Question
I financed a vehicle with some minor damage. I also paid for gap insurance through the same finance company. Later i wrecked the vehicle and it was totaled. My auto insurance payed the blue book value of the vehicle minus money for the existing damage. The gap insurance payed the balance of the loan minus money for the existing damage. Now the finance company is billing me for the existing damage. Do i owe this money or should the finance company owe who i bought the gap insurance from and financed the vehicle with the existing damage.
Answer
This is not an uncommon problem with GAP insurers. Here is how I would analyze the situation.
Your automobile insurance will pay out a maximum of the value of the vehicle (as measured immediately prior to the accident). The Blue Book value is not the value of your vehicle, but, rather, it is the value of your vehicle without pre-existing damage. Thus, your automobile insurance will pay out the Blue Book value minus any pre-existing damage.
Your GAP coverage covers the difference between what you owe to the lender and what your vehicle is worth (as measured at the time of purchase minus typical depreciation, wear, and tear). I assume that the only damage to your vehicle prior to the accident already existed at the time you purchased the vehicle. Thus, the car value as measured by your automobile insurer should have been equal to the car value as measured by your GAP insurer. What your automobile insurance paid out was what your vehicle is worth. Thus, your GAP coverage should be the difference between the amount owed on your loan and the amount paid by the automobile insurance company.
In short, your GAP coverage is the one that is likely shortchanging you under the facts as you describe them.
The reason your GAP coverage is saying that it must take an extra reduction for pre-existing damage is because, if the damage occurred AFTER you bought the vehicle, you should have had it repaired.
Imagine you buy a pre-owned but perfect condition car for $20K requiring a loan of $18K. Then, a month after buying, you make a payment of $300 and immediately sustain damage of $4000. You don't repair the damage and don't report it to your automobile insurer. Then a month later, you make your second payment of $300 and immediately total the vehicle. Now, you owe $17400 (ignoring the interest that accrued in those two months) on a vehicle that would be worth $20K but for the $4K in damage. Your automobile insurer says you waited too long to make a claim on the first accident and pays out only on the second accident. Your car's value at the time of the second accident is just $16K., and that is how much your automobile insurer pays You would hope that your GAP insurer would pay the remaining $1400. But it probably won't, because your GAP insurer will say that, had you utilized your automobile insurance properly after the first accident, the current car value would exceed the amount owed on the loan, and no payout would be necessary. Your GAP insurer is saying your car should be worth $20K but for your failure to fix it, and therefore the difference between the amount owed and the value of the car is negative, and you will get no payout. In other words, both companies are deducting the pre-existing damage from their payouts, and you are left footing the difference.
In your situation, however, the GAP coverage began after the damage already existed on the vehicle. Thus, the GAP insurer's logic that you could have had your automobile insurer cover you does not apply. You will want to provide evidence that the damage existed prior to purchase in order to move this dispute forward.
Depending on the amount of money at issue, it may be worth hiring an attorney, even if just to write a proper demand letter to the GAP insurer.
Your automobile insurance will pay out a maximum of the value of the vehicle (as measured immediately prior to the accident). The Blue Book value is not the value of your vehicle, but, rather, it is the value of your vehicle without pre-existing damage. Thus, your automobile insurance will pay out the Blue Book value minus any pre-existing damage.
Your GAP coverage covers the difference between what you owe to the lender and what your vehicle is worth (as measured at the time of purchase minus typical depreciation, wear, and tear). I assume that the only damage to your vehicle prior to the accident already existed at the time you purchased the vehicle. Thus, the car value as measured by your automobile insurer should have been equal to the car value as measured by your GAP insurer. What your automobile insurance paid out was what your vehicle is worth. Thus, your GAP coverage should be the difference between the amount owed on your loan and the amount paid by the automobile insurance company.
In short, your GAP coverage is the one that is likely shortchanging you under the facts as you describe them.
The reason your GAP coverage is saying that it must take an extra reduction for pre-existing damage is because, if the damage occurred AFTER you bought the vehicle, you should have had it repaired.
Imagine you buy a pre-owned but perfect condition car for $20K requiring a loan of $18K. Then, a month after buying, you make a payment of $300 and immediately sustain damage of $4000. You don't repair the damage and don't report it to your automobile insurer. Then a month later, you make your second payment of $300 and immediately total the vehicle. Now, you owe $17400 (ignoring the interest that accrued in those two months) on a vehicle that would be worth $20K but for the $4K in damage. Your automobile insurer says you waited too long to make a claim on the first accident and pays out only on the second accident. Your car's value at the time of the second accident is just $16K., and that is how much your automobile insurer pays You would hope that your GAP insurer would pay the remaining $1400. But it probably won't, because your GAP insurer will say that, had you utilized your automobile insurance properly after the first accident, the current car value would exceed the amount owed on the loan, and no payout would be necessary. Your GAP insurer is saying your car should be worth $20K but for your failure to fix it, and therefore the difference between the amount owed and the value of the car is negative, and you will get no payout. In other words, both companies are deducting the pre-existing damage from their payouts, and you are left footing the difference.
In your situation, however, the GAP coverage began after the damage already existed on the vehicle. Thus, the GAP insurer's logic that you could have had your automobile insurer cover you does not apply. You will want to provide evidence that the damage existed prior to purchase in order to move this dispute forward.
Depending on the amount of money at issue, it may be worth hiring an attorney, even if just to write a proper demand letter to the GAP insurer.
