvage must provide to the insurer proof of the payment of sales tax on a replacement automobile to recover the applicable sales tax.
The decision ended with the statement that, “The insurer is only required to place [Mr. Ramirez] in as good a position as he was in at the time of his loss.”
Mr. Ramirez has twenty days to request the Supreme Judicial Court for further appellate review
Under the Massachusetts Rules of Appellate Procedure, Mr. Ramirez may file an application for further appellate review with the Supreme Judicial Court. Agency Checklists will monitor this matter and update its readers on the filing of an application for further appellate review and the action of the Supreme Judicial Court on any such application.
On March 31, 2017, Mr. Ramirez filed an application for further appellate review. Commerce has opposed and the matter is pending as of May 15, 2017.