This past week three insurance cases presented themselves. All were virtually identical in nature, but they had nothing to do with the types of cases I normally see, and I was unable to help any of the car owners. I doubt that anyone could.
Let me start off by saying that all three owners had obtained ACV (Actual Cash Value) insurance policies on their cars. This was probably the right thing to do, because each of the owners wanted to be able to use their cars as “daily drivers” with no limitations. But then they all made the same mistake. I’ll use one of the cases to illustrate what they did wrong, and why there is little recourse for them. There’s definitely a lesson here, and I suspect many of us are guilty of making the same mistake.
The first one to contact me owned a 1986 BMW 635CSi. Perhaps this might be considered a “modern classic,” but it is a classic none-the-less, and it is very usable on a daily basis. He had owned the car for about twenty years, during which time he accumulated over 200,000 miles. A year ago he decided to have the car fully restored. Even though the car does not have a conventional frame, the restoration was comparable to what might be called a “frame-off” restoration in the sense that it was completely disassembled down to the last nut and bolt. It was stripped and refinished, a complete new interior was installed, the entire drive-train was rebuilt, and every system, sub-system, and accessory was rebuilt. After almost a year, and at a cost that exceeded $80,000, the restoration was finally complete and he got the car back about a month ago. A week later the car was stolen. The worst was yet to come.
He filed a claim with his insurance company, and a few days later he was notified that they would pay him $7,900. And from that figure they would deduct his $1,000 deductible. He contacted them and explained the special nature of this particular car, and provided them with all of the receipts for the restoration. They responded by raising their offer to $13,900. His next call was to me.
I have a fair idea of the values of these cars, but I needed to confirm my suspicions, so I told him I would call him back after doing a bit of research. A check of several data-bases confirmed my fears. The insurance company was actually being generous in offering him $13,900. Their actuaries and underwriters use many of the same data-bases that I use, and when he insured the car, the insurance company took a risk that in the event of a total loss they would have to pay out between $4,200 and $12,300 based on these data-bases. This is what their premium was predicated on.
The insurance compan’s position was that it was his prerogative to restore the car at whatever cost he wished, but their only obligation was to pay him fair market value when the car was stolen. Why should they be exposed to more risk just because he liked the car and chose to invest approximately eight times its value in the restoration? And they were right.
Very few things are as black and white as they seem, and this is one of them. As an appraiser, there are certain adjustments that I can make when preparing an appraisal that will affect the vehicle’s value. But I can only go so far. And even though insurance companies are not obligated to accept an appraisal, they often do if they are reasonable and can be substantiated.
In this case, data-bases show that the finest, lowest mileage, most perfect BMW 635CSi ever to publicly trade hands, did so a little over a year ago at a price of $15,950. How can I, or anyone else, make the claim that this car was better than that car. It might have been as good…but not better. And he certainly had significantly more than this invested in the car, but that does not mean that it is worth more.
Anyone who has been involved in this hobby long enough knows that restoring a car is a financial risk because it will probably be worth only a fraction of the restoration cost. That risk manifests itself at the time that we choose to sell it. But it also manifests itself at the time of a total loss, and that is not a time of our choosing.
Oh, yes, the other two cars that met the same untimely fate were a 1932 Ford Street Rod and a 1970 Oldsmobile Cutlass convertible.