Source: https://www.dfs.ny.gov/insurance/ogco2008/rg080320.htm
Timestamp: 2019-04-21 16:13:23+00:00

Document:
The Office of General Counsel issued the following opinion on March 27, 2008, representing the position of the New York State Insurance Department.
Where a motor vehicle is purchased in New York with the proceeds of a loan made by a bank, is the automobile dealership, insurer or creditor required to offer gap insurance or a gap waiver to its customers?
No. The Insurance Law does not require that gap insurance or a gap waiver be offered to the buyer of a motor vehicle. However, a creditor under a retail instalment contract is required to offer a gap waiver to the buyer of a motor vehicle under certain circumstances pursuant to N.Y. Pers. Prop. Law § 302A(2) (McKinney 2006).
The inquirer reports that he purchased a motor vehicle with a loan from ABC Co. The inquirer also reports that he was recently in an automobile accident, which resulted in a total loss of a vehicle. At the time of sale, neither the automobile dealership nor the bank offered the inquirer gap insurance or a gap waiver when he first acquired the vehicle.
Gap insurance provides coverage for the gap amount – i.e., the difference between the actual cash value of a vehicle at the time of loss, and the amount owing on the lease or loan at that time. Only a licensed insurance agent or broker may offer gap insurance on behalf of an insurer, because Insurance Law § 2102(a)(1) prohibits any person, firm, association or corporation from acting as an insurance agent or insurance broker in New York without an appropriate license.
1. If the retail instalment contract provides that the buyer shall be responsible upon a total loss of the vehicle occasioned by its theft, confiscation or physical damage for the gap amount as defined in paragraph fifty-two of subsection (a) of section one hundred seven of the insurance law, the holder, prior to the execution of the contract, shall by a notice on a separate document conspicuously disclose that fact and the obligations for which the buyer would remain liable in the event of a theft, confiscation or total loss of the vehicle. If the holder is required under subdivision two of this section to offer to waive its contractual right to hold the buyer liable for the gap amount in the event of a total loss of the vehicle occasioned by its theft or physical damage, the notice shall also: (a) state that for a separate charge disclosed in the notice the holder will waive its contractual right to hold the buyer liable for the gap amount in the event of a total loss of the vehicle occasioned by its theft or physical damage; (b) contain a provision informing the buyer that he or she may, as an alternative to purchasing a waiver, be able to purchase insurance covering the gap amount from an insurance company which has been licensed by the superintendent of insurance to write motor vehicle debtor gap insurance in this state; and (c) contain a provision permitting the buyer to indicate whether he or she wants the holder to waive its contractual right to hold the buyer liable for the gap amount in the event of a total loss of the vehicle occasioned by its theft or physical damage. The notice shall be signed by the buyer….
2. If the retail instalment contract provides that the buyer shall be responsible upon a total loss of the vehicle occasioned by its theft or physical damage for the gap amount, the holder, prior to the execution of the agreement, shall offer to waive its contractual right to hold the buyer liable for the gap amount in the event of a total loss of the vehicle occasioned by its theft or physical damage, only if motor vehicle creditor gap insurance coverage is available to the holder and such coverage is obtained from a property/casualty insurance company….
Personal Property Law § 302A(1) provides that no retail instalment contract may be conditioned upon the buyer obtaining motor vehicle debtor gap insurance2 . Personal Property Law § 302A(2) further provides that if the retail instalment contract holds the buyer responsible for the gap amount, then a gap waiver must be offered, but only if motor vehicle creditor gap insurance is available to the holder of the contract from a New York authorized insurer. Finally, Personal Property Law § 302A(3) provides that the holder is not required to offer the gap waiver only if it has obtained declination notices or other evidence of unavailability of insurance from every insurer authorized to write gap insurance in this state, during the current calendar year or during the odd-numbered calendar year immediately preceding the calendar year in which the agreement is entered into.
The Personal Property Law is not applicable to banks in certain circumstances. If a bank or other financial institution originates a loan, and does not sell the property to a retail buyer, the bank would not be a “retail seller” pursuant to the PPL. In that situation, the bank would not be obligated to offer a gap waiver to a buyer.
For further information, you may contact Principal Attorney Barbara A. Kluger at the New York City office.
1 Insurance Law § 107(a)(52)(B)(i) defines the “gap amount” in a loan or other credit transaction on the purchase of personal property as: the amount owed by the debtor under the loan or other credit transaction as of the date of a total loss of the personal property which is the subject of the loan or other credit transaction agreement caused by the theft or physical damage, or the amount that would have been owed by the debtor had the creditor not waived such obligation; and (ii) the sum of: (I) any unpaid rental payments and other unpaid charges, arising from the failure of the lessee to fulfill the lessee"s obligations under the lease, that had accrued prior to the date of the loss; and (II) the actual cash value of the personal property as of the date of the loss. If the lessee is required under the lease agreement to maintain a physical damage insurance policy on the personal property which is the subject of the lease agreement, and that policy is in effect on the date of the loss, then "actual cash value" shall have the same meaning as under the physical damage insurance policy.

References: § 302
 § 2102
 § 302
 § 302
 § 302
 § 107