Who Pays for Short-Lived Cars?

We’ve all been here before. You’ve just bought a new collector car — one you’ve wanted for some time.

You write the check, sign the paperwork, shake the seller’s hand, jump in the car and take off for some immediate fun.

Unfortunately, most of us don’t stop to think that we might be in a risky situation.

$4,800 per minute

At the end of July, a British enthusiast took delivery of a new Ferrari F430 Scuderia and gleefully left the dealership to drive home.

Driving in wet conditions on the M1 outside of South Yorkshire, the Ferrari abruptly left the highway, went airborne, rolled about 160 feet down the embankment and burst into flames. There wasn’t much left of the Ferrari, but amazingly enough, the driver walked away with just cuts and bruises. The biggest bruises were to his ego.

The story is told in a surprisingly humorous tone, complete with emojis, on the South Yorkshire Police Department’s Facebook page. It begins, “Afternoon folks, were you stuck in traffic this afternoon on the M1 south around junction 37? If so, here’s why…”

When police arrived on the scene, the South Yorkshire Fire & Rescue squad was already there and, in the words of the police, “squirting water all over some kind of sporty motor.

“As we are an inquisitive bunch,” the police post explains that they “asked the driver what sort of car he ‘had,’ to which he replied, ‘It was a Ferrari.’ Detecting a sense of damaged pride, he then said, ‘I’ve only just got it, picked it up an hour ago.’”

At a reported value of $260,000–$288,000, that computes out to about $4,800 per minute of ownership — as bad an example of depreciation as one could imagine.

In an update, the police added, “Following on from speaking to a number of witnesses, officers do not believe excess speed was a contributory factor in this collision.” Great for the driving record, but even worse for the ego!

Great deal goes bad

In a somewhat similar situation, one of our firm’s clients — let’s call him “Sam” — somehow managed to get a super deal on a collector car. He paid about half its actual value. He got it home all right, but a neighborhood test drive proved the brakes to be ineffective. The resulting crash may have totaled the car.

Is it covered?

In these situations, the first legal question that comes to mind is, “Does the owner’s insurance cover this?” In all likelihood, the owner did not contact his insurance company to specifically add the car to his policy before crashing it, so the answer depends upon the automatic coverage provisions of the insurance policy.

Most auto insurance policies offer some form of automatic coverage for newly purchased cars.

Jim Schwarzkopf, president of TDC Risk Management (the exclusive agent for Barrett-Jackson-endorsed insurance coverage), explained that the scope of the coverage varies from one policy to another.

Collector-car policies typically provide automatic coverage for newly purchased collector cars. However, the limits of coverage can vary dramatically. Examples include policies that limit coverage to the actual cost of the car, the highest insured value of any existing car on the policy, and 25% of the total coverage provided for all cars on the policy. They also impose time limits, with the automatic coverage lasting anywhere from 14 to 90 days. If you don’t specifically add the car to the policy by that deadline, your automatic coverage ends.

Schwarzkopf doesn’t deal with regular consumer policies, but he noted that they not only employ similar types of coverage limitations, but some apply only to cars that replace cars already on the policy, while others cover additional cars.

In Sam’s case, his collector-car insurance carrier paid his claim without question, but only after pointing out that his automatic coverage was limited to the actual cost of the car. Had Sam called his agent and added the car at an agreed value reflecting its actual value, he would have received twice as much in insurance proceeds.

Now, he has a free, wrecked car that he can restore at his expense. If the ending value is greater than his restoration cost, he’ll come out ahead.

Sam is now looking into making a claim on his consumer policy that insures his daily-driver cars. It is possible that he might get automatic coverage under that policy, subject to the qualifications Schwarzkopf described.

While it might seem odd, there is nothing legally impossible about both policies covering the same car at the same time.

Long-distance purchases

Another seemingly innocuous way you can get into this situation is when you buy a car in a distant location.

We all know someone who made an Internet purchase of a car in a distant city — or perhaps we’ve even done this ourselves. It’s a car collector’s idea of a fun time. Fly in, buy the car, drive it home and get to know it. (Publisher Martin takes this even further by never seeing the car and then having other people drive it home for him.)

A lot can happen on that drive home. Take a lesson from Sam and the British Ferrari owner. Before setting out on the trip, call your insurance agent and make arrangements to add the car to the policy before you start driving.

Transported cars

So let’s say reading this convinces you that driving the car home from the auction is a bad idea. Instead, you hire an auto-transport company to haul it home for you. You may think that is safer, but there are new issues that you have to consider.

You may get automatic coverage — as we’ve already discussed — but be aware that some policies (including some collector-car policies) exclude coverage when the car is in the possession of the transport company. If the car is damaged in transit, you may well have a claim against the transport company, but does it carry sufficient insurance?

Think about a $3.7 million LaFerrari on a transporter with a $1 million insurance policy. Further, the transport company’s coverage is spread over all of the cars on the truck. So, if there are five of them, then it averages out to $200,000 each.

Sure, you can sue the transport company for the excess, but if this is all the insurance they carry, what do you think their net worth is going to be?

For these reasons, it is critical to know ahead of time whether your policy covers the car while being transported. If it does, your insurance carrier will pay the claim and then go after the transport company and its insurance carrier to recoup its losses. If your policy doesn’t cover you, then either change policies or buy the optional coverage that many transport companies offer their customers.

Friendly hauls

Car guys are super creative about coming up with some form of deal that saves them some money.

Let’s say you buy a car at your favorite auction. Your friend, who hauled his car to the same auction and sold it, now has an empty trailer to haul home. It takes two car guys exactly two nanoseconds to put one and one together, and pretty soon your friend is hauling your car home to save you the cost of a professional transport.

What can go wrong?

Let’s make it easy on you and say that your insurance policy covers your car without question or limit.

Schwarzkopf has seen this happen — your insurance company pays the claim without complaint, then it goes after your friend to recover its losses because his negligent driving caused the damage. There is nothing you can do to stop them. As we’ve explained before, that’s called subrogation. Your friend’s insurance policy will cover him, of course, but are his limits high enough? Say it’s that LaFerrari again and he has only $1 million of coverage. That is a $2.7 million uninsured liability on your (probably now-former) friend’s part.

Protecting yourself

There is little doubt that collectors are better off with a collector-car policy than with a typical consumer car insurance policy. The coverage is just simply better for our needs.

But not all collector-car policies are the same. To make it even more challenging, they aren’t all the same even within the same company — all of them offer different types of policies, and they can differ from time to time and state to state. We can ask for a sample policy from each carrier we are considering, but we aren’t all lawyers who can understand the differences.

It’s best to pick a carrier we are comfortable with and, perhaps equally as important, an agent who knows the differences, knows us, and can help us make the best selection. ♦

JOHN DRANEAS is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.