Question: I bought a 1999 Honda Prelude on February 25. It was insured for $1,050,000. The title, a valuation report and certificates of registration and fitness were given to the company. I paid the premium of $29,986.93. On March 17, I met in an accident which I reported to the police and filed a claim. The company said, by letter dated April 5, that the vehicle would be written off. My insurers offered settlement in the sum of $650,000.00. The company said the car was made in 1996 as a 1997 model. They are being immoral and unfair. Shouldn't they have checked the age of the vehicle before insuring it? The (original) valuator and the Government's motor vehicle examiner have certified that it is a 1999 model. I believe that the company's actions are unethical and unscrupulous. What do you think?
- A.M.
Answer: You have kept excellent records of the contacts with your insurers. This is a good place to start in trying to solve your problem. It appears to me, however, that you have not read the contract (policy). That is a pity. The policy plays an important part in any insurance deal. It is evidence of the contract. It sets out how claims will be handled. Your insurer's views on this dispute are also essential if I am to express a proper opinion. Since you did not give me authority to contact them, I will use a specimen copy of their policy as a guide to help me answer your questions.
YEAR OF MAKE
The year of make of your vehicle should not be subject of any argument. In theory, the date of manufacture can easily be found by contacting Honda in Japan by email and supplying them with details of the engine and chassis numbers. There is an abundance of information about this car on the Internet. The two search engines I checked had over two million listings on the Prelude. Since the car you bought was made in 1996/7 or 1999, I will examine the problem from both angles.
Scenario No. 1: Assume the car was made in 1999:
Your insurers would be wrong to offer you only $650,000 if the car was made in 1999. Their specimen policy says: "If your vehicle is damaged so that repairs will cost more than 60 per cent of its list price (including taxes and the cost of accessories) at the date of accident we will pay an amount in cash, equivalent to the cost of us replacing your vehicle with one of the same year, make and model, had one been available" (pages 13-14). Only 21 days passed between the purchase of the car and the date of the accident. A $400,000 discount off the purchase price would be unwarranted. That level of wear and tear (or depreciation) would be most unusual. If the vehicle were made in 1999, the insurers would be in breach of their contractual duties. They are bound to replace your vehicle 'with one of the same year, make and model'.
CUSTOMER SERVICE CHARTER
Your insurer's policy is uncommon. It has a section called customer service charter. Quality, honesty, integrity, value for money and service recovery are some of the terms found there. The company says that it sets 'high standards'. Emphasis is placed on a 'close partnership' with buyers. Customers are encouraged to complain. Nice sounding words like these are not found in the typical motor policy. Give the company a 'bligh'. Tell them to put those words into action. Ask them to provide you with evidence from sources other than the loss adjuster that your Prelude was at least two years older than was represented to you in February.
Scenario No. 2: Assume the car was made in 1996/7:
The person (or company) who sold you the car could be the villain in the piece. In a November 2003 report, the Consumer Affairs Commission had this to say: "Many of the automotive grouses (reported to the commission) confirm dishonesty on the part of persons selling vehicles." Most interestingly, it highlighted two cases where Hondas were sold that were older than the buyers were told. The issues under the second scenario will be discussed in the form of questions. Assuming that your car was made in 1996/7 and you insured it in good faith, believing that it was made in 1999 for $1,050,000 and paid the premium based on that amount, what is the insurer's liability under the policy? Should liability be based on the value of a 1996/7 vehicle or, on the estimate of value on which the premium was calculated?
TERMS OF POLICY
The terms of your insurer's policy are clear. They are liable to "pay an amount in cash, equivalent to the cost of replacing your vehicle with one of the same year, make and model." In other words, the fact that an estimate of value of $1,050,000 was used to compute the premium is irrelevant in determining your insurer's liability. If it turns out that your car was made in 1996/7 the insurers should refund a part of the premium.
You should look to the seller of the car for your $400,000 - not the insurers - if the vehicle was actually older than you were led to believe. It would be unfair for insurers (actually other consumers) to pick up the tab for the seller's mistake or fraud.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com.
