TALLAHASSEE, Fla. – A member of FLAG CU has filed suit in federal court claiming CUMIS Insurance, a unit of CUNA Mutual Group, is violating Florida law in its sale of guaranteed asset protection, or GAP, contracts.
In his purported class action suit, Horace Walters alleges the GAP contracts CUMIS sells to credit unions are deceptive because CUMIS actually insures the contract with each credit union, and therefore has unstated motives in determining payouts for GAP.
GAP is routinely sold to credit union members who are financing an auto. The product is designed to pay the difference between an outstanding loan balance and the amount paid by a primary insurer when a car is totaled in an accident.
In Walters’ case, he financed the June 2009 purchase of a 2008 Honda Accord with the Tallahassee credit union and took out a GAP contract with CUMIS for a $225 fee. In January 2012 he got in a major accident and totaled the car. The loan balance on the vehicle was $14,564. His insurer, Allstate, paid $8,393 to the credit union for the value of the car, leaving a gap of $6,170. FLAG CU filed a claim with CUMIS for the balance but the claim was denied because CUMIS reduced the claim by $1,680 for “wear and tear” and by an additional $8,239 for “title history.”
As a result, Walters still owes $6,170 on the car, which was totaled.
In his suit Walters alleges that CUMIS not only makes money off members by selling them GAP, but also has an interest in keeping the payouts as low as possible because of its separate policies with credit unions.
CUMIS says its GAP program is legal and approved by state regulators. “The allegations in the lawsuit are simply incorrect,” said Phil Tschudy, media relations manager for the credit union insurer. “Our GAP contractual liability product has been approved by the Florida Department of Financial Institutions.” He said the GAP waiver contracts and contractual liability policies that provide insurance for losses under GAP contracts are specifically allowed by statute in Florida, “which make clear the waivers are a non-insurance contract between the credit union and its members.”
“The lawsuit also alleges that GAP claims are denied based upon provisions that do not appear in the GAP contracts. These allegations are also wrong,” said Tschudy. “CUNA Mutual Group, as claims administrator for the credit union’s GAP contracts, adjudicates to the terms of the GAP contract, and recommends approval of a claim or denial of a claim only when that result is dictated by the terms of that contract.”