If you are involved in an accident while driving a car you leased, and the car is totaled, you might not know what to do or how everything works. For example, you might not understand which party is liable for auto cost repair or how the accident may impact your leasing contract. Well, every case is distinctive and is solved based on the individual facts. However, most of these accidents have one thing in common: they involve GAP (Guaranteed Asset Protection) insurance. Continue reading to learn more.

How Leased Vehicles Work

A leased vehicle is a car you drive without owning it. You consent to pay the leasing company a small monthly fee to drive one of their vehicles for a specific period, generally 2 to 3 years. Leasing an automobile is the same as renting one long-term. The lessor retains title to the vehicle, and you sign an agreement to bring the car back in serviceable condition after your lease period or to purchase it at a residual or predetermined value.

Leasing an automobile often entails the following:

  • Wear and tear rules. You are accountable for returning the vehicle in an acceptable condition. Any damage beyond the usual wear may result in additional charges.
  • Mileage limits. Many leases limit your annual mileage and charge extra costs should you exceed the limit.
  • Monthly payments. The payments are often lower than those for financing an auto. These payments account for automobile depreciation rather than the car's full cost.
  • Insurance requirements. You are generally required to have full-coverage auto insurance, as explained below.

Car leasing is not an unusual arrangement. Between 20% and 30% of automobiles are leased. The lease contract states that you will take back the car in serviceable condition. If you are involved in an auto accident that totals the vehicle, the leasing company will require you to pay the outstanding lease balance.

Insurance Requirements for Leased Vehicles In California

All states require drivers to carry insurance coverage. That must include liability insurance for bodily injury and property damage. Also, many states require personal injury protection (PIP) and uninsured/underinsured motorist (UM/UIM) coverage.

In California, effective January 1, 2025, all drivers must purchase minimum liability insurance of $30,000 for death or injury to one individual, $60,000 for death or injury to several individuals, and $15,000 for property damage. These new statutes replaced the old ones, which required drivers to carry minimum liability insurance of $15,000 for death or injury to one individual, $30,000 for death or injury to multiple people, and $5,000 for property damage.

Leasing companies safeguard themselves by requiring drivers to carry extra auto insurance to lease the car. So if you move with a leased car, the lessor will likely need you to purchase additional insurance, such as comprehensive, GAP, and collision coverage.

Collision coverage pays for any damage a leased auto sustains if you strike another vehicle or an object. A deductible is often required, usually with a maximum limit, for example, not above $500 or $1,000. Comprehensive coverage covers any damage a leased auto sustains from non-accident events such as theft, vandalism, fire, weather, or hitting an animal. A maximum deductible applies.

Note that your insurance policy must list the lessor as an additional insured and additional loss payee. That means it receives any insurance settlement for vehicle damage claims.

GAP Insurance In Detail and What It Covers

GAP insurance is extra coverage for leased or loaned cars. Some car loan lenders mandate GAP insurance coverage when you purchase a new vehicle. When you total a loaned or leased car, you will still be liable for paying the outstanding balance of the loan or lease. GAP insurance helps cover that reminder.

Specifically, GAP insurance covers the difference between what you owe your lessor and what the car was worth before it was totaled. This coverage helps reduce the difference between the amount of money you owe on your lease and the amount of money an auto insurer will award you in property damage after settling an accident insurance claim or lawsuit. There is generally a difference, or gap, in these values because a car depreciates immediately once it is driven.

For some companies, the lease agreement requires the lessor to have GAP insurance. However, not all have this requirement. It is crucial to verify and, if required, purchase coverage distinctly.

During an auto crash insurance claim that involves a totaled vehicle, or a car that would bring a complete loss depending on the repair costs, an insurance company will cover the actual or fair market value of the car before the accident. In many instances, a leased car’s fair market value is lower than its initial lease price. That means even when you win your insurance claim case, the insurance provider may not award you enough money to pay for the cash you owe your leasing company.

