BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 498
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: oropeza
vERSION: AS
PROPOSED
Analysis by: Jennifer Gress FISCAL: yes
Hearing date: April 24, 2007
SUBJECT:
Saltwater-damaged vehicles
DESCRIPTION:
This bill prohibits a person who determines a vehicle to be a
total loss salvage due to salt water damage from selling or
otherwise transferring the vehicle to any person or entity in
California. This bill further prohibits salvage pools, auto
dismantlers, dealers, and salvage vehicle rebuilders from
knowingly buying, selling, consigning, or otherwise transferring
vehicles salvaged due to saltwater damage except to a licensed
dismantler to be destroyed.
ANALYSIS:
Existing law prohibits the operation upon public highways of any
motor vehicle that has not been registered with the Department
of Motor Vehicles (DMV).
Existing law requires that vehicle titles, as evidence of
ownership, include specified information, including marking
whether the vehicle is a total loss salvage vehicle, previously
dismantled, a former law enforcement vehicle, a former taxicab,
not manufactured to U.S. standards, a park trailer, or a
warranty return (i.e., "lemon"). This process of marking a
title to indicate these elements of a vehicle's history is
referred to as "branding."
Under existing law, if an insurance company determines that a
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vehicle is a total loss salvage vehicle, it or its
representative (typically a salvage pool), is required to
forward to DMV the title of the vehicle, properly endorsed to
indicate the owner is transferring ownership to the insurance
company, the license plates, and a fee. Upon receipt, the DMV
shall issue to the insurance company a salvage certificate for
that vehicle. Once the vehicle is sold or transferred to
another owner, for example, a dealer, vehicle rebuilder, or an
individual consumer, the new owner is required to present the
salvage certificate when registering the vehicle with DMV. When
registering the vehicle, the new owner will be issued a new
title for the vehicle branded as "salvage."
If, after an insurance company determines that a vehicle is a
total loss salvage vehicle, the owner opts to retain possession
of the vehicle, the owner is required to submit to DMV the
title, properly endorsed to indicate that the owner is retaining
possession of a vehicle that an insurance company had determined
to be a total loss, the license plates, and a fee to DMV. DMV
will then issue to the owner a salvage certificate for the
vehicle.
Salvaged and previously dismantled vehicles may be subject to a
vehicle inspection by DMV or the California Highway Patrol (CHP)
upon registration. Owners are required to have available
specified documents, including bills of sale and invoices for
parts and repairs made to the vehicle.
As proposed to be amended, this bill :
Prohibits any person that determines a vehicle is a
total loss vehicle due to salt water damage from selling,
consigning, or otherwise transferring the vehicle to any
person or entity in California, except to a licensed
automobile dismantler to be crushed .
Prohibits a salvage pool, auto dismantler, dealer, or
salvage vehicle rebuilder from knowingly buying, selling,
consigning, or otherwise transferring a vehicle that has
been deemed a total loss salvage vehicle due to salt water
damage, except to a licensed automobile dismantler to be
crushed.
Makes the violation of either of the above two
provisions a misdemeanor.
SB 498 (OROPEZA) Page 3
BACKGROUND:
In general, when an insurance company takes a total loss on a
vehicle, saltwater-damaged or otherwise, the insurance company
may either take possession of the vehicle or, if the owner wants
to retain possession, the owner may keep the vehicle. If the
insurance company takes possession of the salvaged vehicle, it
contracts with a salvage pool who typically retrieves and stores
salvaged vehicles, obtains the appropriate titles in accordance
with the titling laws of the state where the vehicle was
salvaged, and then disposes of the vehicle, either by having it
dismantled for parts, crushed, or sold through an auto auction.
Dealers, brokers, dismantlers, rebuilders, and other entities
purchase vehicles at auto auctions; in general, individual
consumers do not. These auctions may or may not take place in
the state where a vehicle was salvaged.
An issue that complicates the processing of these vehicles is
that the titling laws vary from state to state. Some states
(e.g., California) have requirements to brand titles of those
vehicles on which an insurance company has taken a total loss as
"salvage" (or some other similar designation). Other states do
not. In those that do, what constitutes "total loss" varies.
