Auto Dealers’ E&O Coverages
A selection of insurances, called generally “Statute and Title Errors and Omissions” is recommended for auto dealers as they face certain risks not present to other businesses. These products provide coverage for economic damages not based on bodily injury, personal or advertising injury, or property damage. Simply put, they cover economic damages for negligent violations of truth in lending laws, odometer statutes and lemon laws.
- Truth in Lending coverage: covers for damages due to an error or omission causing a breach in the Truth in Lending Act portions of the Consumer Credit Protection Act. This is a federal law requiring certain information, such as annual interest rate and loan term, be factually and accurately disclosed to borrowers like car buyers.
- Odometer Statute coverage: covers damages arising from a failure to comply with Title IV Odometer Requirements of the Motor Vehicle Information and Cost Savings Act, and local state laws on the same subject. The law was passed to address shady practices from certain dealers who would ‘roll back’ high mileage vehicles to make those vehicles more attractive to buyers. Although these practices are not common today, this coverage is still available.
- Lemon Law coverage: covers damages arising out of a buyer’s statutory right to return a vehicle for failure to perform adequately.
- Prior Damage Disclosure coverage: covers damages for negligent acts, errors or omissions resulting from non-compliance with federal or state statutes requiring disclosure of prior damage to a sold vehicle. The insurer’s obligation is limited, however, to the difference between (1) the vehicle’s market value as represented when sold to the purchaser, and (2) the actual market value of the vehicle accounting for the prior damage.
Trap for the Unwary
Everyone should read their policies carefully. In the case of statutory title E&O coverage, the typical form covers liability for an “act, error or omission” as a defined term. The term is usually defined to cover only negligent acts, not intentional ones. Moreover, coverage would not be provided for liability assumed under contract.