Consider this example: Eugene drives a leased automobile. He still owes $20,000 before his lease terminates. He is involved in an accident with a truck, and the car is totaled. He only has $15,000 in liability insurance for property damage. That leaves him liable for paying his leasing company $5,000 to settle his lease. If he has GAP insurance, the coverage would help him pay this outstanding balance.

Even though a leasing company may not require it, GAP insurance can provide essential financial security if you are involved in a collision. For example, as mentioned, it pays for the difference between the vehicle’s actual value and the outstanding balance on your lease or loan. Without this insurance cover, you will have to pay the leasing company the difference out of your pocket.

Who Is Liable If You Total a Leased Vehicle?

First, if you are involved in an accident with a leased auto, the auto insurance provider must determine whether the automobile is totaled. Vehicle insurers consider a car totaled when its repair costs exceed 65% of its worth.

The initial evaluation by the insurance adjuster or repair shop often fails to identify all the vehicle's damage. When a mechanic starts repairing the damaged car, new damage plus other issues are usually disclosed. This is a common occurrence, and to avoid it, insurers presume the vehicle still has some hidden damage when they evaluate it. Hence, they consider a vehicle totaled even when the noticeable damage is lower than the car's value.

Now, when it comes to who is liable in a totaled leased-car collision, California is among the at-fault states. That means the party responsible for causing an accident involving the leased vehicle will be required to cover the victim's property repair costs and compensate for other losses. If you are the one responsible, your auto insurance will pay, but only up to your policy limit.

Also, your insurance will only pay for the car’s actual present value. Even when this falls within your policy limit, it might be lower than the amount you owe on the lease. Worse still, many motorists choose to purchase the minimum liability insurance required. That minimum amount might not pay for the outstanding lease value. Hence, many leasing companies mandate drivers to purchase GAP insurance.

If another motorist other than you is to blame, you can pursue damages from them by filing an accident personal injury suit. If you win the case, you can recover damages for the fair market value of your leased car. However, you might have to use your GAP coverage or your own insurance to cover the difference. So, let us go back to our example above. After the accident, it was established that the truck driver was at fault. The truck driver's insurance company awards Eugene $16,000 in vehicle damage, leaving him owing the leasing company $4,000. If he has GAP insurance, it can then help him pay the outstanding balance.

Apart from recovering the damages for the vehicle's fair market value, you may also recover the following damages:

  • Medical costs
  • Lost income and other wages
  • Reduced or diminished earning capacity from any injuries or disabilities you sustained in the accident
  • Loss of consortium for your loved ones
  • Pain and suffering
  • Property damage other than the vehicle, for example, personal property
  • Lack of enjoyment of life

Apart from you or the driver of the other vehicle you were in the accident with, other parties may also be responsible for the collision. For example, the leasing company may also be held accountable for the accident if mechanical problems with the car caused it. That is because leasing companies have a duty to ensure that leased cars are safe to drive and in proper condition.

There might be situations in which third parties can be held accountable for the crash and any resulting damage. This might include collisions caused by road construction companies or defective traffic signals. When that happens, your insurer will work closely with the leasing company's insurer to pursue damages from any liable third party.

Steps To Take After Totaling a Leased Auto

If you are involved in a serious auto collision in an automobile you have leased, the steps you should take are similar to those you should take for any other vehicle collision. First, ensure you remain at the accident scene. Do not flee. Then, move the car to a secure location. Other steps you need to take to strengthen your insurance claim include the following:

Reporting the Accident to the Police

The next step should be to report the incident to the police immediately. Call 911 from the accident scene to request an officer to visit the scene. The police officer will prepare a crash report that you can use as evidence in your claim. Also, exchange details with other involved parties, such as the driver of the other car you were in the accident with and the witnesses. Ensure you have also recorded the driver's registration and insurance details, and take photos of the collision scene before leaving.

Checking Whether Anyone Requires Urgent Medical Help

Another essential step is to check whether anyone requires emergency medical help. If so, move the injured parties to a safer place if possible and help them in any way you can, including administering first aid and contacting emergency medical services.

