INSURANCE FOR DUMMIES – by bill orth
OK, it's a subject that nobody likes to think about, but its also a necessary evil if you want to license a car in Colorado. Most insurance coverage is pretty straightforward, and if you have a good agent, there should be few problems. However, there are some special issues that can affect your coverage-or even getting coverage---on a Ferrari that I would like to discuss.
First, truth to tell, some underwriters would just as soon not have such cars on their books, since they represent the potential for a very large single loss, and these companies assume the worst about the driving habits of the individual who would own such a car. In fact, however, most Ferrari owners are the precise demographic that any insurer would want! Speaking generally, of course, most are of a more mature age, stable in their lifestyle, well educated, have good driving records that they wish to preserve and are owners of multiple automobiles that they take pains to protect. Consequently, obtaining Ferrari insurance for someone like this is rarely a problem, but for someone who doesn't fit that profile, it may be nearly impossible. Generally, an underwriter will consider covering a 'risky' vehicle only if they are handling all of a customer's other insurance-cars, home, life, etc. Although there are a few very specialized carriers who will write coverage on a Ferrari if the owner is insured otherwise by someone else, this is usually a pretty costly alternative and only worth considering if your primary insurer is providing such incredibly good service on your other needs that you don't want to change.
Some owners, especially those with older Ferraris, prefer to get 'stated value' coverage on their car. The intent is to protect the investment made in a nicely restored car should it be stolen, damaged or destroyed. Rather than having to establish its condition, and therefore its value, post-accident, the owner and insurer agree up front on how much the car will be insured for, and the premium is determined (in part) by the dollar amount of coverage. This is a very good idea, but there are some caveats that should be observed by the owner. First, the fine print in the policy will almost assuredly declare that the "stated value" is not automatically what will be paid in the event of a claim, but rather the maximum that may be paid. If the auto is not totally destroyed, the underwriter is obliged to pay to repair the car. In the event that the damage is extreme, or the car was stolen, the settlement will be the lesser of the value stated in the policy or the established market value of the car in question! In this way the underwriter protects themselves from someone who insures a car for more than its value and then has an 'accident.' You are not necessarily absolved from a battle to establish the car's value during a claim just because you paid for "stated value' coverage.
In order to protect himself from financial harm in such a case, the owner should prepare a carefully documented file of evidence that will establish his car's reasonable market value. This should include very clear, detailed and dated photographs of every aspect of the vehicle. Plausible receipts for major restoration work, copies of advertisements for comparable autos and a proper appraisal of the car in question. (Not an 'appraisal' typed up by someone who sold the car, who could be biased. There are licensed appraisers who will provide a statement that will stand up in court, if necessary, who should be used)
There are several specialty insurers who specialize in 'collector' car coverage, aimed at cars that are largely kept as pets and rarely driven. They calculate premiums based on the dollar value you choose to insure for, but if you consider one of these agencies, be aware that they aren't stupid. You can't pay the premium for $20,000 coverage on some old rat you bought for $500 and then set it on fire in a conveniently secluded place! Also, the very affordable pricing of these policies bring with them the imposition of some pretty restrictive use of the car. Primarily, it must be under your supervision at all times-no leaving it unattended in a restaurant or country club parking lot, for example. The allowed annual mileage is also very restrictive, eliminating most recreational driving. In fact, some stipulate that the car is only to be driven to and from organized events.
Another issue that should be kept in mind by owners of valuable cars is the matter of 'diminished value.' In the event of an accident, even if a car like a Ferrari is repaired to the highest possible standard, such that no examination would reveal any sign of trauma and the vehicle's safety and road behavior were in no way compromised, the reality of our world is that the car's value has diminished. Such autos are bought not as tools of transportation but for many less pragmatic reasons; as goal-attainment, as an investment or simply because the buyer wants it. As such, any car that has some spots on its past is considered far less desirable and usually passed over in favor of a more virginal specimen. Of course, the percentage of damaged cars that are truly repaired to the hypothetical perfection mentioned above are few and far between. Most people avoid once-whacked cars because they have experienced the latent squeaks, leaks and rattles that often appeared in past cars they have owned, along with mismatched paint and other surgical scars. Therefore, even if your insurer pays what was necessary to repair the car as well as possible, you will still suffer a future loss at trade-in time. It should be mentioned, also, that many underwriters dictate to the body shops how much they will pay to fix the car to a 'commercially acceptable' standard-not the degree of perfection the owner would like to have. Many owners of high-end cars have written checks well beyond their deductible amounts to buy a better level of finish than their insurer would pay for.
Having spent above and beyond in this way, some owners have managed to mitigate enhanced depreciation when selling their cars because the buyer could not detect the past misadventures. However, today both dealers and consumers alike are widely using the services of Carfax to research the history of preowned automobiles. A Carfax report will tattle on a car which has had previous accident damage and the car is subsequently knocked down in desirability and value accordingly. How does the Carfax data base acquire these damage histories? From the insurance companies, of course! Some smart guy in the underwriting industry realized that this was valuable information that they could sell, plus as a corollary benefit, should an insured car get damaged a second time, the agent can point to its spotted past and reduce his settlement amount. If an injury resulted, the underwriter can try to deflect the liability toward whoever repaired the car in the past.
Unfortunately, virtually no insurance policies provide compensation for Diminished Value after your car gets hit, flooded, burned or stolen. Their policies obligate them to repair the car to a 'commercially acceptable' condition and that's it. To be fair, the potential for endless bickering and difficulty in settling claims would be horrific if values were to be negotiated. The sad reality is that if we are unfortunate enough to have an incident with one of our cars, we will have this additional depreciation affecting the car's future value. A possibly more constructive way of looking at the situation-or rationalizing it---is that without insurance protection, any accident you were involved in could be catastrophically costly. While you may stand to loose several thousand dollars' value on a repaired car, that will be insignificant when compared to what your insurer may have spent to fix it, and truly picayune if there were any liability/medical or death benefits awarded to who you hit.
-- Bill Orth --