CSAA Sued Over Alleged Underpayment of Sales Tax for Leased Vehicles Declared a Total Loss

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A proposed class action claims CSAA Insurance Exchange pays only a portion of the sales tax owed to policyholders in the event a leased vehicle is declared a total loss after sustaining extensive damage.

Under CSAA’s insurance policies, the company agrees to pay a claimant the “actual cash value” (ACV) of a damaged insured vehicle that’s been deemed a “total loss”—i.e. when the cost of repairing the damage to a car exceeds its value, according to the 19-page lawsuit.

Although a car’s ACV should include sales tax given it is a necessary expense to restore a policyholder to their pre-loss position, the defendant instead pays only “a fraction” of the amount of sales tax owed for vehicles that have been leased, the suit out of California alleges.

According to the case, nothing in CSAA’s policies authorizes the insurer to “pay anything less than the full ACV,” including sales tax, to policyholders who lease their vehicles. The defendant’s failure to do so allows it to “profit off the backs of its insureds” while breaching its contracts with the customers, the plaintiff alleges.

Pursuant to CSAA’s auto insurance policy, there is no difference between a leased vehicle and an owned vehicle, the lawsuit argues. In fact, the policy “clearly and unambiguously” states that any car leased for a period of more than six months is considered “owned” for the purposes of the policy, the complaint says.

Stressed in the suit is that a car’s ACV is based only on the value of the vehicle, regardless of how much the insured originally paid for the car or the price paid to replace it. For owned or financed vehicles, the defendant actually acknowledges that sales tax should be included in ACV payments under California law, according to the case.

“But for Leased Insureds, CSAA pays only a fraction of the amount of sales tax owed under its promise to pay ACV,” the complaint reads.

The plaintiff, whose vehicle was insured under a CSAA policy, says she was involved in a November 2016 motor vehicle accident, after which she filed a claim for property damage. CSAA third-party vendor Mitchell determined that the plaintiff’s vehicle had an adjusted vehicle value of $11,795.58 and included an 8.5-percent sales tax in the vehicle valuation report, the suit says. According to the case, however, CSAA later reduced the amount of the sales tax, which should have totaled $1,002.58 based on the 7.25-percent state sales tax and 1.25-percent local surtax, to a mere $280.50.

“CSAA paid Plaintiff only $280.50 for sales tax, which constituted only a portion of the sales tax owed under the Policy,” the complaint claims, alleging the defendant’s underpayment constitutes a breach of contract.

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