What if car is totaled and there is no collision coverage?

by melakwa » Thu Jan 27, 2011 05:06 pm

Hi, I need some advice. I financed a used car for my daughter to drive. The deal was she'd pay for the insurance. She did get a policy w/ liability and uninsured motorist, but unfortunately she did not include collision/comprehensive in the policy, and I failed to check and make sure she was covered. Last week she was at fault in a wreck and the front end damage to the car is extensive - it will cost far more than the value of the loan ($5k) to fix it. The bank that financed the deal took a copy of my existing insurance card, but my daughter insured it with a different carrier. I know I'm on the hook for the loan. My question would be if the insurance company my daughter used would normally send a copy of the policy to the bank, since they're listed as the lien-holder.

Total Comments: 23

Posted: Thu Jan 27, 2011 10:13 pm Post Subject:

yes. when a lienholder is added to the policy, the insurance company sends the finance company a declarations page, and a promise to notify them right away if a policy is canceled or modified.
It sounds to me as if your finance company fell asleep at the wheel on this one. Normally, a finance company will look at the dec page to make sure the vehicle has both comp and collision. and if it doesn't, they let the owner know right away that comp and collision needs to be added immediately, or they could repo the car for breach of contract.
Unfortunately, even though the finance company may have been careless, you're still on the hook for the loan because you signed a contract promising to carry comp and collision, and are therefore responsible.

Posted: Fri Jan 28, 2011 09:14 am Post Subject:

Unfortunately, even though the finance company may have been careless, you're still on the hook for the loan because you signed a contract promising to carry comp and collision, and are therefore responsible.



Not so fast! If the finance contract states (words to the effect): "If you fail to obtain and provide proof of collision coverage within (xx) days, we will, at our expense, obtain the required coverage and add that cost to your loan principal."

If the lender fails to do what it promised ("we will"), you could press a claim for breach of contract. I've seen it work with other types of claims . . . specifically, a second mortgage lender who failed to foreclose for nonpayment of the loan, and then tried to sue for the unpaid loan balance after the property was lost to foreclosure on the first mortgage.

In court, the defendant provided the clause to the court that stated, "If you are in default on this loan, we will commence foreclosure proceedings in accordance with state law." The court agreed that the lender's failure to commence foreclosure proceedings was a breach of contract and tossed the case with prejudice.

It should work in a consumer finance loan, too.

Posted: Fri Jan 28, 2011 12:27 pm Post Subject:

So it all depends on the contract verbiage. If it mandates the need for a replacement coverage in the absence of one, then it's the breach of contract on the part of the lender. I'd rather go through the contract paper carefully. Please feel free to ask any query that comes to your mind.

Posted: Fri Jan 28, 2011 04:30 pm Post Subject:

Interesting... While I intend to repay the bank, my concern is they'll want payment in a lumpsum which I'm not prepared to do right now.

The contract reads "COLLATERAL PROTECTION INSURANCE - Unless I provide you with evidence of the insurance coverage required by my agreement with you, you may purchase insurance at my expense to protect your interests in my collateral. This insurance may, but need not, protect my interests. The coverage you purchase may or not pay any claim that I make or any claim that is made against me in connection with the collateral. I may later cancel any insurance purchased by you, but only after providing you with evidence that I have obtained insurance as required by our agreement. If you purchase insurance for the collateral, i will be responsible for the costs of that insurance, placement of the insurance, until the effective date of the cancellation or expiration of the insurance. "

At the time I signed the loan paperwork I provided a copy of my insurance card which showed valid coverage for me. I believe I mentioned verbally my daughter would be the primary driver. So if the normal process is for the insurance company to forward a copy of the insurance binder to the lienholder, the bank should have received this information and by contract required me to provide additional insurance coverage, or they would have required me to pay them directly for proper coverage.

This is a mess.. my fault and my daughter's fault and as long as the bank is flexible with repayment, the above wont come into play hopefully.

I appreciate everyone's comments here, very helpful

Posted: Fri Jan 28, 2011 09:14 pm Post Subject:

most insurance companies do not send anything to the lender unless collision and comp is added. in our system, if we add leinholder, it's almost impossible NOT to add coll and comp. typically, if coll and comp was not added, there's nothing that would have been sent to leinholder at all by the insurance company. I'm doubtful they rec'd anything, most likely the had the original information you provided at the time of the loan. The funny thing is, when you took the vehicle off your policy they would have been notified at that time. That's when the bank starts inquiring about proving coverage and sending letters about forcing insurance. I assume you dont have the car still listed under your policy?

since the wording is "may" purchase insurance, i dont see how you could hold them for not purchasing insurance on your behalf in this case.

sorry to hear your bad luck, im sure the bank will work with you, especially sine the loan amount is under $5k assuming you've been making timely payments. most local banks can do a small consumer loan unsecured for this amount.

Posted: Sun Jan 30, 2011 01:02 am Post Subject:

Your coverage lapse is also a breach of contract, and the fact that it predates their breach of contract is not in your favor.

Posted: Sun Jan 30, 2011 06:10 am Post Subject:

As mybyork mentioned, if the insurance company knew of the lien it would be difficult to obtain coverage without having comp/collision coverage. I'm guessing when the insurance company asked your daughter if their was a lien, she said no. Or, in the least, the insurance company did not know of/record a lien. If this was the case, then the finance company would have never been sent anything from that carrier.

Posted: Mon Mar 28, 2011 07:56 am Post Subject: collision coverage

What if I don't have collision coverage on a new vehicle and didn't tell the finance company before I got in a wreck? Who would be held responsible for the damages. It might be a dumb question cuz i'm almost sure its me.

Posted: Mon Mar 28, 2011 01:02 pm Post Subject:

Policies usually give collision coverage on _replacement_ vehicles for 30/45 days if the old vehicle had collision coverage. Liability coverage usually transfers over to a replacement vehicle with no limitation. You should report the accident to your carrier or at least ask about coverage.

If you don't have coverage you will still need to make the payments. If you tell your lien holder about the loss and you don't have any coverage they will probably demand full payment right then and there. You may be able to work out a deal and pay a reduced amount if you pay it all in one payment.

Posted: Tue May 24, 2011 11:28 pm Post Subject:

I just have question now too because i'm kind of in the same predicament. My insurance carrier knew that i had a lien holder and still gave me the insurance. I had this insurance for six months and never heard from my insurance company or financial institution about my policy until I got into an accident. How did ur situation turn out?

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