Replacement Auto Insurance Coverage

CASE: Dan Baily’s Insurance Agency
Some insurance companies are offering a new automobile insurance policy endorsement that
provides replacement auto coverage. Without this endorsement, should your car be totaled by a
covered cause of loss, the insurance company will pay the policyholder the depreciated value of
their car. If the policyholder purchased the Replacement Auto Endorsement, should your car be
totaled, you will receive the full value of your car with no depreciation. There are some
constraints with this endorsement such as your vehicle must be a year old or less and have less
than 15,000 miles on the odometer.
Dan Bailey’s Insurance Agency, located in a small town, provides insurance for most of the
influential townspeople. Dan Bailey, agency owner, has an excellent business reputation. Many
of his clients have become his good friends.
One of his clients and good friend, Gordon, purchased a brand new BMW 750 valued over
$100,000 as a gift for his wife’s birthday. She had the car nine months when someone hit the
vehicle as it was parked in a shopping center totaling the vehicle. Gordon is concerned that now
he will have to pay the difference between the cost of a new vehicle and the depreciated amount.
He had forgotten that he added the Replacement Auto Coverage endorsement when the now
totaled BMW was purchased.
Your task:
Assume the role of Dan Bailey and write a letter (use any address) to Gordon informing him that
because he purchased the Replacement Auto Endorsement he will receive the full amount of the
totaled car.

Sample Solution

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