Gap insurance is a type of automobile insurance that is intended to cover the “gap” between the amount a person owes on a car loan and the market value of the car. 

For example, suppose that a person has a car loan for $20,000. The car they purchased was then totaled, and, at the time, it was worth $18,000. Collision insurance will cover the $18,000, but gap insurance will cover the remaining $2,000 owed on the original loan.

What Are Some Common Gap Insurance Disputes?

Gap insurance can be helpful, but it is associated with a large number of legal issues, disputes, and concerns. The biggest issue with gap insurance is that certain types of gap insurance (namely, gap waiver types) are not subject to official regulation. This results in car dealers being able to sell gap products to consumers without much accountability, even though they are not licensed insurance agents. 

Also, there is no outside party or entity to ensure that gap waiver products are being sold at reasonable prices or to consumers who really need them. For instance, there have been some reports of car dealers obtaining gap insurance from a provider at around $50-$100, and then reselling the product to car customers at $300-$500. Car buyers might feel pressured to buy such products since it seems easier to finish all of the paperwork at once right at the dealership.

Other issues include:

  • Various forms of insurance fraud, such as not disclosing all the insurance terms, withholding information, or presenting fraudulent loan information.
  • Disputes over the valuation of the car (i.e., stating that a car is worth $18,000, when in reality it’s actually worth $20,000. Thus, if the gap insurance pays out $18,000, the person might still owe $2,000).
  • Language appearing in fine print or embedded at the back of the contract.
  • No instructions on how to file a claim or contest the gap policy (again, because car dealers are not licensed insurers).

What Are Remedies for Gap Insurance Conflicts?

Gap insurance conflicts often require legal action to resolve. Some cases involve serious violations of law or breaches of contract that require a lawsuit in court. Remedies generally include some sort of damages award to reimburse the non-breaching party for losses. The liable party may also be responsible for attorney’s fees and court costs in some situations. Moreover, in some states, any person who assists and unlicensed person in selling insurance products may be held liable as well for losses caused by the unauthorized sale. 

There have been many instances where gap insurance disputes have resulted in class action lawsuits due to many people being affected by one issue.

Do I Need a Lawyer to Help Me Resolve a Gap Insurance Dispute?

Gap insurance can be helpful for those interested in purchasing a car. However, one needs to be careful when dealing with gap insurance policies, as they can be associated with many different legal disputes. You may need to hire a personal injury lawyer in your area if you need assistance with any type of gap insurance claim. Your attorney can provide you with legal advice and representation to help get your issue resolved. Your lawyer can assist you with the court process if you need to file a lawsuit.