Some states require a disclosure of the cause of the damage
(e.g., flood, fire) leading to an insurance company's total loss
claim, but others do not. Given these variations, it is
possible that a vehicle salvaged in a state that requires a
vehicle's title be branded "salvaged" would then be sold in a
state that had no comparable titling requirements. Upon
registration of the vehicle in a state that did not, the salvage
status of the vehicle would not appear on the new title. In
this situation, the title will appear "clean" in the sense that
the vehicle's history will not be conveyed on the title.
"Title-washing" occurs when unscrupulous persons take advantage
of variations in state titling laws to purposely conceal a
vehicle's history. Title-washing makes it difficult for all
types of purchasers (e.g., dealers, repair shops, individual
consumers) to know a vehicle's history, and thus, to understand
the real value, including benefits and risks, of the vehicle
they are purchasing.
COMMENTS:
1.Purpose . By prohibiting the sale of vehicles in California
that have deemed to be total loss salvage vehicles due to salt
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water damage, the author contends that this bill helps to
prevent saltwater-damaged vehicles from entering or remaining
in the stream of commerce where unsuspecting consumers may be
subject to their dangers.
The author describes how floods brought on by hurricanes
Katrina, Rita, and Wilma in 2005 left approximately 600,000
vehicles damaged by saltwater. Approximately half of those
vehicles will come to be resold to consumers across the
nation. Seven 2005 Nissans had been subject to flooding were
sold at an auto salvage auction in Southern California. In
the fall of 2005, the California DMV, the American Association
of Motor Vehicle Administrators, and many other state motor
vehicle agencies and consumer groups issued warnings to
consumers to be aware of pre-owned vehicles that may have been
damaged by flooding, and in particular, saltwater flooding.
The author and supporters note that saltwater is highly
corrosive and may cause irreparable damage that is not readily
visible to vehicle owners. An ABC news report described how
professional detailers could conceal some of the tell-tale
signs of flood-damaged vehicles, such as steaming the engine
and re-blackening the rubber seals to hide salt marks. The
Consumers for Auto Reliability and Safety indicates that
today's cars are more vulnerable to the destructive impacts of
floodwaters, suggesting that "the advent of sophisticated,
advanced safety technologies and the increasing
computerization of automobile design, flood cars are even more
hazardous than in the past. Virtually all of today's cars
have sensitive electronic components that control major
systems, including the engine, brakes, and air bags."
The author also highlights the public health threat flood
vehicles present, noting how floodwaters may have high
concentrations of toxins such as E-coli, petrochemicals,
arsenic, lead, and human and animal remains.
This bill helps to prevent those vehicles that have been
deemed a total loss salvage due to saltwater damage from
entering the stream of commerce in California.
2.The Road to California . "Katrina Cars" and other
flood-damaged vehicles may take one of several roads o
California. It is not clear what percentage of vehicles
entering California do so according to these different
pathways, but this bill affects some pathways and not others.
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Salvage pools, dealers, and other business entities. Many
salvage pools and other entities bring salvaged and
flood-damaged vehicles to California to sell at auctions to
auto dismantlers, dealers, brokers, vehicle rebuilders, and
other businesses. While these are legitimate businesses
otherwise complying with current law, this practice
nonetheless allows saltwater-damaged vehicles to enter the
California marketplace. This bill prohibits those cars from
being bought, sold, or otherwise transferred, thus protecting
consumers from buying a potentially defective vehicle.
Title-washing. Numerous news reports indicate that vehicles
salvaged for all kinds of reasons are brought into California
without disclosure of a vehicle's history using the process of
title-washing described above. This bill is unlikely to
affect a vehicle whose title has been washed and is purchased
in another state before being brought into California simply
because neither the new owner coming to California nor DMV
would know the vehicle's history. If, however, a salvage pool
or other entity deliberately washed the title and attempted to
bring the car into California without disclosing its vehicle
history, this bill could, in theory, hold it responsible if it
was later determined that the entity knew that an insurance
company had deemed the vehicle to be a total loss due to
saltwater damage. In practice, though, it may be difficult
for a consumer to trace a vehicle back to the entity
responsible for its entry into the state. The interstate
nature of title-washing makes it difficult for state law to
regulate or prevent the entry into California
saltwater-damaged vehicles whose titles have been washed.
