Is your leasing company watching your back if your vehicle is written off?

Globe And Mail Online,, Report On Business, Nov 27, 2009

Leasing is the often confusing and misunderstood cousin to buying and financing a vehicle. People lease because of the lower monthly payment on a new vehicle, however the leasing company owns the vehicle, not you. So what then happens if a leased vehicle is deemed a total loss by your insurance company due to theft or major damage? Let's consider the claim for Sharon whose leased vehicle was written off.

When you sign a lease contract, you automatically waive your right to the proceeds of any insurance claim. You are not even involved in the settlement discussions with the insurance company, they settle with the owner of the vehicle - the leasing company - even though you are the one paying for the insurance premiums. Once the leasing company agrees to the settlement value, the insurance company will put the cheque in both the lessor's and lessee's name. However, most leasing contracts you sign give the leasing company permission to cash the cheque without your further permission or endorsement.

As you make payments, the balance of the total value of the lease decreases, just like a balance on a mortgage. If the settlement is more than the amount owing, this is called positive equity. The leasing company should keep what they are owed and refund you the difference. The higher the settlement value, the greater the positive equity and the more money the leasing company should refund you. However, as in the case of Sharon, the leasing company accepted a low settlement that allowed them to clear off the amount owing on their books. Had the leasing company pushed for a fair value, they could have negotiated a higher settlement thus increasing the difference that Sharon was entitled to.

The insurance company settlement is meant to "indemnify" both insureds, the lessor and the lessee. However, if the leasing company accepts the value because what they are owed is covered by the settlement, thereby disregarding your right to be indemnified fairly, and you can demonstrate that you suffered a loss because of their lack of effort, you may have legal recourse. Many such situations can be avoided by taking proactive steps. is a national helpline that assists policyholders whose vehicles have been written off by their insurance company. In a real-time study of 3,200 total loss insurance claims, only 8% were found to be close to true market value, 38% were low by upwards of several thousand dollars. offers policyholders a free review of their insurance company's valuation as a professional second opinion to ensure they are not part of the 38%. As well, offers assistance in obtaining a higher settlement if the valuation is low.