Am I responsible for paying the remaining car loan after insurance payout?

Question

I hit a parked car, and my insurance declared it totaled. The insurance company paid $14,000, but the car owner is planning to sue me because they still owe $18,000 on their car loan. Am I responsible for paying the remaining $4,000?

James L. Arrasmith · Answer

You’re generally only responsible for the fair market value of the car at the time of the accident, not the full amount of someone else’s loan. If your insurance company paid \$14,000 and that reflects the car’s actual cash value, then legally, that’s often considered a full settlement. The fact that the owner still owes more than what the car is worth is unfortunate for them, but it usually doesn’t fall on you to make up the difference. 
 
That said, the car owner can still try to sue you for the remaining balance, but whether they succeed depends on the laws in your state and how the court views the insurance payout. If the payout was fair and covered the value of the car, the court may decide you’ve fulfilled your legal obligation. The remaining loan amount is typically between the car owner and their lender, and this is why some people carry gap insurance—to cover this exact situation. 
 
Make sure you have all documentation from your insurance company, including the amount paid and how the value was determined. If you’re contacted about the lawsuit, notify your insurance right away—they may provide legal defense as part of your policy. You have a right to feel confident that if your insurer paid a fair amount, you may not owe anything more.

Q: Am I responsible for paying the remaining car loan after insurance payout?