Will Your Classic Car Insurance Company Accuse You of Fraud?

Short Answer - They Just Might

Overview - With rising prices comes a rise in fraud. And without detailed documentation to back up your insurance claim, you may become the focus of a fraudulent claim. Why, because what you think you have may not be what you actually have. 

The only way to protect yourself is to document your Classic as completely and accurately as possible, including receipts for parts, labor and photographs which can validate these documents. Get started today by opening a complimentary Garagistry account to manage and protect these details.

By Dave Stadolnik
Senior Attorney
Joyce Law Group

Any loyal viewer of the Mecum or Barrett-Jackson auctions on the Velocity or Speed Channels knows two very important things about the classic/collector/antique (CCA) care market: the popularity of (and demand for) classic cars is up, while the market values of these same cars – with some notable exceptions – may be/are down. (Note-Values are ever changing driven by a variety of market driven conditions. It is up to the owner/insured to verify the Classic is properly represented with regard to insurance coverage)
This dynamic not only has important implications for the collector car hobby as a whole but also for the classic car insurance market and the SIU and claims personnel who must sort out the legitimate claims from the phony ones. An understanding of the emerging trends in collector car fraud and the most effective means of detecting and countering bogus claims is vital both for protecting the integrity and popularity of the classic car hobby as well as an insurer’s bottom line.
Vroom Boom
In the decade or so leading up to the recent economic downturn, classic/collector cars experienced a notable “boom market.” This surge in popularity was fueled by a number of converging factors: the availability of “ready cash” as a result of inflated equity values on homes; the “coming of age” of the baby boomer generation who could (finally!) purchase the classic dream car that they had obsessed over during their youth; and the increasing popularity/awareness of the classic car hobby made possible by various programs, magazines, and internet sites dedicated to classic and collectible automobiles.
The increasing popularity of the collector car hobby sped along quite nicely as vehicle values continues to rise and cash remained plentiful. According to a study by Hagerty Insurance, there were approximately three million collector cars in the U.S. with 75 percent of collector car hobbyists in the age 46 or older demographic. (Note - The amount of vehicles stated in the Hagerty study was not based on factual information, noted as an internal estimate. Research indicated the three million number reflects "investment grade Classics" only, thereby skirting a  more accurate overall number of "all" Classics, which is believed to be more than four times higher. i.e.-12M+.

Many new purchasers were able to rationalize their shiny new acquisitions as long-term investment vehicles. Besides, no one ever gets admiring glances for their “cherry” 401K or provoke squeals of delight and looks of envy for having a “really cool, all original” Roth IRA. Everybody was a winner.
The average premium on a collector car policy is approximately $350 (this premium representing 25-35 percent of the cost of a typical “daily driver” policy), according to an article from the Wall Street Journal. A typical collector car policy requires that the collector vehicle be maintained in an enclosed garage with limits on the number of miles that it can be driven per year. Collector car policies also require proof of a “daily driver” to ensure that the classic ’69 Yenko Camaro is not being used to commute to the office.
However, as values of many of the collector cars purchased as “investments” continue to sputter and stall, the overall popularity of the collector car hobby has remained in high gear. Any trip across the cable TV landscape will lead a viewer to entertaining and informative programs such as “What’s My Car Worth?” “Chasing Classic Cars,” and the always entertaining Mecum and Barrett-Jackson auction extravaganzas. That does not include the scores of programs about hot-rodding, customizing, and restoring all makes and models of Detroit Iron. Let’s just admit it: Americans love cars, and a classic/collector car is often viewed not only as an investment, but also as a clear sign that you have truly arrived in style.

"And yet, collectors’ dreams can become nightmares either for innocent collectors who think that they know more than they actually do (remember those shows and websites and magazines?) and may be victimized by unscrupulous dealers."

