Total-loss car accident triggers auto financing lawsuit

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Question: The insured hit and totaled a vehicle. The third-party, property damage plaintiff had a 0% loan for the remaining 4 years (of her financing). The manufacturer no longer offers 0% interest, and the plaintiff is demanding the amount of interest she will now have to pay over the next 4 years.

The plaintiff experienced no change in her credit standing. Is the interest owed under the personal auto policy as legitimate damages?

— Washington subscriber

Answer: The purpose of auto insurance is to pay for the vehicle that was damaged in the accident and restore the injured party to her position before the loss.

In this case, the payment is meant to pay for the totaled car. The status of her loan arrangement is immaterial; the policy pays for the actual cash value of the vehicle, not any loan arrangement.

The insurer is not concerned with whether the recipient uses the insurance proceeds to buy a more expensive car, a less expensive car, or pockets the remainder of the settlement. She could be over-financed and owe more than the vehicle is worth; she would not be compensated for that loan amount, just the value of the vehicle.

See also:

• Strange auto accidents: What kind of insurance coverage applies?
• Winning ‘unwinnable’ auto claims
• Accident advisor for the minutes following an auto accident