Stated Value Insurance (It's Not What You Think)
by Bradley Flippin
Instead of purchasing a standard indemnity insurance policy for your classic
or antique car, did you decide to pay an additional premium and purchase a
stated value policy? Anything to prevent having to hassle with the claims
people. Right? After all, your agent said they would pay the stated amount in
the event of a total loss. Right? WRONG! WRONG! WRONG! If any of this sounds
familiar you may have been mislead by one of the most widespread
misconceptions that exists today in the automobile insurance industry.
BACKGROUND
In 1985 Mr. J. Bradley Flippin of Centreville, Virginia, purchased a $3,000
slated value policy from Nationwide for his car. Just to he sure there was no
misunderstanding, he asked the agent to be very specific as to how a claim
would be handled in the event of a total loss. The agent reassured him he
would receive the stated value amount in the event of a total loss. "You mean
if I have a total loss they will write me a check for $3,000?
Mr. Flippin asked. Well, not exactly, replied the agent. You will have to
prove you have that much in the car. Then, yes, they will pay the $3,000. I
recommend, however; you keep all your receipts and be ready to submit them if
the need ever arises. That seemed fair enough. Mr. Flippin was required to
bring the car by the agent's office so he could inspect it and photograph it
for the file., Mr. Flippin paid about $205 for six months of basic coverage,
including the $3,000 stated value declaration (A standard indemnity policy on
the same car would have cost only about $175).
CLAIM TIME
Mr. Flippin neglected to watch the green left turn light at an intersection
and turned directly in the path of an oncoming car. The impact was so great
his head shattered the passenger's side window. (Moral: Wear your seat
belts.) The claims adjuster declared the car a total loss, so Mr. Flippin
sent him a copy of all the receipts for the restoration work, which to date
had totaled about $5,500. The adjuster said he was willing to settle for
$900. "Nine hundred dollars!" exclaimed Mr. Flippin. "What happened to the
$3,000 stated value for which I had been paying additional premiums?"
"Oh, I don't know anything about that. I only settle the claims. You will
have to talk to someone else about that," was his reply. But he did say he
would be willing to consider any other information that might be provided to
him. "If I can get an appraisal showing the car was worth $3,000, would that
be enough?" The agent replied with, "Well, we will certainly take it into
consideration." He was about as non-committal as one could be.
RESEARCH
At this point Mr. Flippin decided to do some research. He began by reading
his policy, which nobody ever reads (Have you read yours?) The basic policy
said Nationwide would pay "... the actual cash value of the property .. at
time of loss ..." (This is the way all standard indemnity policies read.)
Nationwide's Virginia Endorsement 2004 (Stated Amount Insurance) replaced the
wording in the "Limit of Liability" section with words saying they would pay
the lesser of "... the stated amount in the declaration or the actual cash
value of the stolen or damaged property... The words "at time of loss were
not there. They had been dropped. This appeared to he reasonable because the
value of the car had been agreed to in advance. Thus, the value of the
property at the time of loss was really not an issue (or so he thought).
The Nationwide claims adjuster, and Nationwide itself, would have nothing to
do with that interpretation. Although no one could explain why the words were
missing, Nationwide maintained that it really did not matter. Their position
was simple: Nowhere in the contract (policy) did it state Nationwide would
pay the stated amount in the event of a total loss. Mr. Flippin considered
this wording to be ambiguous and, although the claims adjuster agreed, he
would not change his position.
STATED AMOUNT
Additional research revealed there are, in fact, two types of stated polices.
One is a stated amount policy in which the premium is based on an amount
stated by the insured. Losses, however, are still based on the actual cash
value (ACV) of the property at the tune of loss, but not to exceed the stated
amount. To pay the stated amount automatically would create a moral hazard in
that policy holders could overvalue their cars, thus making a profit. This is
contrary to the basic principle of indemnity which is to restore a person to
the position they were in before the loss. (Mr. Flippin contends, however,
Nationwide effectively removed the moral hazard by having their agent inspect
the car prior to issuing the policy.)
STATED VALUE
The other is a "stated value" policy, which is a true valued type of policy
where both parties agree, in advance, as to the value of the property. In the
event of a total loss, the company will pay the full face value of the
policy. It turns out this is an Inland Marine type of policy generally used
with works of art, boats and other marine equipment. There are a few
companies, however, that do offer it as an automobile policy. This difference
maybe the reason for the wide misconceptions about stated value policies. Mr.
Flippin asked eleven different Nationwide agents how the company would settle
a stated value policy. None of them corrected him by saying they were
actually stated amount policies, five of them said the company would pay the
full stated amount and five of them did not know. Only one actually knew the
company would not pay the stated amount in the event of a total loss. He said
he chose not to sell that type of policy because the insured pays an
additional premium and receives no additional protection. In fact the insured
receives less protection. The standard indemnity policy pays the ACV at the
time of the loss with no limit on the company's liability. The stated amount
policy still pays the ACV at the time of the loss, but the company's
liability is limited to the stated amount. For example: Assume a car has an
ACV at time of loss of $10,000. For an $8,000 stated amount policy, the
company would only pay $8,000, where they would pay the full $10,000 under a
standard indemnity policy. The insured pays an additional premium for the
"privilege" of limiting the insurance company's liability.
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