BILL ANALYSIS Ó
AB 125
Page 1
ASSEMBLY THIRD READING
AB 125 (Insurance Committee)
As Amended March 7, 2011
2/3 vote
INSURANCE 11-0
-----------------------------------------------------------------
|Ayes:|Solorio, Hagman, Carter, | | |
| |Feuer, Grove, Hayashi, | | |
| |Miller, Olsen, Skinner, | | |
| |Torres, Wieckowski | | |
| | | | |
-----------------------------------------------------------------
SUMMARY : Clarifies that a deductible required by an automobile
insurance policy may be covered by guaranteed automobile
protection (GAP) insurance and related contracts. Specifically,
this bill :
1)Changes the definition of "GAP" so that the deductible amount
provided by a standard property damage insurance policy may
also be covered by GAP insurance.
2)Provides that a "waiver" clause in a vehicle conditional sales
contract or lease agreement, which is similar to GAP
insurance, but does not constitute insurance, and which can be
sold by people who are not licensed insurance agents, may
include the deductible amount provided by a standard property
damage insurance policy.
3)Replaces the word "automobile" with the word "asset" in the
definition of these contracts so that other vehicles, such as
motorcycles, motorhomes, boats, and off-road vehicles, are
also eligible to be covered by GAP protection.
4)Authorizes waiver clauses to also include a discount or
incentive, above the amount required to satisfy the obligation
on the loan, lease or sales contract, for the vehicle owner to
purchase a replacement vehicle using the same seller, lender
or lessor.
5)Provides that the bill is an urgency measure, to take effect
immediately.
AB 125
Page 2
EXISTING LAW :
1)Defines "GAP insurance" to be insurance that covers a vehicle
purchaser or lessee for the difference between the actual cash
value of the insured's vehicle at the time of a total loss or
unrecovered theft and the amount owed on the vehicle. The
definition also includes language allowing for up to $5,000
above the amount necessary to cover the gap to purchase
another vehicle.
2)Provides for "waiver" clauses in vehicle conditional sales
contracts or lease agreements allowing the seller, lender, or
lessor to waive the difference between the actual cash value
of a vehicle at the time of a total loss or unrecovered theft
and the amount owed on the vehicle.
FISCAL EFFECT : None
COMMENTS : This bill was introduced to rectify a drafting error
in AB 2782 (Insurance Committee), Chapter 400, Statutes of 2010,
an omnibus bill sponsored by the California Department of
Insurance. In the effort to recognize in statute, and formalize
the differences between true insurance products, and waiver
provisions in loans, leases and sales contracts, what has long
been marketed as GAP products, the drafters inadvertently
eliminated coverage for the deductible amounts commonly provided
for in automobile insurance policies. The effect of that error
is that virtually all contracts in the market are non-compliant
with the law, and consumers' reasonable expectations about the
scope of the protection they are purchasing cannot be met under
the current definitions.
GAP insurance and related waiver products provide a sound
consumer protection service because it is common with respect to
vehicle purchases that loan or lease amounts exceed the "actual
cash value" of the vehicle in the early years of a loan or
lease. Until these products came into the market, consumers
often found themselves owing a lender more than the correct
insurance settlement would provide. The result for consumers
was either out-of-pocket losses to make up the difference, or
damage to the consumer's credit rating due to defaulting on the
remainder of the loan or lease balance.
AB 125
Page 3
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0000041