Thursday, December 20, 2012
Needless to say the vehicle sold for less than what the borrower owed on the vehicle. That was pretty much expected. The borrower is responsible for any deficiency balance that remains after the sale of a repossessed vehicle unless the borrower has filed bankruptcy. To reduce that amount owed to the borrower, the Credit Union filed a claim (as instructed by State Farm Insurance) on the loss that remained following the sale of the vehicle. We expected to have to pay the deductible in force and and would receive the difference from State Farm Insurance. Now State Farm Insurance is saying that they will not be paying anything towards this claim, stating that "a loss does not exist".
This is just bad business. Insurance companies are notorious for taking premiums but then being less than enthusiastic about actually paying a covered claim. This is also a bad situation for the member who had their vehicle repossessed. They will now owe a remaining balance on a vehicle that they do not own. Had State Farm Insurance covered the damage claim prior to sale of the vehicle there is no doubt that the remaining loan balance would be much smaller and possibly paid in full in this case. The Credit Union is reviewing our legal options in this case. We will also be encouraging the credit union member to pursue their own legal options against State Farm Insurance since the actions of the insurance company greatly contributed to the deficiency balance that still remains after the sale of the vehicle.
The Credit Union will have no choice but to review our options for insuring adequate protection of our collateral loans. If the Credit Union determines that this claim incident is the normal standard practice for State Farm Insurance or any other insurance, the Credit Union has a right to restrict which insurance companies will be acceptable for our collateral loans.
Posted by Greg Olmsted at 12/20/2012 11:15:00 AM