Stolen and recovered vehicles

Following a question from a consumer, FAnews asked some of the leading short-term insurers regarding the indemnification of clients whose vehicles have been stolen and recovered with "tampered" engine and/or chassis numbers.

A consumer recently wrote to us explaining that his vehicle was stolen at a shopping centre and was recovered some time later, when the thieves tried to exit the country. The thieves had tampered with the vehicle's chassis and engine number.

The consumer said that the resale value of the vehicle had dropped considerably due to the "tampered" engine and or chassis number and he was fighting the decision of the insurance company to return the vehicle to him.

The principle of indemnity

Raymond du Plessis, MD of Tuffstuff, says that any policy of insurance is based on the principle of indemnity. The settling of any claim must place the insured in the same financial position he was immediately prior to the loss which he suffered.

"In light of this, the fact that the vehicles' engine and chassis numbers were illegally altered has caused the value of the vehicle to reduce drastically to the point where the insured has suffered a financial loss due to:

* the vehicle now being registered as a code 2 vehicle (second hand) as opposed to a code 1 vehicle. The motor industry as a whole regards such stolen and recovered vehicles as code 3 (rebuilt).
* These vehicles cannot be readily sold or traded-in through the vast majority of legitimate motor dealers. Even the private sale of stolen and recovered vehicles presents many difficulties.
* No financial institution will readily re-finance such a vehicle should there be some possible future buyer.
* The potential for problems at police road blocks and border crossings is greatly enhanced.

"The recovery of this particular vehicle and its return to the insured by the insurance company in question, does not absolve the insurance company from their express obligation in terms of the principle of indemnity," continues du Plessis. "To this end, I believe that two options exist which will correctly indemnify the insured."

Two possible solutions

The first option is returning the vehicle to the insured, but also compensating the client financially for the monetary loss in value of the vehicle as a result of the illegal change to the engine and chassis numbers. This option will present some difficulty since the monetary loss in value to the vehicle will have to be agreed on in writing between the insurance company and the insured.

The second option is that the insurance company takes possession of the vehicle and compensates the insured in full as if the vehicle had been written off. In this instance, the insurer can then dispose of the vehicle under their salvage arrangements with salvage dealers.

"I believe that the second option is the most feasible and fair option to follow," says du Plessis. "Due to the principle of indemnity not being upheld and the definite financial loss to the insured, refusal by the insured to take possession of the recovered vehicle will not prejudice his rights to a fair settlement in terms of the policy."

In agreement

"It is indeed so that the resell value, guarantee or motor plan of a vehicle, depending on the particular circumstances, may be compromised. It is for this reason that Santam will give its insured the choice to either have the vehicle repaired and returned to him or to accept a cash settlement where the insured elects to not take the vehicle back," says Gerhard Genis, Head of Incident Management at Santam.

"Due to the fact that the vehicle's identification numbers have been tampered with, the claim will usually be settled on a total loss basis. This is mainly due to the stipulation contained in the Mutual & Federal policy conditions that the client will be indemnified in accordance with reasonable market value. Once a vehicle has been stamped with SAPVIN numbers, dealerships are reluctant to purchase these vehicles and offer less than normal market value," agrees Ken Lawrence, General Manager: Claims Technical at Mutual & Federal.

The Ombudsman's stance

We asked Hendrik Viljoen, the Deputy Ombudsman, for his personal opinion on the matter. "Legally speaking, the insurer would not be obliged to settle the vehicle on a total loss basis. Provided the SAPS can produce a clearance certificate confirming the legal status of the vehicle, then same can be returned to the client provided that all incident damage is repaired.

"I do however have sympathy for the argument that a client might struggle to resell such a vehicle but I don't think this is a covered loss. Insurers that do however treat the vehicle as a total loss, would off course have the moral high ground compared to insurers that merely return the vehicle (post repairs) to the client."

Brokers must advise their clients about their rights in such situations and assist the client in obtaining a fair and equitable settlement in line with the principle of indemnity. While it may be useful to know that certain insurers may take the "moral high ground" in such a matter, it is highly unlikely that in today's tough economic conditions the insurer's stance in this matter will be an overriding consideration when premiums, excesses and other factors may be more important.