USAA Changes Policy After ABC News Investigation Into Sandy-Damaged Vehicles Sold on Used Car Lots

Sept. 4, 2013— -- In the wake of an ABC News investigation into superstorm Sandy-damaged cars being sold on used car lots, a major American insurance company acknowledged that its salvage vehicle branding process after Sandy was "unsatisfactory," and it is making changes to help keep those damaged cars off the road.

USAA, which focuses on providing financial services and insurance to U.S. military members and their families, is now facing questions, which were raised by an ABC's "The Lookout" report in July, over its failure to brand at least one of its flood-damaged vehicles -- a 2006 Ford F-350 -- as a salvage vehicle before selling it at auction.

In a follow-up interview with "The Lookout's" Bill Weir, Kevin Bergner, the president of USAA's Property and Casualty Insurance Group and a former Army general, said the team's report was "shining the light on something that is troubling all of us."

"We went back and looked at our process, and we said 'unsatisfactory,'" Bergner said. "We are changing it, and we will maintain that highest standard. That even a parts-only sale will involve a [salvage] branded title."

When superstorm Sandy pummeled the Northeast last October, the damage was widespread. Nearly 300 people lost their lives, and thousands more lost their homes. Then there were the cars. According to the National Insurance Crime Bureau, an estimated 250,000 cars were submerged for days in corrosive saltwater.

Thousands of these flood-damaged vehicles were temporarily stored at the Calverton Executive Airpark in Long Island. In the months following Sandy's destruction, these cars began to disappear. Where did these flood cars go?

In a seven-month investigation, ABC's "The Lookout" found these cars turning up on used car lots across the country.

Christopher Basso, public relations manager at CarFax, explains the potential hazards of flood-damaged vehicles, adding that "flood cars literally rot from the inside out."

Because of how easily the damage can be concealed, Basso warns prospective buyers to bring the vehicle to a mechanic for an inspection. "While this car looks great on the outside and to the untrained eye, things are falling apart inside this car. It may not happen immediately, but days, weeks or months down the road, parts that are on this car are going to fail."

CarFax estimates that more than 100,000 Sandy-damaged vehicles are now back on the road across the United States.

When ABC's "The Lookout" team went undercover at used car dealership D&D Auto Sales in Old Bridge, N.J., it discovered a Ford F-350 truck totaled by superstorm Sandy selling for $19,999. The truck's Vehicle Identification Number, or VIN, and auction records indicated it had been damaged by a flood.

A D&D's salesman sold the car to an ABC's "The Lookout" producer for its asking price and referred to a flood alert on the vehicle history report CarFax as only "a glitch."

But Alan Picker, owner and certified mechanic at All-Time AutoBody in Point Pleasant, N.J., knows the CarFax alert was no glitch. "The Lookout" team brought the truck to him to examine the dangers a cleaned-up flood vehicle can often conceal. Picker discovered the car had serious damage, including a corroded transmission, as well as potentially hazardous airbags that could randomly deploy while driving.