Obtaining Medical Treatment

Also, ensure you seek urgent medical attention yourself, even when you feel you are not injured and are perfectly okay. That is because some injuries, especially internal ones, take time to manifest, and the longer you wait, the more severe they will become. You will also need a doctor's report and other medical records to prove the injuries you sustained are related to the accident.

Notifying Your Leasing and Insurance Company of the Accident

After you have sought medical attention, inform the leasing company regarding the collision. Answer all the questions they might ask regarding the vehicle’s condition. Since the company actually owns the car, it might request that you take it to a specific repair shop or have a tow truck pick it up. This places the company in a better position to evaluate the car's damage in a manner that supports its interests, at your own cost. If the evaluation by the leasing company’s body dealership or shop does not appear to be properly done, you can contest it with the help of your lawyer.

After notifying the leasing company, notify your auto insurer of the vehicle collision, too, to initiate an insurance claim. A similar thing may occur with your insurer as it can with the lessor. The insurance company determines the car’s cash value was pre-crash. Since it is a for-profit corporation, the insurance company will be looking for ways to settle the case for less. It might understate your leased vehicle's cash value just to pay a lower settlement amount. You can contest this evaluation with the help of your lawyer by presenting more compelling evidence of the vehicle's value.

That said, it is typically wise to contact an attorney first before informing the leasing or insurance company of the accident. The lawyer can then talk to your leasing and insurance companies for you and address any issues that arise.

Do not forget to review your lease contract terms. The agreement may specify your obligations in case a collision leads to vehicle damage. You may be required to pay specific penalties and fees if the automobile is totaled prior to the end of your lease.

Do Not Admit Fault

Never admit to the accident being your fault at any point. When an insurance adjuster reaches out to you, avoid recording a statement with them. Even when the adjuster is from your own auto insurance provider, they are not contacting you with your best interest in mind. They can use anything you say against you in an attempt to reduce the compensation amount. Similarly, avoid discussing who caused the accident with anyone, even the witnesses.

The Challenges of an Accident That Involves a Leased Vehicle.

When you lease a new car, the lease agreement will likely make you responsible for a higher amount than the car is actually worth. The moment you drive that vehicle off the parking lot, its actual market value depreciates. However, despite that, the company will still hold you responsible for the full value of the car, as the lease agreement states.

If an auto collision totals the leased car (the repair cost exceeds the vehicle's value), the leasing company will expect you to pay the full outstanding lease amount. Unfortunately, an insurer will only compensate you for the vehicle's actual value before the accident, which is less than the outstanding lease balance. If you do not have GAP insurance, you may be forced to pay the amount out of your pocket.

Can You Be Sued for Damaging a Leased Vehicle?

A leasing company cannot generally sue you if your insurer fulfills the lease agreement terms. However, if you are to blame for the accident and the vehicle damage is above what your insurance can cover, the leasing company may sue you if you default on the outstanding lease balance. And if you did violate the lease agreement, for example, by driving while intoxicated, driving with no insurance, or driving recklessly, the leasing company could hold you liable for breaching the contract.

On the other hand, even if the leasing company cannot sue you, you might be subject to a personal injury lawsuit or claim for damages if you were the one who caused the accident and someone was injured.

Find a Skilled Personal Injury Attorney Near Me

If you have been in a collision and totaled your leaded vehicle, do not leave your financial future to chance. You want to consult an expert personal injury lawyer who can help you understand your legal options and rights. It may be possible that the accident was not your fault, in which case you can pursue appropriate compensation.

At The LA Personal Injury Law Firm, not only can we help you understand your legal rights, but we can also handle the insurance providers for you and reduce your liability. We have helped clients throughout Los Angeles recover the damages they deserve after totaling their leased cars and can do the same for you. Call us at 310-935-0089 for a complimentary consultation and case evaluation, and take the initial step towards recovering what is rightfully yours.