Insurers, too, face risks after they issue a generous stated value policy far in excess of a vehicle’s market value to an insured who finds him or herself in extreme financial distress. In some classic car claims, the insured has a clear economic motive to commit fraud. Put simply, their classic car is worth a whole lot more dead than alive. In other claims, the investigation reveals that the insured had been scammed by an unscrupulous prior owner. The emerging classic car fraud trends, which encompass both “complicit-insured” and “innocent­ insured” scenarios, include:
  • Obtaining policies on “virtual” cars that only exist as digital images on the Internet.
  • Insuring lower-value clone or tribute cars as if they were the real thing.
  • Counterfeiting of vehicle documents, trim tags, or Protect-O-Plates to increase insurable value.
  • Counterfeiting or re-stamping vehicle parts/engines to create number ­matching or birth-motor cars to increase their insurable value. (See - Intentional Misrepresentation Costs Seller $110,000)
  • Counterfeiting authenticity certifications or awards from vehicle associations.
  • Using “repairs” as an opportunity to fraudulently conduct extensive and value-adding restorations.
The increase in competition among insurers during the classic car boom market forced them to relax underwriting standards as the scramble for new customers heated up. Unfortunately, the relaxation of underwriting standards has made it increasingly easy for unscrupulous insureds to obtain stated value policies on paper or “virtual” cars with the click of a mouse. As a general rule, these scam artists will request a stated value just below the minimum value that would trigger the requirement for an actual appraisal.
Clone or tribute cars, which are inexpensive cars dressed as a more desirable version, can be players either in intentional or innocent misrepresentations. American muscle cars with rare and exotic pedigrees (such as Mopar muscle cars from Mr. Norm’s legendary Grand Spaulding Dodge or GM street-rockets bearing the coveted “Yenko” badging) have inspired many tribute cars that are nearly indistinguishable from the real thing to all but the most discerning eye. So long as the fact that these vehicles are fully disclosed and documented, all should be well.

However, those insureds with more money than know-how can be easily fooled into paying exorbitant prices for a counterfeit car that is worth about 50 percent of the genuine article. Often, it is only during the course of a claims investigation that an insured learns that their beloved, one-of-a­ kind car is just a knockoff. An unscrupulous insured, however, knowing full well that his vehicle is a counterfeit of a more valuable collector car, can increase his return on his investment all too easily by staying mum. 

Detecting Fraud
A collector car, like any fine piece of art, becomes more valuable in direct proportion to both its condition (which continues to be “king” in the collector car world) as well as its provenance (the paperwork, documents, or other certifications of its background, authenticity, uniqueness, or historical significance).

With the boom in the collector car market came an increase in the counterfeiting of vital documents, such as the original build or broadcast sheets that followed a vehicle down the assembly line as well as GM’s distinctive Protect-O-Plate and the crucial trim tag. 

Unscrupulous fraudsters have gone to the effort of obtaining original blank broadcast sheet paper stock as well as the original tool and dye machinery from defunct dealerships to replicate the metal stamping on Protect-O-Plates, trim tags, engine blocks, transmissions, and body panels. The fact remains that it is only the trained expert eye that can discern the difference between an authentic vehicle (and its documentation) and a well-crafted fake.
The services of a highly trained expert also are vitally necessary in circumstances in which a vehicle has sustained damages as a result of an accident. An insured may “overreach” in seeking to obtain a restoration of the vehicle that would substantially improve its condition from its pre-loss state versus the repair that is required under the policy.

It is a basic truism that collector car owners have an emotional attachment to their vehicles – sometimes bordering on obsession – that varies substantially in intensity from their relationship with their minivan or grocery-getter. No repair is ever good enough for their “baby.”   It is not an unusual scenario to find an insured demanding the use of “new old stock” (NOS) vintage original replacement parts, whereas the body panel to be replaced was never OEM in the first place. Only an expert with substantial experience in the collector car field can determine whether an insured wants the car replaced to its pre-accident condition or if he wants the insurer to underwrite an extensive improvement on his investment.

Todd Lewis, owner of Xtreme Restorations in Smithfield, R.L (xtremerestorations.com), a trusted authority in the classic/vintage car restoration field with over 20 years of experience appraising, repairing, and restoring high-value automobiles for a demanding national clientele, has seen many attempts by unscrupulous insureds to “upgrade” their repairs to dramatically improve the restoration quality of their classic cars or, in some cases, to finagle a full frame-up restoration on the insurer’s dime.

Lewis notes, “More often than not the insured is looking to make his car better than it was prior to the loss either by trying to claim damages not related to the claim or looking to replace parts with substantially higher quality parts. I have even had several clients insist that there is ‘no way we can match the paint on their vehicle’ and demand that we re­ paint their entire car under the claim.”

Lewis, a veteran appraiser as well as a skilled restorer of classic cars, goes on to say, “When examining a vintage vehicle, you can get a feel for what kind of prior work has been performed in terms of its level of quality and attention to detail and authenticity, and this comes only with years of hands-on experience. Quality and craftsmanship is everything and greatly impacts the cost of repairs.

