Class Action Alleges Axiom, Capital One Underpaid GAP Waiver Claims

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A proposed class action claims Capital One Auto Finance and Axiom Product Administration, LLC have a pattern and practice of underpaying guaranteed asset protection (GAP) waiver claims in violation of the terms of consumers’ contracts.

According to the lawsuit, Axiom, who administers GAP waiver products on behalf of finance companies such as Capital One, breaches the terms of its contracts with consumers by paying claims based on its own actual cash valuation method instead of the collision insurance payment in the event an insured vehicle is declared a total loss.

“Axiom knows the GAP Contract, an adhesive contract it drafted, does not permit it to substitute its own actual cash value determination for what the insurer actually paid,” the complaint alleges. “Yet it unabashedly does exactly that in every claim it processes, including Plaintiff’s claim.”

As the case tells it, GAP products like those offered by Axiom promise to pay the difference between what a consumer still owes a finance company on their vehicle and what their insurer pays them in the event their car is declared a total loss after suffering accidental damage. Per the suit, GAP products target low-income buyers who typically finance their vehicles at much higher rates and may not have the financial ability to pay the “gap” if their cars are totaled.

The plaintiff, a Richland County, South Carolina resident, says she purchased in December 2018 a 2015 Kia Optima financed under a retail installment contract. The loan, which was assigned to Capital One by the car dealer at the time of purchase, included as an addendum a GAP waiver product provided by Axiom, the suit says.

Per the case, the GAP contract contained a provision whereby Capital One agreed to waive rights against the plaintiff for the amount due on the loan in the event of a qualifying loss, defined as “the difference between the Net Payoff and the Primary Carrier settlement or in the event of no Primary Carrier, the Net Payoff and the Actual Cash Value.” In other words, the suit says, Capital One agreed to waive its right to collect the difference between the unpaid balance on the car (the net payoff) and the amount paid by the plaintiff’s insurer if her car was declared a total loss. Only when a consumer does not have a primary carrier are Axiom and Capital One allowed to use the car’s actual cash value to determine the amount to be paid, the lawsuit adds.

“According to the express terms of the GAP Contract, the actual cash value is relevant only in the absence of a primary carrier. Where there is a primary carrier settlement, the GAP Contract covers the difference between the Net Payoff and the settlement amount,” the complaint clarifies.

The case relays that when the plaintiff’s vehicle sustained a total loss in November 2019, the net payoff, i.e., the amount still owed on her car, was $15,134.31 and her insurer, USAA, paid $10,340 in settlement of her insurance claim. Despite the fact that the plaintiff did have a primary carrier settlement, Axiom paid GAP coverage based on its own determination of the car’s actual cash value “at $12,700 less a service contract refund of $767.49,” the complaint says.

While Axiom used a valuation from the National Automobile Dealers Association (NADA) to determine the value of the plaintiff’s car, the defendant is well aware that most insurers instead prefer to use valuations provided by CCC Information Services, a company used exclusively by insurers, according to the suit. The case alleges, however, that Axiom is not permitted under the terms of its contracts to use its own actual cash value determination to pay claims in the event an insurer settles with the consumer.

Nevertheless, Axiom “does exactly that” for every claim it processes, the case alleges.

Per the suit, Axiom uses a “mitigation of loss” provision in its GAP contracts to attempt to justify its conduct. While the provision states that the consumer “should also take reasonable measures to ensure that the maximum amount of Actual Cash Value of the Collateral is paid by Your Primary Carrier,” Axiom interprets this to mean that consumers must “haggle with” their insurers over their vehicles’ value, the case says. The lawsuit argues that such an interpretation is “specious” and fails to justify Axiom’s use of its own vehicle valuations:

The suit alleges that while Axiom argued the plaintiff had failed to comply with the mitigation of loss provision, the company was well aware that the woman did, in fact, ask USAA to reevaluate her vehicle’s value.

Per the case, Capital One has refused to waive its rights against the plaintiff for the amount due on her auto loan and instead pursued collection efforts against her that have caused an adverse “charge off” to appear on her credit report. While the plaintiff disputed the charge off, Capital One has refused to conduct a reasonable investigation or correct the allegedly inaccurate information, the suit says.

The lawsuit looks to cover anyone who purchased a GAP waiver product administered by Axiom and made a claim for a qualifying total loss on or after April 28, 2014.

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