It was Saturday afternoon when Lyle Stone, who was already tired of pacing the floors of his dealership, spotted a roller on the lot. Without hesitation, Lyle darted out the doors and onto the blacktop to wave down the truck, which was traveling at an idling pace.
He came to the conclusion that he had pretty much done everything in his power to make sure that the document indeed was valid and he even did so by calling them.
“How are you folks doing today,” asked Lyle, who noticed that the potential customer was driving a truck with a neighboring car dealers license plate, which he always felt was a good sign that not only were they serious buyers, but they were still shopping. An older gentleman wearing a cowboy hat gave Lyle a quick glance, while muttering, “Just checking out your trucks, that’s all.”
Lyle immediately asked, “Do any of ours catch your eye?”
At this point, the older gentleman said, “Well, I do like the blue Dodge Ram at the beginning of the lane.”
Feeling a bit of excitement Lyle immediately extends his hand out, “Hi, my name is Lyle, it’s a pleasure to meet you.”
The older gentleman, extends his hand to Lyle, “Good morning, I’m Gus.” While Gus appeared to be a no frills kind of guy, Lyle didn’t know and it didn’t matter, because let’s face it, the focus is getting Gus in the right vehicle at this point.
Gus had stopped the vehicle entirely at this point, put the truck in park, and exited the cabin. Gus, now looking eye to eye with Lyle, says, “Well, I was traveling across country when my cargo van broke down and left me stranded here in your little town.”
Gus continued to tell Lyle that he goes out east every February to buy Victorian furniture to take back West, where the market is hot. “I’ve been doing it for years, it’s close to 5,000 miles round trip, but it’s always one to remember.”
After chatting back and forth for close to 20 minutes, Lyle was able to segway back to the Dodge truck that caught Gus’s eye in the first place. They walked over to the truck where Gus asked, “Can we take it out on the road?”
“I’ll be right back,” said Lyle. “Let me grab the keys and we will take it out, if it’s OK with you Gus, we require a copy of your driver’s license, you know how insurance companies can be.”
Reaching back into his pocket to grab his wallet, Gus said, “Boy, do I,” while fishing his California license from one of the leather slots.
After driving for about 20 minutes, Gus said, “Boy, I sure like this truck, it would pull my 16-foot trailer no problem.”
“Well then, let’s get back to the dealership and take a look at the numbers,” said Lyle. “Who knows, you might be taking more than antique furniture back to California today.”
With a gentle calmness, Gus, glancing over at Lyle says, “You know what, that sounds like a plan.”
Back at the office, Lyle presented Gus with a price tag of $42,500, which reflected a factory rebate of $5,000, and since Gus already owned a Dodge Van, Lyle applied an additional $1,500 owner loyalty promotion to the deal. After some friendly back and forth, the two settled on an amount of $41,000 even.
Lyle slid Gus the standard credit application, for which Gus, said, “Thanks, but I’ve got a voucher here, which allows me to fill in the amount I wish to finance, up to $40,000.” Gus, handing Lyle the voucher, asks, “Do you guys get many of those?”
“Well, I can’t say we do,” said Lyle, “but I’ll get it over to our finance manager, he will know what to do with it. How do you want to take care of the remaining $1,000?”
Gus responded, “I was wanting to put down $500 in cash and run the other $500 through on my credit card.”
“No problem, Gus. We will get you in to the finance office as soon as we can finish the paperwork for the vehicle and entries on your voucher.”
Lyle, now completing the voucher from Highway Loans, a division of The Parrot Loan Company, a well-known financing company throughout the United States, has inspected the voucher very carefully. While Lyle is by no means a finance guy, he considers himself a diligent person who reads the fine print. He was able to locate a number for Highway Loans at the top of document, for which Lyle, thinking it would be a good idea to reach out, simply to make sure there was nothing he was missing.
After being on hold for nearly 15 minutes, Lyle reached a very friendly customer service agent. He began his inquiry about the document, making sure to confirm the vouchers authenticity. Shiela, the representative was quick to tell Lyle all about Highway Loans and their program. Now 25 minutes into the call, she confirmed, Gus Stevens, was indeed “pre-approved.”
