| aftermarket warranties--another bankruptcy
May 11, 2007, 12:58AM
Legal tangle
Car warranties on the line
One of the largest providers has filed for bankruptcy, leaving a local dealer wondering who'll pay for repairs to covered vehicles
By CINDY GEORGE
Copyright 2007 Houston Chronicle
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An Illinois company's bankruptcy has put thousands of Texas vehicle warranties in limbo, but the owners may not be out of luck.
A local dealer who sold service contracts issued by Automotive Professionals is honoring repair claims. And an insurer who underwrote Automotive Professionals said he hasn't heard of claims being denied elsewhere.
Exactly how long that informal warranty protection will last and who ultimately will pick up the tab could turn on legal action in several jurisdictions.
Automotive Professionals, one of the country's largest auto warranty claims companies, has suspended claims payments on 300,000 contracts sold nationwide, according to filings this week in Chicago bankruptcy court.
That includes at least 15,000 people who bought contracts at area Gillman dealerships.
Gillman is making repairs on its own dime to the tune of about $100,000 a month, or $250,000 since February.
"Legally, I probably have no obligation to these customers, but I'm in a business that the premier thing is customer service," said Ramsay Gillman, president of the Gillman auto empire of 14 dealerships in South Texas, including nine in the Houston area. "You have to keep your customers happy. I have 15,000 people who are potentially not going to be."
He has sued in Houston federal court seeking payment from the company's insurers, including Marathon Financial Insurance Co., an Illinois-based risk retention group.
For three years ending in 2005, Marathon underwrote Automotive Professionals policies, including those sold by Gillman during that period.
"The law is clear in Texas in these types of contracts: If payment is not made by API in 60 days, then Marathon is obligated to pay," said Gillman's lawyer, Paul Dobrowski.
Marathon disputes this interpretation.
It maintains an office at Torch Energy Advisors, a Houston company headed by J.P. Bryan, Marathon's majority shareholder.
Bryan said he's as frustrated as Gillman in the aftermath of API's collapse.
He said Gillman filed suit against Marathon before submitting Automotive Professionals claims to Marathon for payment, then sent 300 claims last week.
"We hardly knew what to pay before they sent them to us," Bryan said. "We haven't figured all this out yet, but these claims have to be processed, and so we're either going to take that on ourselves or do something depending on what is finally decided in the bankruptcy court. We're not just going to let the thing fall off the table."
Gillman said he simply wants responsible parties to pay for claims no longer approved by Automotive Professionals or its sister companies.
Bryan believes the issue will become clearer in a few days after rulings by the Illinois judge controlling the bankruptcy.
He said he's sympathetic with Gillman's position.
"We want the same thing: to get this money to pay these claims," Bryan said.
From 2002 to 2005, Bryan said, Marathon underwrote 320,000 contracts for Automotive Professionals, mostly in Texas, Florida, Nevada and Arizona. About 230,000 have not expired. Of 32,000 contracts sold by Gillman, Bryan said, 22,000 are still in force.
Like Gillman, other dealerships nationwide have been doing repairs at their own expense — and have sued Automotive Professionals and its insurers. In March, car buyers who purchased Automotive Professionals contracts filed their own class action in Chicago.
But what if a motorist with an Automotive Professionals warranty needs repairs elsewhere, from a garage that isn't willing to risk having the claim go unpaid?
"We have not heard of anyone who has told a customer API is out of business and we're not going to do this work," Bryan said.
According to bankruptcy filings in Chicago, Automotive Professionals began having serious financial problems in 2003 and 2004.
The Gillman auto group stopped selling the contracts in August 2005 and switched to a Texas-owned company, Gillman said.
Six months ago, unpaid Automotive Professionals claims started piling up on his balance sheets, he said.
"We call in to make a claim and bingo — they OK it, we fix it, the consumer leaves, and we're dumb and happy out here, and we don't get paid. Next thing we know, there wasn't anybody to call. All of a sudden, we got a notice in February that they were not going to pay any claims," Gillman said.
Automotive Professionals filed for bankruptcy in April.
That left Gillman with two options: Eat the costs or refuse repairs for his customers with those contracts. He decided to bite the bullet, for now.
Dealerships usually pick up the pieces after a service contract company or its insurer becomes insolvent, said Tim Meenan, general counsel for the Service Contract Industry Council, which represents administrators and insurers, but neither Automotive Professionals nor Marathon.
Automotive Professionals service contracts sold by Gillman ran three to seven years. So, a buyer in July 2005 would expect a seven-year warranty to cover repairs through 2012.
About a dozen dealers have called their advocacy group, the National Automobile Dealers Association, asking for information about Automotive Professionals, said Jim Moors, a lawyer for the trade group, which represents 20,000 new car and truck dealers.
"The frustration, of course, is that you want to be able to tell them what's going on," Moors said.
A call to Automotive Professionals' offices in the Chicago suburb of Schaumburg brings the greeting, "Thanks for calling your service contract administrator," with no mention of Automotive Professionals. |
