What defined's a vehicle as "totaled"?

what happened was a month ago a lady rear ended me with her car and she was at fault. i drive a 1993 mercury villager and we took each others insurance information. so a couple days later there was an inspector from her insurance company that came and checked out the van and said that it is a "loss" and that it would cost more to repair it then it would to replace the vehicle and so they said they wont pay for it to be fixed because of that. even though it was just a little scratch and dent on the back side bumper. then yesterday we got a letter in the mail saying that our title and registration to the vehicle was canceled because they got a report saying the car was totaled. what should i do? this is retarded is what i think. do they have a right to do this and not even pay for the damage?