What Happens When Your Customer Is Uninsured?

Beatrice Carr bought a vehicle from Circle S Enterprises, Inc., d/b/a Newbury Auto Mart. Included in the monthly payment was $29 for credit life and disability insurance that Circle required as part of the sale.

Carr’s daughter, Linda, made the monthly payments to Circle until Carr died at the age of 81, nearly three years after the purchase. After Carr’s death, Linda assumed that the credit life and disability insurance paid off the retail installment contract and stopped paying.

Oops. Without informing Carr, Circle never obtained the insurance because Carr was too old to qualify. After the holder of the retail installment contract repossessed the vehicle, Circle refunded to Carr’s estate the amount paid for insurance premiums plus six percent interest from the date of the sale. 

Carr’s estate sued Circle for failing to obtain the insurance, alleging breach of contract, conversion, negligence, violation of the South Carolina Unfair Trade Practices Act, and violations of the Regulation of Manufacturers, Distributors and Dealers Act.

The trial court granted Circle’s motion for a directed verdict, stating that the evidence did not support a finding that Carr’s estate suffered any loss or had been damaged in any way.

Carr’s estate appealed, and the South Carolina Court of Appeals reversed the trial court’s ruling. The appellate court recognized the general proposition that “one who pays insurance premiums is justified in assuming that payment will bring immediate protection.” The appellate court found that Carr’s estate would have benefited from the insurance in that the vehicle would not have been repossessed and found that sufficient evidence existed for each claim to be presented to a jury.

The appellate court rejected Circle’s argument that Circle only offered to obtain price quotes for the insurance and that it was not, itself, the insurance provider. The appellate court also found that Circle’s refund of the premiums was not dispositive on the issue of whether Circle’s continued acceptance and retention of the premiums for insurance it knowingly did not obtain resulted in harm to Carr’s estate.

The lesson here? Dealers need to monitor and audit their insurance sales activities to make sure they are obtaining insurance on everyone who has elected it. It might also be a good idea to take a look at the dealership’s and the insurer’s forms to make certain that they accurately reflect the dealer’s role and obligations regarding insurance.

Vol 5, Issue 9