A New Brunswick judge ruled last week in favour of a guaranteed asset protection (GAP) insurance provider that denied a claim from a motorist who borrowed money to buy a vehicle which was later destroyed by fire.
In 2017, Jason Larsen bought a Chevrolet Cruze. At that time, Larsen also bought a policy called True Gap Insurance from Assureway Group.
In 2019, Larsen’s Chevy was destroyed by fire and declared a total loss. His own auto insurance covered the purchase price of nearly $25,000. But when he originally bought the Chevy, Larsen had traded in his previous vehicle. In 2017, Larsen had still owed money on the loan he took out to buy his previous vehicle, so he had negative equity.
The dealer who sold Larsen the Chevy agreed in 2017 to pay the outstanding loan on the previous vehicle. That outstanding loan payout was added that to the balance of the purchase price on his 2017 Cruz.
As a result, Larsen borrowed about $39,000 to buy the Chevy. When the Chevy was written off, and he was reimbursed the nearly $25,000 on that Chevy’s original purchase price, he still owed another $7,200. This is why Larsen made a claim with Assureway on the True Gap policy.
Assureway denied that claim on the grounds that the GAP policy excludes a payment of negative equity added to the purchase price of the car.
Guaranteed Asset Protection helps protect motorists from quick depreciation of newly-purchased vehicles, The Associated Press reports. This is because some clients may owe more on their automobile loan than the car is actually worth, when measured by actual cash value.
In Larsen’s case, he took his dispute with Assureway to the Court of Queen’s Bench of New Brunswick and lost.
In Larsen v Assureway Group, released Oct. 1, 2021, Justice Jean-Paul Ouellette ruled that Assureway does not owe Larsen any money. Larsen must now pay Assureway $250 towards the costs it paid to defend the coverage dispute.
Assureway argued the terms of its policy was clear, in that the covered vehicle in the policy means the passenger car stated in the schedule of the policy. So the GAP policy covers only the loan to finance of the covered vehicle. The GAP insurance would pay if the vehicle was a total loss for car insurance purposes, plus the outstanding loan balance of the car purchased.
Larsen, who paid $1,458 for his GAP insurance, told the court he had not read the policy. He had bought GAP policies before and in any event, Larsen argued the terms and conditions were in fine print and he could not read it.
The dealer from whom Larsen bought his car testified on Larsen’s behalf. But under cross examination, the dealer admitted he had explained to Larsen the general terms of the policy, such as being able to cancel the policy within 30 days of its signature. The dealer also agreed, under cross examination, that even though the original version of the GAP insurance policy was on a legal-size paper, that it was readable when printed on 8.5″ X 11″ paper.
That testimony “sets the record straight as it relates to Mr. Larsen being given all the opportunities to exercise his right and bail out of his insurance contract, within 30 days of its issuance, the offer of a 1-800 number and giving the opportunity to Mr. Larsen to get accustomed to its contents,” Justice Ouellette wrote.
In court, the dealer who sold the Chevy to Mr. Larsen was apologetic for not having been able to hide the negative equity into the purchase price of the car so that the GAP insurance company would not have known about it, Justice Ouellette wrote.
The dealer told the court that it was a practice across Canada to hide the negative equity and that in any event, other providers of such service would not question the negative equity as long as it was not equity resulting from paying other debts not associated with a car loan.
Justice Ouellette rejected Larsen’s argument that the GAP insurance policy was unconscionable, as well as his argument that the contra proferentem rule means the court should rule in the claimant’s favour.
Justice Ouellette found that Larsen did not bring in evidence that contract was not clear on the relevant terms and conditions. Essentially, the contra proferentem rule means that if an insurance policy is ambiguous, a court could rule against the party that drafted the contract. But the contra proferentem rule only kicks in when a court finds that a policy is ambiguous.