Your Insured Purchases a Stolen Car—Now What?

Prior to purchasing a vehicle, an insured verifies with the courthouse that the car’s VIN is valid. Nothing unusual comes up. He purchases the vehicle and receives a new title in his name.

A week later, the FBI visits the insured and informs him that the vehicle was stolen property. The FBI tells him to submit a theft claim to his insurance carrier.

Q: We submitted the claim, but the carrier denied coverage based on the exclusion of government-confiscated property. Does the insured have any recourse?

Response 1: The only exception I see in the policy is for the “loss payee.” If a loan was involved and listed a “loss payee,” they will get paid. The only other recourse seems to be to file charges against the individual who sold him the car.

Response 2: If the policy has a “confiscation of property by governmental authority” exclusion, then no, the insured has no recourse under the policy. However, a loss payee might have recourse.

Response 3: Only to sue the seller.

Response 4: If your client could find the party who sold the vehicle to him, he could sue them.

Response 5: Assuming the policy is an ISO PAP, the insured is out of luck. What does the actual policy language say? Only referring to “the exclusion of government-confiscated property” is no way to make a coverage determination, so my response is based on ISO language.

Response 6: “Caveat emptor” or “buyer beware” is a stern warning. The exclusion allowing non-payment for a government confiscation is not “theft.” Theft is the illegal taking of a person’s property. There appears to be no coverage for this legal act performed by the government.

This question was originally submitted by an agent through the Big “I” Virtual University’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.