She said, while Parrot Loans is not open on Saturdays, she can provide Lyle with the approval number, for which Lyle, now getting more anxious, took it down, noting the approval date and expiration date for the pre-approval.
With the completed document in hand, Lyle strutted over to the finance office where a man named Melvin sits. Melvin has been in finance for over 40 years. Melvin reviews the paperwork very carefully, and while he is not the detail-oriented guy he used to be, has some questions for Lyle.
“So, this voucher can be used to purchase the vehicle? In lieu of a formal draft from either Parrot Loans or Gus Stevens?” he asks, to which Lyle replies, “Well apparently, the voucher itself is a binding document. Sheila said these are commonly used for Parrot Loans.”
Melvin, running his hands through his dyed black hair says, “Well let’s get him in here and wrap this up. No sense in waiting, he has been here for over an hour.”
Gus, now sitting in the F&I office, goes over the information provided on the voucher with Melvin. The information was pretty standard. The voucher still requested the buyer’s employment, home address (both current and past), and even three personal references, which being 63 years old, came to Gus pretty quick. Since the voucher acted as a draft and Gus was furnishing the remaining $1,000 owed, the dealership did not have to obtain a credit report. This was considered a cash deal, which Lyle confirmed with Highway Loans during his call.
While Melvin, for safe keeping, did complete the standard credit acceptance form, he left the social security number box blank. After all, while typically necessary and important, it was not on this deal. Melvin, given his years of experience and understanding of car deals inside and out, knew this was a pretty “skinny” deal. Gus proved to be a no frills kind of guy, deciding against an extended warranty, interior scotch guard protection or any other add on items. Gus was at the top of his budget, and he knew any additional items at this point would be out of pocket, without any assistance from Highway Loans.
With a temporary tag in hand, Melvin gave Gus a hearty smile and firm handshake, thanking him for stopping in and allowing them to do business. Gus, eager to take possession of his new truck, thanks Melvin for making the process so smooth and quick. Now the proud owner of a 2018 Dodge Ram 1500, Gus walks towards the entry of the dealership, with Lyle waiting for him as he has a screw driver ready to put Gus’s temporary tag in place.
With Gus’s trailer firmly hitched to the back of his new truck, he hits the road, leaving his cargo van at the repair shop. After all, it was going to take a couple of weeks to get it road worthy again. He would just fly into St. Louis and drive it home when it was ready. Within three days, Gus was back in Carlsbad, California.
In the meantime, it was Monday morning at the dealership, the day had yet to begin for Lyle when he heard over the PA system, “Lyle, please come to the finance office, Lyle, please come to the finance office.” Once in the finance office Lyle can tell immediately that there is an issue. Melvin had it written all over his face.
Melvin tells Lyle to sit down for a minute, for which Lyle quickly did. Melvin slid Lyle the voucher from Highway Loans that he had filled out with Gus Stevens the previous Saturday.
“I thought this was a legitimate form of payment and you confirmed the approval with them,” Melvin said.
Lyle, quickly responsded, “Sheila, yes, Sheila, that’s who I spoke with.”
“Well,” Melvin said, “I just got off the phone with Simon at Parrot Loans, who advised me that Highway Loans is a subsidiary of theirs, they are simply a pre-approval company. That ultimately, Parrot Loans determines credibility of the buyer and that the Highway Loan Voucher must ultimately be submitted to Parrot Loans as the parent company for final approval. This issue is, Mr. Gus Stevens has a credit score of 491 and is in a Chapter 13 bankruptcy that has yet to be discharged. Now either, Mr. Stevens came in here knowing that his recent Chapter 13 bankruptcy, having not been discharged, would have not afforded him credit, therefore, he intended to commit fraud, or like us, he believed the voucher to be a binding, negotiable form of payment.”
Melvin continued on, “Now I’ve attempted to reach out to Mr. Steven, multiple times this morning and nothing. We have called all of his references, but those all go straight to voicemail.”
Lyle, can’t do anything but shake his head. And of course, questions himself on whether he did everything he could do to ensure the viability of the voucher. He came to the conclusion that he had pretty much done everything in his power to make sure that the document indeed was valid and he even did so by calling them.
Now five days later, the dealership received a phone call from Gus, “Hello, my apologies, I dropped my phone and it took a few days to replace it. I called as soon as I received your letter.”
