Say you're driving along a tree-lined city street when suddenly the car in front of you stops, and you smash into it. A fire truck comes to make sure everyone is OK and to clean up leaked oil or engine coolant on the road. Everyone's fine, and you go on your way.
Then, a few weeks later, you receive a letter in the mail. It's a bill from the fire department for $500 for "hazardous material cleanup." What's the deal?
Local fire departments nationwide have been cleaning up car accidents for decades, but cleanups cost money. And with shrinking budgets, city and county governments are turning to the drivers they're cleaning up after -- normally those who are at fault in serious car accidents -- to recover those costs.
By and large, car insurance companies aren't willing to pay this expense. Furthermore, car insurers say these accident response fees ultimately could bump up customers' premiums.
'A back-door tax'
According to the Property Casualty Insurers Association of America, communities across the country charge accident response fees, referred to as "crash taxes" by critics. After putting them on the books, cities and counties typically hire a vendor, like Fire Recovery USA or Cost Recovery Corp., that mails the bills and gets a percentage of the fees. Some municipalities charge only out-of-town drivers, while others bill any driver or even a car insurance company.
However, car insurance companies often won't pick up the "crash tax" tab. Bob Passmore, senior director of personal lines for the property and casualty insurers' group, cites a recent survey by the Ohio Insurance Institute that found 80 percent of car insurers won't cover crash taxes.
"Typically, your auto policy covers bodily injury and property damage, but does 'hazardous material cleanup' meet those terms? Most companies say no. This is a back-door tax, an extra fee on top of the property taxes people already pay to cover those costs," Passmore says.
Just because you received a crash-tax bill doesn’t necessarily mean have to pay it, Passmore says.
“Many ordinances are written as 'soft billing' ordinances," he says. "If you get one of these letters or bills, contact your municipality directly, get a copy of the ordinance and find out whether you are mandated to pay it or not.”
A source of revenue
Municipal officials say motorists must understand the costs that come along with responding to crashes and why they're imposing accident response fees. Petaluma, Calif., assesses a crash tax only on out-of-town drivers; the cost depends on the kind of accident. City John Brown says the average charge is $500 but can go as high as $2,500.
Petaluma's crash-tax billing is handled by an outside contractor. Many of the car insurance companies that receive the bills refuse to pay, according to Brown. That's a problem for Petaluma -- the city expected to get $100,000 from crash taxes but took in only $14,000 during its last fiscal year.
"In today's economy, with pressure to maintain services conflicting with significant revenue reductions, fire departments across California and across the country are actively gearing up and implementing cost recovery/billing programs," Bill Metcalf, the fire chief in Fallbrook, Calif., wrote to board members of his fire protection district in 2009 before passage of a crash tax there.
Clamping down on crash taxes
In a backlash against crash taxes, 13 states have banned these fees. Those states are Alabama, Arizona, Arkansas, Florida, Georgia, Indiana, Kansas, Louisiana, Missouri, Oklahoma, Pennsylvania, Tennessee and Utah. A Harris Interactive survey shows three-fourths of American adults oppose crash taxes.
Some cities -- such as Madeconia, which is north of Akron, Ohio, and Roseville, a suburb of Sacramento, Calif. -- have repealed crash taxes that already were on the books. Sacramento didn't even go ahead with its crash tax on out-of-town drivers after neighboring cities indicated they would charge crash taxes specifically for Sacramento drivers. Pelted with criticism, New York City officials dropped plans for a crash tax.
Still, municipalities continue to adopt crash taxes. For instance, Riverside County, Calif., in June 2011 approved accident response fees ranging from $100 to more than $2,000. County officials say the crash tax is needed to bridge a multimillion-dollar gap in the local Fire Department's budget.
State Farm's stance
Several car insurers defer to the Property Casualty Insurers Association to explain their stance on crash taxes. State Farm, the country's largest car insurer, does say through spokesman Dick Luedke that it's "philosophically opposed" to crash taxes and, in many cases, its policies don't cover these fees.
State Farm's car insurance policies do cover medical treatment provided at an accident scene, including ambulance services, according to Luedke. For example, if firefighters use the "Jaws of Life" to quickly remove an injured motorist from a wrecked car, the costs for that generally are covered by a car insurance policy.
Can these crash taxes mean an increase in your car insurance rates?
Here's what State Farm's Luedke has to say: "To the extent that we are paying more in claims because of crash taxes, (they) would be placing upward pressure on rates. In the effort to determine our future rates, we do look at our past claims costs."