By Ivan Penn

What is the impact of automobile recalls on my insurance coverage?

Sean Shaw, Florida’s insurance consumer advocate, says there are several issues drivers should consider when their automobile is recalled..

The impact sometimes can be positive. And with the major Toyota recalls, the issue can be critical.

“Consumers should remain alert for an announcement of any recalls affecting their model,” Shaw said in his recent report on the issue. “There are many Internet sites where consumers can check if a recall has been issued for their vehicle.”

Here are some issues Shaw suggests drivers consider if there is a recall on their cars:

• If a recalled part is determined to be the cause of damages or injuries, the insurance company will pay the claim without regard to the recalled part. Auto policy providers have indicated that accidents caused by a recalled part will be included in the vehicle’s liability or collision coverage.

• Insurance companies often seek reimbursement from the manufacturer for a claim that is the result of a manufacturing defect. Should the manufacturer pay the insurance provider, the consumer may get a fraction, if not all, of the deductible returned.

• Many auto insurance companies are currently in the process of sending notices to their clients confirming that they will receive the necessary coverage protection.

Shaw recommends visiting the National Highway Traffic Safety Administration in the U.S. Department of Transportation Web site. There, consumers can enter their vehicle make, model, and identification number and receive up-to-date recall information.

State Farm, the nation’s largest car insurance company, has discovered after a careful review of its records, that it first told federal regulators about problems with Toyota (TM) cars in 2004. The insurance giant had made earlier statements that it first reported issues with cars from the world’s No.1 vehicle manufacturer in 2007. The State Farm story was first reported by Reuters.

The news raises several issues. The first is why transportation regulators never raised an alert about the 2004 data. The answer may be that the information was benign and not worthy of further examination. State Farm hasn’t said which vehicles its report covered and what the nature of the problem was.

Government transportation officials may also complain that they cannot review in depth every complaint they receive. If they use that defense, it will raise pressure on the National Highway Traffic Safety Administration, which has already been criticized for acting too slowly on Toyota quality issues.

Another issue the State Farm disclosure raises is that Toyota should have been aware of any product problems with its cars if an insurance company was. Congress will certainly press this issue when the House Oversight and Government Reform Committee questions Toyota CEO Akio Toyoda on Feb. 24.

Repeated Concealments?

The new information will probably play into a number of class actions and product liability lawsuits against Toyota. As Daily Finance reported on Feb. 19, Dimitrios Biller, a lawyer for the car company who oversaw Toyota’s nationwide defense efforts against rollover lawsuits from 2003 to 2007, says the firm was aware of product defects during his tenure and withheld the information from plaintiffs who filed lawsuits against the company. Biller has also filed his own lawsuit against Toyota, which involves matters about his compensation and employment contract.

Toyota now has to be concerned that the information from State Farm and Biller will make it appear that it repeatedly concealed data about product problems. If that ends up being the case, Toyota’s legal liabilities could grow into the billions of dollars. The Financial Times has already reported that lawsuits against the company are seeking over $3.2 billion.

There’s more bad news about Toyota in the press almost every day, but the State Farm information may end up being among the most damaging.