Possibly, if the insurance company paid out the entire amount of the item, they may want the item in return, and the auction house has to forward to them.
Is it a full payoff, a partial payoff? Has the item been declared "totaled"?
or
Is this is not actually a "hypothetical"?
or
It is a hypothetical and somebody is wondering if they can receive a damaged item, get refunded fully for it, and then keep it.
Is there more to this story?
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