Insurance Company's Surprising Admission After Flood Car Investigation

Part 2: After "The Lookout's" report, USAA says it is changing how it handles flood car titles.
6:17 | 09/05/13

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Transcript for Insurance Company's Surprising Admission After Flood Car Investigation
. They say one man's trash is another man's treasure, but what happens when that trash is actually dangerous? Before the break, I was on my way to confront the used car dealer who sold us a flood truck for ten times its value. The insurance company is next on our list, so let's get back to "nightline," on the lookout. After two days of being submerged in superstorm sandy's waters, the mechanic says that "spirit" is driveable. But we want to take it back to the man who sold us for ten times more than it is worth. So we load it onto the flat bed which gives me good cover as the tow truck driver. And we take "spirit" for a little ride with the salesman, jack. Aaron asked him to come out and take a look at the damage he found. In here, there is a bunch of sand. Reporter: Now, jack thinks I'm just the tow truck driver. But that changes when I show him video of a familiar gentleman. And he sees my camera crew. Recognize this guy? Okay. That is you. Reporter: Okay. Where is the best part, this is the part where you say I want to be honest with you guys. How could you in good conscience sell this truck, where it is corroding from the inside? You know the air bag could pop on the thing on the highway? I don't buy these things, i just sell them. Reporter: No, no, we want some answers, look, here is the auction sheet that showed it was in a flood. Then jack apparently calls the cops, but they seem confused as to why they're even there. Who called? Did you call? And then a whole lot of other cars begin to pull up, the grim-faced drivers heading into the offices. We later learn they're investigators from the new jersey motor vehicle commission which we have been talking to. And that they're suspending the dealership's license to sell cars pending an investigation. The dmv later e-mailed us a statement saying they sincerely regret jack's unfortunate misrepresentation of spirit, and since the independent action is in in way reflective of our business practices, jack has been fined. There is now a criminal investigation by the new jersey attorney general's office in dealerships and investigations that includes cars, usaa sold at auction. Because when they paid off mike's claim, usaa became spirit's owner, and according to new jersey authorities, all owners must register a vehicle like spirit as a salvage car. Branding its title as damaged goods before ever selling it at auction. But usaa didn't do that. They claim mike's title somehow got lost and rather than ask for a new one, they told the auction house to sell the truck for parts only. Somehow that car ended up in the used car lot for sale in one piece. Failure to sell a car with a used title is illegal in jersey. Thanks to our watchdog investigation, they allowed what is known in the industry as title skipping. Who are the worst offenders when it comes to used car skipping? What about insurance companies? They do it sometimes, because there is money to be made. Reporter: Usaa is now in an uncomfortable position. There is the ongoing criminal investigation of the dealership involving cars that usaa sold at auction. And there are questions raised by our story, which may explain why he decided it would be an opportunity to sit down for a friendly chat. Why did you decide to come talk to us today? We have learned some things over the course of your broadcast. We have learned some things about the situation you discovered. One that we found to be just as disturbing as did you. Reporter: Please, expound. Well, we went through 782 vehicles that were a number of total losses that our members had as a result of sandy hurricane. And of those we have found 174 of those cases. Reporter:174 cases, in which usaa sold flood cars without branded titles at auction in new jersey, just as it did with spirit. It is quite possibly that all of those 174 are on the road today. Usaa doesn't know. That is what we're working with the new jersey commission is to go track down every one of those vehicles, 174. And we'll not stop until we are able to say all of them are off the road or in the right place. This is where that ford f 350 sits today, in a salvage yard. Reporter: But where we went hunting before this interview we found a mercedes wagon. It does have a car fax total loss flood report? But, clean title. Reporter: Yeah, and then we found a town and country, a chrysler, 2009 that sold for $14,000 and is on the road in pennsylvania somewhere today. So unsatisfactory. Also a honda crv now on the road in new jersey, and a lexus, now on the road in pennsylvania, each sold to dmv auto sales at auction by usaa. It is a big deal, a big deal and what you guys have shined the light on is a really serious problem. We went back and looked at our process and said not satisfactory. We will change it and maintain the high standard that it will involve a branded title. Reporter: General burner is clearly set on fixing the problem that cast his very reputable company in a very bad light. But when you look at this, you wonder how many made it to the crusher and just how many are rolling down our roads? We appreciate usaa stepping

This transcript has been automatically generated and may not be 100% accurate.

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