Insuring Your Hot Rod and Shop Part 2 - Who's Got You Covered?

This month, we've got more insurance information that could save you even more money, plus some advice for protecting your investment. First, let's dig into the topic of determining the accurate value of your specialty car, then let's get into recent improvements in hot rod insurance for restorers and builders.

What's your rod worth?
Of course you know the value of your street rod. The real question is, can you prove it? The best way-maybe the only way-to confidently answer yes is to have your car appraised by a professional appraiser.

Many insurance companies we talked to don't require an appraisal to insure your hot rod, but for the relatively minor expense of the service, an appraisal from a certified and reliable appraiser is a smart investment. There are cases when an insurer could ask for an appraisal, such as on ultra-high-dollar cars, or when the value might not be evident to the insurance company. Chrome/ANPAC, for example, requires appraisals for cars valued at more than $25,000 and asks for updates every three years to make sure they are insuring the car for an adequate amount.

Jeff Hyman from Classic Auto Appraiser is the independent professional appraiser we call when we need appraisals on the project cars at our in-house tech center where STREET RODDER and our sister publications build and store various magazine project cars. We called him recently to ask him questions about the work he does.

Our first question was, who should be getting their street rod appraised? "Anybody with a car mildly to wildy customized, anybody with a limited-production specialty car, anybody with the type of vehicle you couldn't look up in a 'blue book' or conventional value guide, including custom modified cars and low-production factory cars with rare options that would elevate its value."

After many years in this business, Hyman has developed what he calls "templates" for street rods, hot rods, customs, restorations, lowriders, trucks, and bikes. "The programs list every possible mod from front bumper to rear; I note all the modifications that have been made to the vehicle being appraised."

The results are presented to the owner in the form of a bound appraisal report, which includes an identification and description of the car, listing virtually every component on the car and every modification made. It also contains a condition report on every area of the car-exterior, interior, and engine compartment (rated poor, fair, average, good, very good, or excellent)-any published stories on the vehicle, dozens of photos of every corner of the car from multiple angles, and finally, a summation of the dollar value of the vehicle.

We wondered how Hyman determines subjective judgments such as "very good" and "excellent." "Condition is subjective, of course," he explains, "and that's where 22 years of experience comes in. I have worked as a judge at many major car shows, including the Grand National Roadster Show, so I've seen enough to be able to judge a car's condition and dollar value pretty well. Every once in a while I may come across a vehicle that I'm not sure of. I do belong to an appraisal association and I will seek the opinion of other experienced appraisers within that association, or I'll get the expert opinions of professional builders, asking them what they think it would cost to build such a vehicle."

We asked Hyman about the qualifications to look for when searching for a reliable appraiser. "You want someone with lots of experience. You want to avoid these networks and groups with appraisers who have been trained for maybe a week, and who then go out and takes some photos and send them to a parent company for a long-distance appraisal. If your car gets stolen or wrecked, that appraiser might have to be an expert witness in a court case where his credibility will be called into question; he will be questioned aggressively by the opposing lawyer. You need somebody with testimony experience who will be able to state with confidence that he did see your vehicle, that he is the one who made the dollar amount appraisal, and that he has the credentials and the authority to back up his appraisal."

Most established shops have business insurance to protect their property and ideally their customers' property, but many insurance companies just don't know what happens inside a hot rod shop and how that's different than what happens inside an automotive repair shop. Bobby Alloway told us that after a fire destroyed his shop in 1998, his business insurance agent had a hard time understanding why a shop would need six or seven sets of wrenches or three welders or specialty tools made by hand.

Steve Foltz heads up the Business/Commercial Insurance department at Northwest Classic Insurance, an agent for Grundy Worldwide on the West Coast. He explains that specialty companies understand the differences between the classic car industry and the repair industry (such as collision shops): turnover is less, security is generally higher, the cars are of higher value and are appreciating (not depreciating) in value, and the shop crew is likely to be more specialized. And most importantly, the cars are unique; if a highly modified shop-built '32 Ford roadster is damaged in a fire, you can't replace it with another one just like it, as if it were an '05 Ford Festiva.

All of those benefits of a specialty shop, combined with the fact that claims are less frequent than with ordinary shops, means that specialty insurers can provided this type of custom-built coverage cheaper than most mainstream business insurance companies.

We talked to John Heckman, who was hired to set up the Restorer and Builder program at Grundy (the first company to offer it) about their garage keeper's policy, the insurance that covers the customers' cars in a shop. Most standard garage keeper policies, written for repair shops are based on "actual cash value" (the type of insurance you'd have on a "normal" car) which, in the event of a total loss, pays replacement cost minus depreciation. Grundy's policy is based on "agreed value" (the insurance you should have on any specialty car). In the event of a total loss, agreed value policies pay the prescribed amount-no depreciation and no haggling. Individual car owners need to keep their insurance companies up-to-date on their cars; shops don't.

Grundy's garage keeper's coverage is "direct primary," meaning that the shop's insurance company pays the car owner without involving the owner's insurer. This makes it convenient for the customer and shows integrity on the part of the shop.

Heckman told us that he's met many shop owners who don't carry garage keeper's coverage because their customers' cars are already covered by their own personal policies. That's a risky habit. If a customer's car does get damaged or destroyed in an uninsured builder's shop, the car owner's personal agreed value policy will cover the loss. The second part of that story, however, is that the car owner's insurance company can then invoke its "right of subrogation," and come after the shop owner to recoup the expense of the claim. That surprise visit can cost a shop owner a lot of money-and even potentially close him down.

After talking to all these insurance pros, we decided to get advice from another shop owner, for the viewpoint from the other side of the policy. Hollywood Hot Rods (HHR) has been in business for eight years, always with insurance, and so far with no claims or accidents. HHR has been covered by restorer and builder insurance from Grundy for three years. "Anywhere you've got a lot of cars in one place and a lot of activity, there is risk," HHR owner Troy Ladd says. "Stuff happens all the time. Not even big things like a fire, but small things like moving a car and hitting something or bumping into another car, opening the door into something or moving the cars into the shop at night. A hot rod shop is a small business with a very low profit margin, and the reality is that not every builder can afford as much insurance as he would like to have-but insure as much as you can as early as you can and increase it as you grow and can afford it. If something happened to a customer's car and you had to pay that back, you could lose your business. With insurance, you're protected against catastrophe, which is peace of mind for the builder and for his customers."