January 30, 2016, was a picture perfect day, clear skies and temperature in the mid-seventies.  My wife and I went to the town of Hempstead, Texas for a little shopping, stopped at the local Dairy Queen for burgers and fries and then started off for home.  Fifteen minutes after leaving the restaurant parking lot we were sitting by the side of the road, airbags deployed, dazed, and being assisted out of a crumpled wreck by six eye witnesses to the collision.

The following is part public service announcement and part venting.  I warn you that it will be a longish read but you might learn something valuable, something about how the insurance game is played, that you might not have known.

As I entered the intersection of FM 1488 and the Hwy 290 feeder road I did not anticipate that a Mr. William Day of Chappell Hill, Texas, driving under the influence of alcohol, would be bearing down on me, ignore the stop sign and destroy my brave little Nissan Versa. (Hempstead Police Department Accident Report ID A16-0007)

Up to this point it was a fairly standard, garden variety accident but the lessons began in the following days as the event quickly moved from the sublime to the ridiculous.

The first lesson was that automobile insurance can be a rigged game, that accepting liability does not always mean, well, accepting liability.  I learned that, contrary to conventional wisdom, an injured party can be held to the limits of his or her insurance coverage, not necessarily to that of the party causing the injury nor to the extent of the loss suffered.

The accident occurred on Saturday afternoon at 4:54 PM.  I contacted Mr. Day’s insurance carrier, The Germania Company, at 9:00 AM the following Monday, was given a claim number and told that they wouldn’t discuss the matter any further until they had received a statement from their client.  Fair enough.  I called my insurer, Allstate and placed myself into the Good Hands.  My agent told me basically the same thing as Germania, except that he also gave me a claim number and said that Allstate would proceed with a settlement if Germania was slow in stepping up to the plate.

Then the unbelievable.  I called Germania on Wednesday, was told that Mr. Day was not returning their calls to give a statement and if he did not contact them within the next few days they would deny the claim, cancel his policy and it would be up to me to pursue compensation on my own.  I wondered, could they actually deny responsibility retroactively?  I called Allstate and was told that yes, they had that right under current insurance laws and practices.  I did not know that, did you?

Since the Nissan was my only transportation I had rented a car on Monday and returned to a semi-normal existence as I attempted to navigate the labyrinth of the insurance claims process.  In the following days I spoke with five different people connected to Allstate and three from Germania.  It was soon apparent that none of these folks spoke to each other as I had to assume the role of information bearer from one to the other.

In one instance I received a letter from the gentleman handling disposition of the wrecked Nissan in which he informed me that I had until the 14th of February to give him permission to move the car from the storage lot or I would be liable for storage fees.  Okay, easy enough.  Except that the letter was drafted on the 13th, signed and mailed on the 14th and received on the 16th.  Where are those darned time machines when you need them?

Allstate did mail a check to my lien holder,Wells Fargo Dealer Services for the book value of the car, less my $500 deductible.  The following day Germania called and said that they had finally talked to their client, gotten a statement and would accept the claim.  When informed that Allstate had already paid I was told that the two insurance companies would settle the financials between themselves.

I asked about the auto rental fees (I had paid $300) and was told, “go ahead and rent a car.”  I told the nice lady that I had already rented the car and had actually returned it the night before.  Her comment,”oh, well that took place before we accepted the claim.  Our liability didn’t begin until after we did so.  You’re on your own with the car rental.”

And for the next lesson,  into the gap.

The gap referred to is when you are upside down in your vehicle.  No, this has nothing to do with transporting contortionists.  This is the term for the condition that exists when you owe more on your vehicle that the “book” says it is worth.  Years ago, when the average term of a car loan was three or fewer years, this gap was so rare as to be almost non-existent.  I sold new cars for a living in the seventies and it was quite unusual for someone to present a trade-in that was upside down in value versus money owed.  Today is is quite common.

If you make a small, or no, down payment, finance for a long term, five or more years and make only the minimum payment each month odds are that you will soon be upside down.  The reason is simple, the vehicle will depreciate at a rate faster than your payments can reduce the principal balance owed.

From this basic mathematical principle has sprung an entire industry, the gap insurance providers.  Here is where the game is rigged, you can only purchase the gap insurance at the time you are buying the car.  The “gap” that you are insuring against will not manifest itself for months or years but your premiums start from day one.

In point of fact, the vast majority of car owners will never avail themselves of the protection given because they will have either sold or traded the vehicle before the gap occurs or will have successfully paid off the terms of the loan over time without ever having been involved in a accident that totals the vehicle.  When viewed in this light a reasonable person might conclude that gap insurance is just another legal scam.

I question why the primary insurance provider can’t find some way, within actuarial limits, to cover the full amount of a loss without having to involve a third party insurer, one who will in all likelihood never have to settle a loss.

I also question why all lending institutions that grant auto loans are so willing to accept the risk implied in an “upside down” contract situation that is certain to develop over the life of a long term payment arrangement, being serviced at the minimum amount due.  I question but cannot answer because those answers have to be buried somewhere in unstated financial relationships that must exist, evident in the fact that reasonable business people don’t accept unreasonable liabilities.

In my case I had 44 months left on the Nissan contract.  My payoff owed was $9600, the book value $5400.  The difference is the gap.  Although I was carrying all the insurance that I could afford, and would never have suffered from the “gap” had not Mr. Day apparently decided that by driving drunk he was honoring some local or personal tradition and proceeded to do so, his insurer, The Germania Company is seemingly able to limit liability to be paid to the amount of insurance being carried by me, the innocent victim.

If you feel, as I do, that this situation violates some basic rules of logic and fairness, I urge you, do not wait until you meet your own William Day.  Contact your State Insurance Board and ask why this sort of thing is allowed to happen.  If the laws and regulations permit us to be victimized, to be plunged into financial disaster while innocently traveling on a public thoroughfare, then those laws, those regulations must be changed.

This is my opinion and I value yours.