General Motors Acceptance Corporation issued a loan to debtor secured by debtor’s new automobile.

The debtor purchased disability insurance through GMAC which provided that payments on the loan would be made to GMAC by the insurance company if the debtor became disabled. Debtor did, indeed, become disabled when she suffered a stroke.

A claim was submitted to the insurance company for payments to be made to GMAC, however, GMAC repossessed and sold the vehicle without waiting for the insurance payments to cure the arrearage.

The Alabama court held that since the debtor had elected to purchase the disability insurance at inception of the loan to protect her against the very act that GMAC caused to occur — repossession and resale of her car — the debtor could reasonably expect that GMAC would not repossess and sell the vehicle when the loan went into default after the disability and prior to receipt of the insurance payments.

GMAC, however, maintained that it had no notice of the disability when it repossessed and sold the vehicle.

The issue as to whether GMAC had notice of the disability was found by the Supreme Court of Alabama to be an issue of material fact to be decided by the trier of fact.

The court noted that if GMAC had notice of the debtor’s disability, then GMAC breached an implied promise arising out of the relationship of the parties — a promise that it would not repossess the collateral if debtor became disabled and complied with the terms of the credit disability policy. Daisy Wiley v. General Motors Acceptance Corp. (Supreme Court of Alabama, Case No. 1910942).

Author: Charles R. Harroun, Attorney at Law