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Titus v. West American Insurance Co.

Decided: June 18, 1976.


Beetel, J.c.c., Temporarily Assigned.


This is an action for breach of an automobile insurance contract which raises the novel question of the insurer's liability for the theft of a used automobile in "customized" or "restored" condition.

Plaintiff filed suit seeking judgment in the amount of $2,000, together with interest and costs of suit, alleging that this amount represents the "actual cash value" (ACV) of plaintiff's automobile at the time it was stolen. Alternatively, plaintiff sought the appointment of a disinterested and competent umpire under Section 10, Part 3, of the insurance contract, which provides:

If the insured and the company fail to agree as to the amount of loss, either may, within 60 days after proof of loss is filed, demand an appraisal of the loss. In such event the insured and the company shall each select a competent appraiser, and the appraisers shall select a competent and disinterested umpire. The appraisers shall state separately the actual cash value and the amount of loss and failing to agree shall submit their differences to the umpire. An award in writing of any two shall determine the amount of loss. The insured and the company shall each pay his chosen appraiser and shall bear equally the other expenses of appraisal and umpire.

The matter was pretried on June 5, 1975, and this court directed both sides to produce their appraisers in court on June 13, 1975, at which time the two appraisers would select the umpire. When defendant failed to produce its appraiser on the day set, the court ordered that Anthony Berezny of Sunset Tire Service, Inc., Route 12, Baptistown, New Jersey, be appointed the umpire for the purposes of making an award and determining the actual cash value of the automobile in question.

After some delay and a further order of this court, Berezny and the appraisers met and agreed that the market value of plaintiff's particular car at the time of the theft

was $2,000. However, they also agreed that the value of a vehicle of the same model and year in excellent condition, equipped with standard options, would be worth no more than $1,000. Neither of them knew which value was applicable under the law.

Thereafter plaintiff's motion for summary judgment was denied and the matter proceeded to trial before the court on April 29, 1976. Defendant withdrew its jury demand and admitted liability. The case was then heard before the court without a jury, limited to the issue of damages.

Plaintiff is a young man who operates his own auto body repair shop and who has been an auto body mechanic all his working life. On March 16, 1972 he purchased a used 1966 Mustang convertible for a purchase price of $472.50 (including $22.50 in sales tax). About three weeks later he contacted his insurance broker, Robert Herdman, and requested that this vehicle be added to his current insurance policy underwritten by defendant. At this time he wanted only coverage for liability.

Plaintiff purchased this car with the idea of "customizing" it. He enjoys working with automobiles and wanted to make his 1966 Mustang something special. To this end he did extensive work on the automobile. During the first seven months he owned the car he repainted it, added new tires, installed a new canvas top and added several other small items to the automobile. Evidence was submitted by plaintiff showing that during these seven months he spent approximately $350 on parts alone, exclusive of his own labor.

In September 1972 he contacted his insurance broker again and requested that "comprehensive" (theft and property damage) coverage be added to his policy. The broker, Herdman, testified that when this coverage was added plaintiff never mentioned to him that the car was in the process of being extensively remodeled or customized. Herdman admitted that he knew from casual observation that plaintiff's car had been repainted and that new tires had been added,

but he stated that this alone gave him no cause to suspect that the car was being customized or that these changes represented any increase in the insurable risk. The broker duly purchased this additional coverage at a cost of $9.18 a year.

Thereafter, plaintiff continued to improve and customize his vehicle. In March 1973 he rebuilt the engine at a cost of $156.10 (including labor). In May 1973 he purchased a second set of tires and a set of "mag wheels" at a total cost of $293.52 (including wheel locks). He also spent nearly $450 on other parts and equipment. During this time his automobile insurance policy was automatically renewed semi-annually. At no time did plaintiff inform the company or his broker of the extensive modification he made on the automobile.

On February 23, 1974 plaintiff's automobile was stolen. To this date it has not been returned. Shortly thereafter plaintiff filed a claim with defendant insurance company giving a description of the car and indicating that the odometer read 89,000 miles at the time of the theft. Lengthy negotiations ensued which resulted in the instant suit and the failure of the appraisers and the umpire to agree upon the standard upon which value should be determined.

At trial each side adduced expert testimony regarding the question of value and the method of evaluating auto insurance losses. Like the court-appointed umpire and defendant's appraiser, these experts were in substantial agreement regarding the market value of plaintiff's customized 1966 Mustang convertible. Among afficianados of such vehicles, plaintiff's car would have sold for $2,000 on the date of the theft. Plaintiff introduced pictures of his late beloved vehicle into evidence, and from viewing these photos this court finds that there is no question that the car was in excellent, indeed "cream puff," condition. Thus, this court finds as a fact that the market value of plaintiff's car, with the special equipment he added, was $2,000 on February 23, 1974.

The experts could not agree on the value of a 1966 Mustang convertible with full standard options in excellent condition. Defendant's expert, an appraiser with many years of experience, testified that the "book value" of such a car was $375. "Book value," he explained, refers to two publications used throughout the auto and insurance industries to evaluate used automobiles, the Red Book published by National Market Reports, Inc., and the N.A.D.A. Official Used Car Guide published by the National Automobile Dealers' Association. He testified, further, that the maximum value of such a vehicle would be double the "book" price, or $750. Plaintiff's experts testified that such a vehicle would have sold for about $1,000. They rejected the book value method of evaluation as the only guide toward the determination of actual cash value. Berezny, the umpire, agreed with plaintiff's experts and thus iterated his previous findings made during arbitration.

If this court were to make independent findings of fact on this issue, it might place the value of a fully equipped, "cream puff" 1966 Mustang convertible at something closer to the double book value standard espoused by defendant's expert. However, for the reasons which follow, this court finds that $1,000 was the actual cash value of such a ...

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