Our insured is an automobile dealer who unknowingly bought a stolen auto and sold it to a customer. About two years later, the buyer was driving the car when he was stopped by police and the car was confiscated. The buyer called the dealer and he gave the buyer another car.

The dealer had no way of knowing that the car was stolen. The two criminals involved in selling him the car would buy a "totaled" vehicle from an insurance company and then steal a similar vehicle and run it through their "chop shop," where they would exchange the serial numbers. After this work was finished, they were able to obtain what looked like a valid title and sell it to an auto dealer as a used vehicle.

Our insured has always been covered under the false pretense coverage endorsement, CA 25 03 03 06, attached to a standard ISO garage form. We called the insurer on the risk at the time our insured sold the car and were told that the present carrier should respond to the claim under the insured's "product related damage" form (which we believe covers "lemon car" claims and has nothing to do with this loss).