Quality of prior workmanship is not something that you can identify in photographs. In every job that I have been involved, the car looks better in photos than in person and, obviously, this greatly impacts how I write the estimate and the cost to repair. It is the insurance company’s obligation only to return the car to its pre-loss condition-not to provide free restoration services.”

Lewis concludes by observing, “It has been my experience that the shops contracted to do the repairs typically seek to increase the cost of the project and that approximately 80 percent of shop­written estimates contain gross exaggerations of the damages. Even with classic cars I have seen some shops enhance the damage to increase the likelihood that a repair will become a restoration.”

Dennis Lyons, owner of S.D. Lyons, Inc. in Seekonk, Mass., (sdlyons.com), a full-service automotive forensics firm, has been providing forensic automotive services to the insurance industry, including insurers of collector cars, for over 30 years. Lyons is not only an experienced and highly-qualified forensic expert who performs a wide range of failure analyses involving complex and painstaking disassembles, he also is an avid and enthusiastic car collector and restorer of muscle cars and builder of race cars and resto-mods (vintage cars with upgraded modern engines, drive­ trains, and suspensions).

Lyons has frequently observed, “When I am finished examining a car, I often know more about the car than the owner does.” He points out that some classic car claims he helps to investigate involve uncovering potential fraud on the part of the insured, while others require that he determine how, when, and why a costly failure or fire occurred. It is in these circumstances that the services of a seasoned and credentialed automotive forensic expert with specialized expertise in the classic car market may potentially prevent a costly exposure to an insurer.

Over the years, Lyons has seen countless loss scenarios that would challenge the wits and patience of even the most experienced forensic consultant. He recounts a particular case in which an insured “brought his high-valued 1970 Cuda Convertible resto-mod to a company for a chassis dyno-tuning session. The insured had been driving the Cuda with a supercharged 6.1 liter Hemi for two years. Hours after he left the car to be evaluated on the dyno, he was told by the shop his engine failed because it was ‘no good when he brought it in for the session.’ The owner filed a claim with his insurer.”
Lyons, a certified master engine machinist, performed a forensic disassembly and determined that the engine was, in fact, quite healthy when it went in for the session and diagnosed that it had experienced detonation in the cylinders due to tuning errors during the dyno-session. Liability for this costly failure was placed on the shop and a forensic report was produced in preparation for subrogation.

In another instance, an insured claimed that his vintage Lamborghini was “flooded up to the door handles” while parked in his garage and was destroyed by the water exposure. A forensic exam of the vehicle showed that it had been “hosed down, inside and out” and was never in a flood.
Another case involved an insured who claimed that while taking a drive in his classic GTO, an unidentified object bounced up from the road and struck the hood, windshield, roof, rear window, and trunk lid. An analysis of the physical damage showed the damage was inflicted with a hand-held object and did not occur as alleged. The insured was denied his request to have his vehicle repainted.

Finally, a Shelby Mustang sustained a catastrophic engine failure allegedly because the insured “forgot to put oil in the engine;” when he changed tile oil and filter by himself. An analysis showed that a connecting rod broke at high RPM; there was no evidence of a low-speed lubrication situation and the claim was denied. The carrier never needed to “pony up” on the Shelby – the claim was withdrawn.

The Future of Classic
Let’s face it: real car guys do not want to see the collector car hobby dwindle away as the stock market struggles to get back into high gear. Insurers, likewise, wish to see this important niche market remain robust and profitable. This requires a delicate balance between promoting and supporting collector car enthusiasm, prudent underwriting practices, and effective investigations.

The sad fact is that fraud and abuse in the classic car realm is real, expensive, and is likely only to get worse absent more vigilant underwriting practices and carefully coordinated cooperation between claims personnel, SIUs, and experts who can assist companies to properly dissect a collector car claim. 

Increased vigilance on behalf of insurers will have a beneficial two-fold effect: fraudulent claims will be caught and indemnity dollars saved, while at tile same time the integrity of the collector car hobby will be further enhanced as dishonest dealers, counterfeiters, and insureds are identified and “put upon blocks,” as a result of effective investigations.

This article was originally published in SIU Today Magazine. 
Dave Stadolnik is a Senior Attorney with the Joyce Law Group in Canton, MA. His practice is focused on civil litigation, product liability claims and bad faith litigation. He also practices in the area of insurance fraud and special investigations with a concentration on complex medical fraud, commercial and homeowners’ claims, inland marine/trucking and claims involving classic and collector vehicles.