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I'm sure they would see going for something in the £800-£900 range as 'betterment' and would not pay out at that level. Their likely argument would be that a £500 guitar today is of similar quality to the damaged one. Given that the model you own is no longer available, it's a moot point as to what a 'suitable' new for old replacement is. They will probably go in 'specs' - rather than 'tone'....
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