Opinion ID: 1796802
Heading Depth: 1
Heading Rank: 4

Heading: a. the amount of insurance needed

Text: Who is at risk in the credit sale of an automobile? Both the seller and the buyer. The seller risks the possibility of default by the buyer. Perhaps the seller will have to repossess the car, and if the buyer is bankrupt then the seller still probably will not be able to cover the repossession expenses or the unmade payments. What if the buyer dies? Will his estate be able to cover all the car payments? If not, the seller loses because of the costs of repossession. If the seller believes the risk for these possible events is too great, then sales to people with higher credit risks will cease, or the interest rate will rise. Therefore, the seller can protect himself, but those people will not be able to purchase automobiles. For some, life without an automobile means no transportation to work and therefore no means of support. The car has become an essential item for many people. Credit life insurance is the only way some people can afford to purchase a car. Apparently, Alan McCullar's sense of security was enhanced by choosing to pay the extra expense for premiums for the credit life and credit disability insurance. Not only is the seller's risk lowered by credit life insurance, but so is the buyer's risk. If the seller felt that only the principal was covered by the credit life insurance, there would be a need to raise the interest rate charged for loans to purchase the seller's cars. The risk factor would have increased. Therefore, the interest rate would also have to increase. Are there not other costs besides interest that the seller has to take into account? If a buyer dies, interest accrues from the time of the last payment. How much will that be? Not much, but no one knows at the point of sale exactly how much will accumulate. No one knows when or if a buyer will die. No one knows for sure what other charges may accrue and be necessary to cover a loss if someone dies, e.g., charges related to default. Therefore, in order for sellers to ensure that their risk is lowered to the optimal point for serving their customers, they want credit life insurance that covers the entire total of payments owed. In order for buyers to have the greatest sense of security for themselves and their heirs (and in some cases for them to even afford to buy a car), they purchase credit life insurance that covers the total of payments owed. The risk for both the buyer and the seller is lowered to its optimal point. It is a contractual agreement that benefits both parties. It is not fraud. Even McCullar would have to admit that there will be times when a payoff of the principal alone will not cover the entire debt of the insured. When an insured dies after a monthly payment has been made, there is at least an amount of earned interest from the date the last payment was applied until the date the loan is paid off. It may be a small amount, but it is an amount above the principal. The truth is that that situation will be the usual situation. In order for insurers to fully cover an insured, what amount do they use? The principal plus a little extra for the deficiency that may develop? How much extra? Even a penny over the principal amount would place the insurer in violation of § 5-19-20 as it is interpreted by the plurality of this Court. The plurality opinion would certainly place these insurers in a catch-22. Insuring only the principal amount would almost always mean underinsuring the debtor, and thereby subjecting the insurer to potential loss. And, if the insurer tries to cover any amount above the principal, it violates § 5-19-20 and is thereby subject to liability. Also, it is important to understand the workings of credit disability insurance. Part of Cindy McCullar's claim involves credit disability insurance. If the buyer becomes disabled and unable to make payments, the credit disability insurance does not pay off the balance. It merely begins to make the payments for the buyer during the disability. If the credit disability insurance covered only the principal, then each month the buyer would have to make up the shortfall between the principal and the interest. This is a result that the buyer would not have anticipated when purchasing credit disability insurance. The buyer wants to have the total payment covered by the insurance. Anything less and the buyer can sue for being underinsured. Although the plurality states that its decision will have no effect on credit disability insurance, that statement does not resolve the issue for those offering credit disability insurance in future cases in which a court is asked to interpret the statute. Because § 5-19-20(a) also applies to credit disability insurance, I do not see how defendants in cases involving credit disability insurance could avoid the application of this same restrictive interpretation of the statute. It places the insurer and the retailer that offers credit disability insurance between a rock and a hard place.