State Ex Rel. Safeguard Products International, LLC v. Thompson
235 W. Va. 197
W. Va.2015Background
- In 2006 Robin Hinkle purchased a vehicle from a dealer and bought a $495 GAP product marketed as “GAP Insurance” from the dealer on behalf of Safe‑Guard Products International, LLC.
- The vehicle was totaled in 2011; the primary insurer paid the lender less than the loan balance, leaving a deficiency.
- Hinkle submitted a GAP claim to Safe‑Guard; Safe‑Guard denied benefits citing loan delinquencies and other exclusions.
- Hinkle sued Safe‑Guard for breach of contract and bad faith; she moved for partial summary judgment on whether the GAP product constituted "insurance" under W. Va. law.
- The Mingo County circuit court held the GAP product was insurance; Safe‑Guard sought a writ of prohibition from the West Virginia Supreme Court to prevent enforcement of that partial summary judgment.
- The Supreme Court of Appeals denied the writ, holding that a third‑party product that indemnifies a lender for a borrower’s loan deficiency constitutes insurance under West Virginia law and the Insurance Commissioner’s Informational Letter No. 171.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the GAP product is "insurance" under W. Va. Code § 33‑1‑1 | Hinkle: the GAP product is insurance and Safe‑Guard can be liable for insurance duties and bad faith | Safe‑Guard: the product is a debt cancellation contract (not insurance) because it cancels debt rather than indemnifies a purchaser; it only acts as a third‑party administrator | The GAP product is insurance where a third party indemnifies the lender for a loan deficiency; debt cancellation is not insurance only when the lender itself directly provides the waiver |
| Whether this issue warrants a writ of prohibition | Hinkle: petition should be dismissed because writ factors are not met | Safe‑Guard: writ appropriate because circuit court clearly erred and will be prejudiced | Writ denied — Court found the issue raised a novel, important question (Berger factor 5) but concluded the circuit court was not clearly erroneous on the law and denial of writ was appropriate |
| Whether the Insurance Commissioner’s Informational Letter controls interpretation | Hinkle: Letter supports treating third‑party indemnity products as insurance | Safe‑Guard: disputes applicability; cites other statutes concluding debt cancellation need not be insurance | Court adopted Informational Letter No. 171: where a third party (not the lender) is obligated to indemnify the lender, the contract is insurance and regulated as such |
| Whether Safe‑Guard can avoid insurer obligations by claiming third‑party administrator/CLIP status | Hinkle: Safe‑Guard cannot collect premiums yet disclaim insurance duties | Safe‑Guard: it only administers and insurer ultimately reimburses lender | Court: characterization and claim handling by Safe‑Guard subjects it to insurance law and potential bad faith; it cannot escape obligations by labeling itself administrator |
Key Cases Cited
- State ex rel. Hoover v. Berger, 199 W. Va. 12, 483 S.E.2d 12 (1996) (sets five‑factor test for discretionary writ of prohibition)
- Riffe v. Home Finders Associates, Inc., 205 W. Va. 216, 517 S.E.2d 313 (1999) (warranty contract can constitute insurance under statute)
- Hawkins v. Ford Motor Co., 211 W. Va. 487, 566 S.E.2d 624 (2002) (Unfair Trade Practices Act and bad faith apply to entities engaged in insurance business)
- Embry v. Innovative Aftermarket Sys. L.P., 198 P.3d 388 (Okla. 2008) (post‑sale product that pays deficiency upon total loss is insurance)
- Douglass v. Dynamic Enters., Inc., 315 Ark. 575, 869 S.W.2d 14 (1994) (factors supporting treatment of debt‑cancellation clauses as insurance)
- Decohen v. Capital One, N.A., 703 F.3d 216 (4th Cir. 2012) (distinguishes state regulation when national banks offer debt cancellation agreements)