Leland-West Insurance

Should I Report My Car's Mods?

It really, REALLY is not worth the risk

There's a whole world of auto enthusiasts out there:  People to whom their automobile is an expression of and extension of their personalities.  Modifications to the vehicle may be a way to personalize it and make it show-worthy.  Typically you're talking about paint jobs, custom wheels, stereos, bodywork and custom interiors.  Then there are the go-fast guys:  Turbos, blowers, strokers, bushings, coilovers, big brakes.   The list is endless.

Some insurance carriers say they cover modifications, but their coverage is both limited and expensive.  Here is a real-world example:

A consumer told us their insurance company would cover modifications if they were reported and insured under their special equipment endorsement.

  • This endorsement was limited to $4,000.
  • The premium was 10% of the value of the mods (thats $400 every six months).
  • Payment was made on an Actual Cash Value basis (depreciation!) and subject to a deductible.

Since the consumer had a balanced and blueprinted stroker in the car valued at around $15,000 (among many other things) he felt there just wasn't any point in pursuing the added coverage.

He moved his insurance policy to Leland-West where the entire annual premium for a $50,000 Agreed Value policy was roughly equal to the cost of the other company's $4,000 custom equipment charge.

Typically, the mods done to the car don't get reported to the insurance company.  Why not?  Truth be told, most insurance companies have no love for modified automobiles.  The reasons for this aversion would take up enough space for an entirely different article.  Enthusiasts are well aware of the industry's attitude and often just keep quiet and hope for the best.

This is an extremely bad idea

If you fail to report your mods on your insurance application, you can be tagged for "material misrepresentation".  You risk having a claim refused at a time when you need financial protection the most.

You are entering into a contract with the insurance company when you take out a policy.  They have certain obligations to fulfill and so do you.  Being truthful to the company about the details they ask for is one of your contractual obligations.

If either party fails to hold up their end of the bargain, there's going to be trouble.  Here's an ugly example:

Mercury Insurance Company v. Markham started as an accident in 2002. It began wending its way through the court system in 2009, went to appeal in 2010 and still isn't done yet.

  • The insured, Michael Roberts, purchased an insurance policy from his agent for his Ford F-250 truck (in 2002).
  • A question on the Mercury application asked whether the vehicle had been "rebuilt, salvaged, modified, altered or specifically built/customized".  Mr. Roberts answered 'no' to this question.  However this was not accurate.  He had put on a lift kit and replaced the stock tires and wheels with oversized tires/wheels.
  • Mercury's underwriting rules specifically instructed their agents to refuse to offer coverage in the event that someone answers 'yes' to the above question.
  • Philip Markham - a 3rd party - was injured when his foot and ankle was run over by Mr. Roberts' truck.  He filed a claim for his injury.
  • When Mercury Insurance learned of the modifications, they rescinded the policy (cancelled it as if it never existed) and refunded the premium paid for it back to Mr. Roberts.  Lacking the existence of a policy, Mercury refused any further involvement.
  • Mr. Roberts settled personally with Mr. Markham in the amount of $350,000.  The settlement allowed Mr. Markham to proceed against Mercury in a further attempt to collect additional funds.

Mercury was initially found liable by the trial court for wrongly refusing coverage due to its conclusion that the term "modified" was ambiguous.  However, on appeal judgment was reversed when the appeals court stated

"We conclude that there is no objectively reasonable interpretation of “modify” that would justify Roberts' negative answer to this question. Where, as here, neither the application form, nor the policy incorporated by reference therein, defines “modify,” we interpret the word in accordance with its plain and ordinary meaning as reflected in the dictionary"

read the entire decision here

Here is the video record of the court proceeding where the appeal was heard and the lower court ruling reversed in favor of the Insurance company. It is only about 30 minutes long, and is both informative and easy for the layman to understand.

The appeals court handed the case back and left the door open for a separate trial - The insurance agent knew all along that the vehicle was lifted but wrote the coverage anyway. Mr. Markham's attornies could attempt to make the argument that he is entitled to the proceeds of the policy because the agent is an agent of the company and put Mercury on the hook, so to speak. At this time it does not appear the case went any further through the court system.

What can you take away from this?

What if this were you?  Lets assume that the settlement never happened and it was you still fighting with your insurance company, trying to get them to provide coverage.  Is this what you buy insurance for?  Are you ready for a fight like this?  Chances are the answers to those questions is 'no'.

How do you solve the problem?

Its easy:  Tell your insurance company about your mods.  Yes, it is true this is where the easy part probably ends.  A lot of companies could run away at this point... but at least that will happen before disaster strikes, not afterwards like the gentleman whose story is told above.  You may very well have to go out and find a different insurance company.  You might wind up having to pay more for your insurance.

But you will have insurance that you can count on as opposed to a big Maybe.  You don't buy insurance so maybe it will protect you if the company overlooks what you did to the car. 

If your insurance company has a problem with your mods, you owe it to yourself to go find one that both understands and better serves your needs.  Its a more difficult path, but that is nothing like the financial nightmare you could give to yourself if someday the dice don't roll in your favor.

Matt Robertson's small picture
Article by
Matt Robertson
Matt is the Managing Partner at Leland-West Insurance Brokers, Inc. He started with the firm while still a college student, way back in 1984. According to Matt his only remaining hobby is Motorsport ... because its all he can afford ("will work for tires"). Reach him at matt@lelandwest.com