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Norman, Oklahoma

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David Bernstein
David Bernstein
Attorney • (866) 735-1102 Ext 390

Failure to properly pay GAP claim could mean punitive damages

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After you buy a new car or truck and drive it off the car lot, it loses value immediately. If your car or truck is totaled, many times after the insurance company pays the fair market value of the car or truck, you may still owe money to the bank or credit union.

Therefore, many car dealers sell GAP Insurance or a GAP Debt Relief Waiver Addendum for several hundred dollars, telling you that if your car or truck is totaled and you still owe money after the insurance settlement, then the GAP Insurance or GAP Debt Relief Waiver Addendum will pay the difference. This GAP protection can sometimes save you thousands and thousands of dollars if your car or truck is totaled and you owe the bank or credit union more than the vehicle is worth.

I have a client who, on January 31, 2003, bought a pickup truck and paid an additional $499 for GAP coverage. On August 5, 2003, the pickup was totaled. After Progressive Insurance paid the fair market value of his truck, he still owed $9,040.35. The GAP failed to promptly and fully pay the GAP benefits my client was promised, and the credit union that had the loan eventually got a judgment against my client for $10,612.35 (including attorney fees and costs).

My client sued IAS, Hartford and Twin Cities (collectively called the defendants) for bad faith, alleging that he personally paid several thousand dollars out-of-pocket to pay off the credit union’s judgment (which should have been paid by the GAP coverage), went through emotional distress and had his credit damaged as a result of the actions of said defendants. The defendants alleged that my client could not sue for bad faith, since the GAP agreement stated it was not an insurance contract. The trial court agreed with the defendants and threw out my client’s bad faith case. The case was appealed. The Oklahoma Court of Appeals found that my client could pursue a bad faith claim, and the case was reversed and sent back to the trial court.

A new judge was assigned to the case, and once again, the trial court threw out the bad faith claim. This time the Oklahoma Supreme Court agreed to review the case, and on November 23, 2010, issued a 5-3 ruling (which should be published in the near future) that my client could proceed with a bad faith action, stating, "an insurance contract is not required to support tort liability for bad faith but instead such liability depends upon the existence of a ‘special relationship’ under a contract. The ‘special relationship’ that gives rise to tort liability for bad faith is marked by (1) a disparity in bargaining power where the weaker party has no choice of terms, also called an adhesion contract, and (2) the elimination of risk… Tort liability is allowed in these types of contracts, because bad faith, or, more properly, breach of the implied duty to deal fairly and in good faith, precipitates the precise economic hardship the contract was intended to avoid."

The bottom line is if your car or truck was totaled, and you had GAP coverage which did not pay off the balance of the loan, you may have a bad faith claim, which may include punitive damages. Each state may look at your case differently, so you should consult an attorney. In Oklahoma, there is a two year statute of limitations, so be sure you investigate your rights before your claim is barred by failing to file suit before the statute of limitations expires.