Melvin says, “Well Gus, we have a problem, you see, the voucher you presented to us was not a valid document and Parrot Loans will not honor the loan as is, citing a current Chapter 13 bankruptcy filed in the State of California.”
Gus, after being quite for about five seconds, says, “Well, I was just as shocked when I received the voucher in the mail. The issue is, I’ve registered this vehicle in my name, here in the State of California.
“Well unfortunately,” said Melvin, “given the circumstances, you only have a couple of options here. One is to secure some additional funding, which we will give you a couple of days to do, or return the truck to us and we both go our separate ways.”
Gus says, “But Lyle and you confirmed that the voucher was sufficient to accept for your truck, now you are telling me it isn’t?”
“Unfortunately,” said Melvin, “it wasn’t the document it appeared to be, and they aren’t going to make good on payment. But someone will need to.”
Gus said, “Well, give me a couple of days, I’ll see what I can come up with.”
Four days later, Gus calls the dealership, asking for Melvin and says, “Well, we have an issue. Yesterday my trustee showed up at my house, inquiring about the truck I recently purchased and he said that it would have to be sold so my creditors could recover some of their debt. Since my title is free and clear of any loans, the bankruptcy court had the truck towed off today and when I inquired about what they plan to do with the truck, they told me it would be sold at auction.”
In all of Melvin’s 40 years, he can’t believe what he is hearing. After Gus finishes speaking, Melvin quickly states, “Well Gus, we have no other option but to report this truck as stolen.”
Gus says, “But I didn’t steal the truck, and I think we can all agree, you know that wasn’t my intention. After all, you guys processed the paperwork.”
Melvin couldn’t deny that. They did process the paperwork, all but depositing the $40,000 draft that would surely never grace their bank account. Melvin decided to end the conversation immediately.
Upon ending the conversation, Melvin picked up the phone to call the Edwardsville Police Department, after all, they are out $40,000. Now Melvin is the proud owner of Edwardsville Case ID 201925008, and he isn’t quite sure where else to turn, but to his insurance broker. Melvin immediately supplies the broker with all of the necessary documents to move forward with a theft claim, false pretense claim, wherever it fits. They need to get their money back. Who cares about the $5,000 theft deductible, which was small potatoes to Melvin at this point.
Now in the insurance company’s hands, the examiner promptly hands the claim off to a field adjuster, who begins his formal investigation. After a full review of all of the documents, a few things are clear: The dealer did complete a sale that day (while the full amount of payment was not obtained), and there was an agreement by both parties. The dealership agreed to accept the voucher, which bears a guarantee of $40,000, and $1,000 in cash and credit card transactions.
While, it is obvious the buyer, at some level, would have a responsibility to return the vehicle “if” the dealership doesn’t get the remaining $40,000, did the buyer steal the vehicle? It’s unclear; we don’t know the intentions of Gus Stevens. It’s also unclear if Gus purchased the vehicle under false pretense. After all, he did provide them with all of the correct information when asked. To take it a step further, Gus even allowed the dealership to confirm that funds were guaranteed, all while waiting patiently. The final decision made by the insurance company was to firmly apply the policy to the loss, which excluded coverage due to theft or false pretense, therefore no payments were issued for this loss to date.
The final “declination of coverage letter” cited the below basic policy provision as cause to not afford coverage for the loss.
Exclusions: 1-A Loss caused by the un-collectability of any check, draft or other negotiable instrument; except false pretense.
Since the buyer presented himself as he was, presented the correct driver’s license, presented a document that was presumed by all parties at the time of sale to be negotiable, this ruled out false pretense.
A couple of questions here:
- Do you think the insurance company was right in denying coverage to this dealership?
- Did the dealership do everything they could have done to protect their asset?
- Should Gus get arrested for theft if the vehicle was seized by the State of California and out of his control?
- Should Auto Finance companies get away with ads that are capable of misleading a 40-year veteran finance manager?
The above scenario, with a few minor changes, has occurred on multiple claims I’ve handled throughout the U.S. over the last few years, as an executive general adjuster.
DISCLAIMER: Names and places have been changed to protect identities of those involved.
Brian Stout is an executive general adjuster at Engle Martin & Associates.