Individuals. According to DMV, many vehicles that were deemed
to be a total loss salvage were either lawfully retained by
their owners at the time the loss was made or were taken by
"rogue towers." According to the National Insurance Crime
Bureau, many flooded vehicles in the Gulf region were either
abandoned or stored in a central facility. Some portion
(precise number is unknown) of these vehicles were taken by
rogue towers who simply came into the region and towed these
abandoned or stored cars away. It is unclear if these towers
worked for a business or operated independently. This bill
would not prevent individuals who own vehicles deemed to have
been a total loss salvage vehicle due to saltwater from
selling their cars in California. The committee may wish to
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consider an amendment that would prohibit individuals from
"knowingly buying, selling, consigning, or otherwise
transferring" such a vehicle in the same manner that salvage
pools, auto dismantlers, dealers, and salvage vehicle builders
are prohibited.
3.Supporters . Supporters of this measure cite the unreliability
and potential threat these cars pose to unsuspecting consumers
and support banning the sale of these cars in California.
4.Opponents . Insurance Auto Auctions, Inc. and Copart oppose
primarily because their core function and expertise involves
processing salvaged vehicles. They argue they are "the most
appropriate and legitimate means for such vehicles to be
transported, stored, processed, and sold on behalf of
insurance companies across the country." Given their unique
function, removing them from the process of handling
saltwater-damaged vehicles could potentially exacerbate the
problem as insurance companies, who are generally not equipped
to process salvaged vehicles, attempt to handle these vehicles
themselves or look to other outlets. The implications of this
change are unclear.
Insurance companies oppose, in part, because it holds them
responsible for a problem that they believe is ill-defined and
largely perceived. Motor vehicle dealers oppose because they
fear that they could be held responsible for any vehicle that,
unbeknownst to them, turned out to have been salvaged due to
saltwater damage. Dealers are often considered to be experts
when it comes to evaluating the worth of vehicles, but like
individual consumers, they purchase these vehicles from other
entities and may not be able to ascertain the vehicle's
history.
5.Increase title-washing? That California has the largest
automobile market in the United States and is thus an
attractive place to sell vehicles, raises the question whether
prohibiting the sale of vehicles deemed to be total loss
salvage vehicles due to salt water damage in California would
inadvertently lead entities to engage in title-washing prior
to bringing the vehicle into the state. Title-washing, which
may lead consumers to purchase a dangerous vehicle because its
history is unknown, may pose greater dangers to unsuspecting
consumers than buying a salvaged vehicle that is appropriately
branded.
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6.Author's amendments . Due to confusion between committee staff
and the author's staff, original amendments to this bill were
drafted incorrectly. The author is proposing amendments
during the hearing that will resolve this confusion. This
analysis reflects the amendments the author is proposing.
RELEVANT LEGISLATION:
AB 1854 (Oropeza, 2006) would have expanded the definition of
"nonrepairable vehicle" to include vehicles that have had their
passenger compartment immersed in saltwater to the extent that
specified parts have been compromised, and would have made the
titling, registration, sale, or transfer of these vehicles a
misdemeanor, subject to specified civil penalties. Died in
Senate Transportation and Housing Committee.
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 18, 2007)
SUPPORT: California Auto Dismantlers and Recyclers
Alliance, Inc. (CADRA)
Consumer Attorneys of California
Consumer Federation of California
Consumers for Auto Reliability and Safety (CARS)
Foundation for Taxpayer and Consumer Rights
State of California Auto Dismantlers Association
(SCADA)
Steve Poizner, Insurance Commissioner
OPPOSED: Association of California Insurance Companies
California Motor Car Dealers Association
Copart
Insurance Auto Auctions
Personal Insurance Federation of California
State Farm