Auto Dealer Insurance: What You Need To Know

Auto dealer insurance is a type of commercial insurance that covers car dealerships against unforeseen events and accidents. It is a crucial part of risk management for car dealers, as it covers the cost of damage caused by fires and storms, as well as legal costs if a customer gets injured on the showroom floor or has an accident during a test drive. There are different types of auto dealer insurance policies, including general liability insurance, commercial auto insurance, and cyber liability insurance, each covering different aspects of the business.

Garage Liability Insurance

The policy covers bodily injury and property damage resulting from direct garage operations. This includes injuries to customers on the business premises, up to the chosen limits of the policy. Garage Liability Insurance also typically includes an employee dishonesty provision for theft or vandalism of a customer's car by an employee.

For an additional premium, businesses can add coverage for any vehicles used in the course of business, such as courtesy vans or parts delivery trucks. Further protections can be added for damages caused by faulty parts installed on a client's vehicle, as well as coverage for losses from faulty parts sold by the company.

It is important to note that Garage Liability Insurance does not cover the policyholder's tools, buildings, personal property, or business property. It also does not provide coverage for vandalism, stolen vehicles, or damage caused by events like hail. The policy also does not cover accidents or damage to customer vehicles on-site for service.

Dealer's Surety Bond

Auto dealer insurance is a type of commercial insurance policy that auto dealers need to protect their business, property, inventory, employees, and customers. One type of auto dealer insurance is a surety bond, which is a guarantee that an automotive dealer will adhere to the terms of the state, including consumer protection and the payment of taxes.

A dealer's surety bond is a three-party agreement between the dealer (principal), the buyer (obligee), and the bonding company (surety). The surety bond ensures that the dealer fulfils all obligations to the buyer based on the rules of the state and local laws. If the dealer does not fulfil their obligations, the surety company will pay these expenses, protecting the buyer.

Dealer surety bonds are required by the State Motor Vehicle Department in order to obtain a motor vehicle dealer license. Each state sets its own bond amount, period, and expiration date. For example, in Texas, a $50,000 surety bond is required for a 2-year term, while in California, a $50,000 bond starts from $500 per year.

The dealer surety bond does not protect the dealer from lawsuits but instead protects the consumer from fraud, misrepresentation, or unethical practices by the dealer. It ensures that the dealer complies with state laws and ethical business practices. If a dealer violates the laws, the bond provides financial protection for consumers.

In summary, a dealer's surety bond is an important form of auto dealer insurance that protects consumers and ensures dealers adhere to state laws and obligations. By obtaining a surety bond, dealers can legally operate their business while providing trust and security to their customers.

Commercial Auto Insurance

In addition, commercial auto insurance can provide comprehensive coverage, which helps pay for damage to the vehicle from sources other than collisions, such as vandalism, theft, or weather events. It also covers collisions, regardless of who is at fault. This is an important distinction from personal auto insurance, which typically does not cover vehicles used for business purposes as they are exposed to more liability than personal vehicles.

The cost of commercial auto insurance can vary depending on various factors, including the vehicle's make, model, and year, as well as the driving records of the individuals operating the vehicles. It is important for businesses to assess their specific needs and risks to ensure they have adequate coverage.

Errors and Omissions Insurance

Auto dealer insurance is a specific type of commercial insurance policy that protects auto dealerships from various risks. One of the critical coverages within auto dealer insurance is Errors and Omissions (E&O) insurance.

For instance, if an employee makes an error in loan or lease paperwork or fails to disclose a vehicle's accurate history, E&O insurance will protect the dealership from potential lawsuits. It also covers title errors, odometer reading mistakes, and disclosure of prior vehicle damage or repairs.

The importance of E&O insurance lies in its ability to protect dealerships from costly claims. Without it, dealerships may have to pay substantial amounts out of pocket to cover legal fees and settlements. E&O insurance is designed to provide financial protection and peace of mind for dealerships, ensuring that one large claim does not put their business at risk.

The cost of E&O insurance varies depending on the size and nature of the dealership, but it is generally affordable for small businesses, with an average premium of around $735 per year. Dealerships can customise their E&O policies to match their unique needs and risks.

Cyber Liability Insurance

Auto dealer insurance is a specific type of commercial insurance policy that helps protect auto dealerships from various risks. There are different types of insurance policies that auto dealers can opt for, depending on their specific needs and requirements. Here is an overview of Cyber Liability Insurance for auto dealers:

For auto dealerships, safeguarding customer information is essential. Dealerships often collect and store sensitive data, including customer credit card numbers, email addresses, personal details, and financial information. In the event of a data breach, cyber liability insurance helps cover the costs of notifying affected customers, providing credit monitoring services, and managing legal fees and fines.

Additionally, cyber liability insurance can assist in covering expenses related to cyber extortion demands, data breach investigations, and system downtime. It is designed to help businesses recover quickly from cyberattacks and minimize disruptions to their operations.

Types of Cyber Liability Insurance Coverage:

There are two main types of cyber liability insurance coverage:

• First-Party Coverage: This type of coverage helps businesses bear the costs of responding to a cyberattack. It includes expenses related to data recovery, customer notification, credit monitoring for affected customers, and business interruption losses due to system downtime or a data breach.
• Third-Party Defense and Liability: This coverage protects businesses from claims made by third parties in the event of a data breach or failure to safeguard client data. It covers legal fees, settlements, and judgments resulting from allegations of inadequate data protection.

Benefits of Cyber Liability Insurance:

• Financial Protection: This insurance helps auto dealers mitigate the financial impact of cyber incidents, including data breaches, cyber theft, and ransomware attacks.
• Quick Response and Recovery: It enables dealerships to respond swiftly to cyberattacks, facilitating faster recovery of lost data and income.
• Reputational Damage Mitigation: By assisting with crisis management and public relations expenses, cyber liability insurance helps protect the dealership's reputation in the event of a data breach.
• Compliance with Data Protection Laws: With regulatory bodies tightening data protection regulations, cyber liability insurance helps cover fines and penalties for non-compliance, ensuring dealerships adhere to data privacy standards.

In conclusion, cyber liability insurance is a vital component of auto dealer insurance. It safeguards auto dealerships from the financial, operational, and reputational consequences of cyber incidents, ensuring they can continue serving their customers with resilience and trust.

Frequently asked questions