Auto Dealership Insurance: What Policies Do They Hold?

Auto dealerships face a variety of risks, from managing inventory to maintaining workplace safety and delivering excellent customer service. As such, they require a range of insurance policies to protect their business, employees, and customers. While the specific requirements vary by state, there are several types of insurance that auto dealerships typically need to have in place. These include commercial general liability insurance, commercial property insurance, dealer's open lot coverage, garage keeper's insurance, garage liability insurance, and business interruption insurance. Dealerships may also want to consider additional policies such as cyber liability insurance, employment practices liability insurance, and worker's compensation insurance.

Commercial General Liability Insurance

General liability insurance typically includes coverage for third-party bodily injuries, accidental damage to customer vehicles, and libel and slander lawsuits. It provides financial protection for the business in the event of a lawsuit or settlement. For example, if a customer gets into an accident during a test drive, general liability insurance can help cover the legal costs. This type of insurance is particularly important for car dealerships, as they often have expensive inventory and face unique challenges in managing their business operations.

Additionally, general liability insurance can be bundled with other types of insurance, such as commercial property insurance, to provide comprehensive protection for the dealership. This combination is known as a Business Owner's Policy (BOP) and offers a cost-effective way to obtain the necessary coverage. It is important for dealerships to assess their specific risks and ensure they have adequate insurance coverage to protect their business, employees, and inventory.

General liability insurance can also be extended to include garage operations with garage liability insurance. This additional coverage protects against lawsuits arising from incidents in the service center, such as a customer slipping in an oily spot. Garage keepers insurance is another important consideration, as it covers accidental damage to customer vehicles left in the dealership's care for repairs or servicing.

Furthermore, commercial general liability insurance can provide protection for bodily injury and property damage caused by accidents that occur on the dealership's premises. This includes situations where a vehicle owned by the dealership accidentally damages another person's property. It is important to note that commercial general liability insurance may have certain limitations, and dealerships should carefully review their policies to ensure they have sufficient coverage for their specific needs.

Commercial Property Insurance

Additionally, commercial property insurance can offer protection against vandalism. Dealerships may encounter vandals who damage vehicles or other property, leading to costly repairs or replacements. This type of insurance helps cover these expenses. It also extends beyond the dealership's property, covering damage to third-party property that may occur during the course of business operations.

The cost of commercial property insurance for auto dealerships can vary depending on several factors, including the size of the dealership, its location, the value of its inventory, and the specific risks it faces. Dealerships can often save on costs by bundling different types of insurance coverage. It is important for dealership owners to carefully assess their risks and work with insurance providers to tailor coverage to their specific needs.

Overall, commercial property insurance is a vital safeguard for auto dealerships, helping them mitigate the financial impact of unexpected events and ensuring they can continue operating without significant disruptions.

Dealer's Open Lot Insurance

Dealers Open Lot Insurance is a type of insurance policy that car dealerships can purchase to protect their inventory – the cars they own and hold for sale. This includes new and used cars, as well as demonstrators or service vehicles. It is also known as auto physical damage, physical damage, or fleet coverage.

This type of insurance is different from general liability or business property insurance as it offers protection for the vehicles themselves. It covers damage to vehicles on a dealership's lot, including those damaged in a wreck or collision, whether the vehicle was being driven by an employee or a customer during a test drive. It can also cover the dealership's losses in certain cases of theft.

Dealers Open Lot Insurance is typically divided into two parts: collision coverage and comprehensive coverage. Collision coverage pays for damage to a covered vehicle that overturns or collides with another object. Comprehensive coverage includes losses other than collision and may include coverage for fire, theft, vandalism, or natural disasters such as floods, hurricanes, or earthquakes.

Car dealerships often purchase this type of insurance to cover gaps in their general liability or business property insurance. It is important for dealerships to understand the specifics of their Dealers Open Lot Insurance policy, as each insurance company's approach may vary.

Garage Keeper's Insurance

Garage Keepers Insurance is a type of insurance that dealerships and auto shops can take out to protect their customers' vehicles. It is a specialty policy that covers vehicles entrusted to the garage for service, repair, or storage. This type of insurance is critical, especially for smaller auto businesses, as it can safeguard them from financial disasters.

There are three primary types of Garage Keepers Insurance coverage:

• Legal liability coverage: This is the most common type of Garage Keepers Insurance. It covers losses when an employee is legally liable for damaging a customer's vehicle, whether due to negligence or mistake. For example, if a mechanic crashes a vehicle during a test drive or if they forget to set the parking brake and the car is damaged, the insurance would cover the losses as the employee was at fault.
• Direct primary coverage: This type of insurance covers the client's vehicle regardless of who is at fault. It allows the garage owner to take full responsibility for any vehicle in their shop, providing customers with peace of mind. For example, if weather damages a car or if a vehicle is stolen, the insurance would cover the damages or losses, even if the garage was not at fault.
• Direct excess: A less common but cheaper alternative to direct primary coverage, direct excess functions similarly but only pays in excess of any amount covered by the owner's standard auto policy. For example, if a customer's vehicle is destroyed by a fire in your shop and their vehicle is insured under their personal policy, their coverage would apply first, and direct excess would cover any remaining damages.

It is important to note that Garage Keepers Insurance does not cover all types of risks. Some common exceptions include contractual obligations with a dealer, vehicle theft by an insured person, loss of stereo equipment that is not permanently installed, radar detection equipment, and personal items of the client left in the vehicle.

Garage Keepers Insurance is different from Garage Liability Insurance. The latter protects the business itself from damages to third parties that occur during the course of business operations. It covers third-party injuries and third-party property damage. In contrast, Garage Keepers Insurance protects the customer's vehicle from unexpected damages, providing coverage no matter who is at fault.

Garage Liability Insurance

The policy also covers property damage that occurs within the dealership's premises. This means that if an accident happens and it results in damage to vehicles, equipment, or the building itself, Garage Liability Insurance will provide financial protection. This coverage is particularly relevant for dealerships that offer test drives, as it can help manage the risks associated with allowing customers to operate vehicles on their lot.

Additionally, Garage Liability Insurance can provide coverage for legal liability. This means that if a customer or employee files a lawsuit against the dealership as a result of an accident or injury on the premises, the policy may help cover the associated legal costs and compensation. This aspect of the insurance is especially important in the auto dealership context, where the potential for accidents and injuries is heightened due to the nature of the business.

The cost of Garage Liability Insurance can vary depending on several factors, including the size of the dealership, the number of employees, the location, and the specific risks associated with the business. It is recommended that dealerships consult with insurance providers to determine the most appropriate coverage for their unique needs.

Frequently asked questions