"One of my insureds was in this morning with an almost unbelievable problem. Back in 1973, while attending Notre Dame University, my insured had a 1967 Chevy Corvette stolen. It was reported to police and the insurance company. At the time, the insurer paid $2,500 for the claim.

"The car was recovered last October, completely stripped. The police called my insured and released the car to him. My insured sold the car to a friend who restores Vettes. The insurer now wants my insured to reimburse them for $14,000, the current value of the car. The insurer apparently has stated what he did was fraud.

"He has retained an attorney. My insured just wants to send a check back to the insurer for $2,500 and forgot about it. Any ideas?"

Interesting situation and one whose solution may involve an attorney and a CPA. I'm pretty sure $2,500 won't settle the claim since $2,500 today is worth considerably less than it was 30+ years ago. The question is whether the current $14,000 market value is the appropriate settlement for a completely stripped car or if restitution should be based on the time value of money, given the $2,500 original settlement.

Again, recognizing that this will probably require the consultation of legal and financial experts, here are some opinions of our personal lines faculty:

I'm afraid the insurer is correct, at least with regard to the insured's action being inappropriate ("fraud," unless statutory in nature, might be tough to prove). Most likely, when he was paid for the original loss, he signed over rights to the property to the insurer. If that's the case, then he had no legal basis for selling the property. Whether he owes the original payment or one with interest is a legal question.

Since he was paid for the loss originally, the insurer is now entitled to the recovery of the vehicle. He had no legal authority to turn the auto over to his friend, so the solution is to rescind that and hand the vehicle over to the insurer.

Your insured had no right to sell the car. The car, and its salvage, belonged to the insurer. What he did was convert the property which he knew belonged to another to his own use. The insurer is only entitled to the $2,500 which it paid and should have returned the excess to its insured if it recovered more for the salvage than it had paid. Therefore, both are wrong. Your insured may have committed fraud on his insurer. He should send them the $2,500 plus interest and hope they will go away.

The insurer paid the claim and (I assume) received title to the vehicle. The insurer owns the car.

Pay the insurer $14,000. The car belongs to them because I bet they took the title back in 1975. He received and sold stolen property that didn't belong to him.

The insured sold a car that wasn’t his to sell. Chances are when the $2,500 theft loss was settled, the insured signed ownership over to the insurance company. So, the company was entitled to the car when it was recovered. Selling a car you don’t own could be considered fraud. 

Now, whether the insurance company is entitled to the full $14,000 current value of the car or not is a good question. If the insured had a deductible on the loss, they would at least be entitled to that when the company recovered value for the salvage. Who is entitled to how much is a legal question, not a coverage question, so it’s good that the insured is represented by counsel.

Update:

Another story: "Corvette Stolen 42 Years Ago Found But Owner May Lose It Again"

Click here for an update on this story.

Last Updated:  June 17, 2015
February 24, 2015