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The Assembly Insurance Committee met last Wednesday to hear an urgency measure relative to “guaranteed automobile protection” (GAP) products.
AB 125 was introduced by the Insurance Committee to rectify a drafting error in last year's AB 2782 (Committee on Insurance), the Department of Insurance-sponsored Omnibus Committee Bill. In the effort to recognize in statute, and formalize the differences between true insurance products, and waiver provisions in loans, leases and sales contracts, what has long been marketed as "GAP" products, the drafters inadvertently eliminated coverage for the deductible amounts commonly provided for in automobile insurance policies. The effect of that error is that virtually all contracts in the market are non-compliant with the law, and consumers' reasonable expectations about the scope of the protection they are purchasing cannot be met under the current definitions.
AB 125 would clarify that a deductible required by an automobile insurance policy may be covered by GAP insurance and related contracts. The bill would change the definition of "guaranteed automobile protection" so that the deductible amount provided by a standard property damage insurance policy may also be covered by GAP insurance. AB 125 would also provide that a "waiver" clause in a vehicle conditional sales contract or lease agreement, which is similar to GAP insurance, but does not constitute insurance, and which can be sold by people who are not licensed insurance agents, may include the deductible amount provided by a standard property damage insurance policy. In addition, the measure authorize waiver clauses to also include a discount or incentive, above the amount required to satisfy the obligation on the loan, lease or sales contract, for the vehicle owner to purchase a replacement vehicle using the same seller, lender or lessor.
AB 125 is supported by OwnerGUARD, American Federation of State, County and Municipal Employees, AFL-CIO, Association of California Insurance Companies, California Financial Services Association and California New Car Dealers Association. The measure passed the committee with an 11-0 vote. The measure will now go the Assembly Floor for a vote.