How do the insurance claims work?

Question

Recently, my friend sold his motorbike and he shipped it using uship to the buyer. My friend took an insurance of $6500 for this shipment. When the bike arrived at the buyers location, the motorbike fell on its left side and made a small dent to the tank of the bike. The buyer requested to claim the insurance for the repairs. By contacting the bmw Motorrad for the quote, they said, the whole tank needs to be replaced and gave an estimate of $3400 for the replacement with the labor charges. When he submitted the quote as part of the claim, the following is what they sent.

Underwriters have concluded their investigation of the above-referenced matter and are prepared to offer settlement based on the following calculation:

(Insured Value $6,500 & Invoice Value $11,385).

Repairs Amount $3,984.44 x Insured Value $6,500 / Invoice Value $11,385 (averaged out from all 4 kelly blue book price ranges) >=$2,274.82 - $500 Deductible = Total Claim Payment - $1,774.82

If found in agreement with this calculation, please sign the attached release. Send the signed release back to our office and payment will be requested.

What’s up with that calculation ? I assumed if you insure it for $6500, if the quote shows $3500, why would they just give $2274 (I understand the deductible) . Could anyone shed some light on this ?

Is this how insurance works?

Thanks  

Answer 1

x Insured Value $6,500 / Invoice Value $11,385

It looks like they're saying that since you only insured it for 57.1% (because that's what 6500/11385 is) of the original current comparable price of the vehicle that they're only going to pay for 57.1% of the value of the repair.

Answer 2

It looks like they are trying to prorate the claim based on the percentage of actual value the shipment was insured for. To use simpler numbers, if the bike was worth 10k, but you only insured it for 5k, they are saying they will only cover half the repair cost since you only had insurance for half the bike's value.

Whether or not this is correct is going to be dependent on the specific term of the insurance contract. I would not expect that to be the way the insurance was explained when purchased, but it wouldn't surprise me if it is how the actual policy is written. It also wouldn't surprise me to learn that the insurance company is trying to pull a fast one reduce their liability in a way that isn't exactly in line with the contract. I have had various companies try to do so in different ways several times in the past.

Your friend always has the option to reject their offer and make a counter offer. I have successfully challenged them and gotten better deals a couple times, but I would suggest he start by carefully reading the whole contract, review state insurance laws, and potentially contact an attorney if he feels it is worth the fight.