In Texas, can a gap insurer sue the primary insurer for undervaluing the worth of a car?
Here's an example:
Your car is involved in an accident. Your insurance company determines the car had an actual cash value of $5,000. You still owed $15,000 on the car at the time of accident. You would still be on the hook with the bank for $10,000 in car payments, except you have gap insurance. The gap insurer thinks that the $5,000 value your insurer placed on your car was too low. In fact, your insurer has noticed a trend by your insurance company of reporting unusally low values for vehicles. The gap insurer obviously dislikes this because the lower the value placed on the car, the more it has to pay to fill in the gap.
Can a gap insurer sue the insurance company for undervaluing cars?
Sure they can - anyone can sue anyone else for anything. Will they win? Don't know. More importantly, why would they want to?
The person who's got the "bad faith" claim is the insured. So the INSURED can always sue the insurance company for a bad faith claim, if the car is seriously lowballed. You'll have to prove that the actual cash value (not retail, not add ons, not maintenance or repair bills) is higher than the insurance company is offering.
Insurance companies, for the most part, subscribe to a service to value cars by zip code. So if the insurance company can prove that comps are realistic, and they didn't ACTUALLY lowball the value, then the GAP insurance company is going to be out the legal fees.
You can ALWAYS double check the ACV of your vehicle yourself, by going to www.kbb.com and looking up the private party sale value of your car. It's not exact, but it's going to be close.
Also, you can AVOID this, by purchasing your GAP coverage as an endorsement to your collision insurance - one insurance company that handles BOTH ends of the loss.
But MOST of the time, when you've got a loan balance that's triple the value of the car, it's because there's something BESIDES car rolled into that loan - negative equity from a prior vehicle, forced placement or late charges, sales tax that you rolled in, etc. None of that is covered by GAP insurance, ANYWAY.
