My client was rather proud of his new BMW 750i–the business is doing well, and frankly, it’s a great ride!
While driving to work recently, a truck in front of him swerved to avoid road debris, and wound up fishtailing in the meridian, kicking up some sizable debris. My client was hit by a rock and felt the jolt, but nothing more as the car seemed to behave normally as he continued on his way to work.
A few more miles down the road, a warning light came on, and then as he tried to exit the freeway the engine began to seriously cough and sputter. After the vehicle was towed to the dealership, the service people reviewed the damage, to notice a softball-sized rock embedded in the oil pan of the engine. The service writer suggested our client contact us to get started on a potential insurance claim for road damage, though the extent was not immediately visible.
The insurance adjuster met with the dealership the next day, and authorized preliminary work to determine what repairs would be necessary, and the bad news came back–the engine was not repairable as it had seized up completely.
The news gets worse–a replacement engine is $45,000.
And worse still, there are none available–it would have to be manufactured in Germany, a 2 to 3 month process!
The insurance company did the sensible thing by “totaling” the car, allowing the client to move on to replacement transportation.
And here’s the rub. As is often the case with high-valued company autos, they are financed through a lease. What is problematic is that the payoff to the leasing company in the early years of the lease is typically more than the vehicle is worth, even at a high Blue Book valuation.
In the instant case, the lease was acquired with very little down. So the one year old vehicle had a Book value of $72,000 against an $80,000 payoff due the leasing company!
The “cure” to that differential abyss is an endorsement called “lease gap coverage” added to the commercial auto policy. Many companies will add it as part of a package of enhancements to the basic commercial auto policy for a relatively small charge.
A typical such endorsement reads:
“If a long-term leased auto is a covered auto and the lessor is named as an Additional Insured-Lessor, in the event of a total loss, we will pay your additional legal obligation to the lessor for any difference between the actual cash value of the auto at the time of the loss and the ‘outstanding balance’ of the lease.
‘Outstanding balance’ means the amount you owe on the lease at the time of loss less any amounts representing taxes, overdue payments, penalties, interest or charges resulting from overdue payments, additional mileage charges, excess wear and tear charges, and lease termination fees.”
To paraphrase the old American Express commercial, if you lease your business vehicle, don’t leave home without “lease gap” auto coverage. Without it, you could be adding “financial insult” to the injury.
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