Auto Insurance Claims: Who should pay?, lien holder, insurance co

Question
My auto is in a collision (no one hurt). The car is taken to the dealer.  The dealer doesn't do body work.  They tell me to take it to a certain body shop that is manufacture-certified to work on my car. It is and an estimate is performed. My insurance co. decides that the car should be repaired.  Within a week or two additional damage is discovered.  The insurance co. approves the repair work.  They send me a check to cover the original estimate.  Weeks have passed, I stupidly sign the check (co-endorsed by the lien holder) over to the body shop at their request fearing that nothing would happen if I didn't (again very stupid). As damage is newly uncovered two or three times), the insurance co. pays the body shop directly for the supplemental repairs, again before completion of the work.  Months go by and the car is still not fixed.  Out of the blue, the body shop discovers that the transmission is damaged and needs to be replaced.  By this point the cost of repairs is approaching the cost of the car. It's the fourth or fifth discovery of hidden damage, but the insurance co. opts to continue trying to fix the car.  They agree to pay for the replacement of the transmission and send me a check. I hold on to the check.  Now it gets interesting.  A week later the body shop is shut down by the county over licensing issues (or for god-knows-what). They are history along with what they have been paid. The dealer, having several other cars involved, gets wind of the impending shut-down and salvages them and as many replacement parts as possible.  The cars are all taken to another body shop.  The second body shop tells us they would not touch the car; it is a total loss.  More weeks go by while the mess is sorted out.  Finally the insurer agrees; it is a total loss.  The agent I have been dealing with and her immediate supervisor lead me to believe that they will pay for the loss at fair market value.  I am very pleased, but start to get nervous after trying to finalize the paperwork for three weeks.  At the eleventh hour, the supervisor of the supervisor whose job it is to authorize the payment says no, they will deduct the cost of the repairs and pay only the balance.
Of course, aside from the the unprofessional and underhanded treatment, I think it is an unfair deal.  I reason that the insurance company made the decision to repair the work and therefore should assume the risk if it fails.  I would argue that the car was a loss from the very start and the fact that the original body shop was not on the level only confuses the issue. If the second shop hadn't got hold of it and made a fair assessement the car would probably still be sitting unrepaired in limbo. Sorry for the long-winded account, but I think I've squeezed in the relevant facts.  What do you think is fair?

Answer
Hi Thomas,

WOW!!! This is a mess.

The first thing you need to understand is that since you selected the bodyshop, the insurance company is not responsible for the fact that tehy went out of business.

You need to do a couple of things. first, you need to make sure that the remains of your vehicle are in a secure and accessable location (Yes, this is your responsibility).  Second, you need to file a complaint with the state insurance commissioners office against the insurance company. Third, you will likely need to retain an attorney to figure out what laws have been broken and to file suit against the body shop owners, the dealership for refering you their and possible the insurance company for not properly assessing the damage in the onset and totaling the vehicle.

I hope this helps
Richard Hixenbaugh