New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on March 9, 2005, representing the position of the New York State Insurance Department.

RE: Gap Insurance and Gap Waivers.

Questions Presented:

1. May a motor vehicle retail installment sales contract be conditioned on the buyer being liable for the gap amount?

2. Does the New York State Insurance Department (Department) have any alternative method to complying with N.Y. Pers. Prop. Law § 302A(3) (McKinney Supp. 2005)?

Conclusions:

1. Yes, provided that the holder gives the buyer the requisite notice and a gap waiver is offered and creditor gap insurance has been obtained, or the holder has received declination notices or other evidence of unavailability of insurance from every insurer that is authorized to write gap insurance in New York.

2. No. Since the Department does not enforce the Personal Property Law, we can not provide any alternatives.

Facts:

The inquirer serves as counsel to a corporate client that is in the process of entering into motor vehicle retail installment sales contracts in New York. As part of the intended transactions, the client is examining the use of gap insurance and gap waivers. N.Y. Pers. Prop. Law § 302A(3) (McKinney Supp. 2005) provides that a holder is not obligated to offer a waiver of its contractual right to hold the buyer liable for the gap amount if, during the current calendar year or during the odd-numbered calendar year immediately preceding the calendar year in which the agreement is entered into, the holder has received motor vehicle creditor gap insurance declination notices from every insurance company whose name appears on the insurance department compilation of insurance companies that during that calendar year were authorized to write motor vehicle creditor gap insurance in the state.

The inquirer states that seeking to obtain declination notices from all the insurers listed in the Department's directory is not feasible under normal circumstances, since the Department's current compilation of insurance companies has almost 100 companies that are authorized to write gap insurance in New York. The inquirer would like to know whether the Department has an alternative method of complying with N.Y. Pers. Prop. Law § 302A(3) (McKinney Supp. 2005).

Additionally, N.Y. Pers. Prop. Law § 302A(1) (McKinney Supp. 2005) provides that no retail installment contract may be conditioned upon the buyer obtaining motor vehicle debtor gap insurance. The inquirer would like to know whether a motor vehicle retail installment sales contract may be conditioned on the buyer being liable for the gap amount.

Analysis:

N.Y. Pers. Prop. Law § 302A(2) (McKinney Supp. 2005) provides that if the retail installment contract holds the buyer responsible for the gap amount, then a gap waiver must be offered, but only if motor vehicle creditor gap insurance is available to the holder from a New York authorized insurer.

N.Y. Pers. Prop. Law § 302A(3) (McKinney Supp. 2005) provides that the holder is not required to offer the gap waiver only if it has obtained declination notices or other evidence of unavailability of insurance from every insurer authorized to write gap insurance in this state, during the current calendar year or during the odd-numbered calendar year immediately preceding the calendar year in which the agreement is entered into.

Hence, the holder may not hold the buyer liable for the gap amount, without offering the gap waiver, and may not offer the gap waiver, unless creditor gap insurance has been obtained; except where the holder has received declination notices from every insurer that is authorized to write gap insurance in New York in accordance with Section 302A(3). Here, since the inquirer's client is unable to obtain gap insurance and has not received the requisite declination notices, it may not hold the buyer liable for the gap amount.

Since the Department does not enforce the Personal Property Law, we can not provide any alternatives to complying with its provisions with respect to obtaining declination notices from every insurer authorized to write gap insurance in New York. Although the Department has long recognized the difficulties of complying with the Personal Property Law, any changes would have to be made by the New York State Legislature.

For further information you may contact Senior Attorney Pascale Jean-Baptiste at the New York City Office.