Chevrolet dealership in Oklahoma City faces court in GAP dispute

A mandatory arbitration provision in a Chevrolet store's sales contract doesn't extend to a dispute over a GAP policy the customer bought from the dealership three days later, the Oklahoma Supreme Court has ruled.

The decision clears the way for Marlene Harris to pursue her misrepresentation claim against David Stanley Chevrolet Inc. of Oklahoma City in court rather than through arbitration.

Harris bought a 2005 Monte Carlo from the dealership on Aug. 20, 2005. A purchase agreement provision required arbitration of "any controversy, claim or dispute between the Purchaser and the Dealer arising out of, or related to, this sale or transaction."

On Aug. 23, the dealership sold Harris a Safe-Guard Products International GAP policy without an arbitration clause.

After the car was totaled in a crash four years later, Harris sought to collect from Safe-Guard the difference between what her collision policy paid and the balance on her loan, according to the suit.

The suit contends that the outstanding balance was $2,688 but that Safe-Guard paid the finance company only $1,466, based on the car's NADA guide retail value and a $500 deductible.

"The net result is that Harris was left owing the very thing she paid a premium to avoid -- the gap between the value of the vehicle and the balance of the loan," her court papers argue.

The suit accuses the dealership of breach of contract for misrepresenting the coverage provided by the GAP policy it sold as Safe-Guard's agent: "namely that in the event of an accident the loan would be paid off."

In court, David Stanley contended that the purchase agreement and GAP addendum were "interdependent agreements" and "part of the same transaction" because its sale of the policy related to sale of the Monte Carlo.

A trial-level judge disagreed and ruled that the case could proceed in court, but the state Court of Appeals sided with the dealership, saying state policy favors arbitration to resolve disputes.

By a 7-2 vote, the state Supreme Court ruled in the customer's favor.

"It is uncontroverted that the two contracts involve two separate subjects, executed on different dates, and the arbitration clause in the purchase agreement does not mention or reference GAP insurance or any relationship between the two contracts," Justice Doug Combs wrote in the majority opinion.

Safe-Guard and Harris' liability insurer were not parties to the appeal. Harris' lawyer Jerry Fraley of Oklahoma City said the claims against them, alleging bad faith and seeking punitive damages, have been on hold until the dealership arbitration question was resolved.

Fraley noted that it's not unusual for customers to wait before buying GAP policies and extended warranties from their dealerships.

Dealership lawyer James Gibbs II of Oklahoma City said the Supreme Court decision may have an impact on other dealers in the state.

"Part of the problem was the time between the execution of the purchase agreement and the GAP agreement," he said. "If completed contemporaneously, I think it may have been different outcome."

You can reach Eric Freedman at

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