Dealer’s Open Lot Insurance

1. Collision coverage pays for damage to a covered auto’s overturn or its collision with another object.

2. Losses other than collision that are covered depend on the policy and may include one of the following coverages. Be sure to read your policy to clarify specifics.

Comprehensive provides coverage to a covered vehicle from any cause of loss except collision coverage described above.

Specified causes provides coverage to a covered vehicle or its equipment caused by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism or the sinking, burning or derailments of any conveyance transporting the covered vehicles.

Fire and theft provides coverage to a covered vehicle or its equipment caused by lightning, explosion or theft.

False pretense provides coverage to a covered vehicle caused by someone who causes the dealer to voluntarily part with a covered auto by trick, scheme or under false pretense. It also covers the dealer acquiring a vehicle from a seller who did not have clear and legal title. An example of a false pretense claim is a test drive where the driver does not come back. Most policies exclude false pretense, although it can be bought through endorsement.

It is tempting to think that when you have a certain amount of inventory insurance, and when a claim arises that’s less than the amount of insurance you carry, your carrier will pay all of your claim in full minus the deductible.  This is not, however, the way that coinsurance works in Dealer’s Open Lot coverage.

Insurance companies generally require that dealers insure 100 percent of the value of their inventories. If you insure less than this, they will only pay a corresponding percentage of your claim.

For example, if the value of your inventory is $200,000 and you insure it at $100,000, the insurance company is only required to pay for 50 percent of your claim.

The most that will be paid for a loss to any single auto is the lesser of the actual cash value of the damaged or stolen property, the wholesale value of the property, the cost of repairing or replacing the damaged or stolen property or the limit indicated as the most that will be paid for any single auto based on the coinsurance formula.

1. Monthly reporting requires the dealer to send the insurance carrier a monthly report with the exact dollar value of vehicle inventory. There can be severe penalties if the dealer fails to submit reports to the carrier on a timely basis. After the first report is not received, the carrier will typically only pay 75% of a claimed loss – regardless of the limit on the declarations page. Monthly reporting is typically used to insure inventories valued more than $1,000,000.

2. Non-reporting requires the dealer to state the maximum value of the inventory on the premises during the policy term. For this option, it is important to pick the value of the inventory at its highest peak to avoid a coinsurance penalty. Under-estimation of value of inventory can raise the specter of co-insurance as well as any other penalties the insurer may levy in the event of a claim.

It is important to ensure that the limit per vehicle—which is the maximum amount the insurance company will pay for each vehicle in the event of a loss—is high enough to avoid excessive loss in the event of a claim. The standard per-vehicle limit on the policy may be much lower than the value of each of your vehicles, so be sure to examine this value to ensure it is appropriate. Similarly, the in-transit limit may be too low if you have a portion of your inventory off site. Even when 100 percent of the value of the inventory is covered, the limit per vehicle applies.

Even with correct total inventory valuation, your policy must also include:

• A high limit per vehicle, so the insurer’s maximum payout per unit is sufficient.

• Adequate in-transit limits, since some of your vehicles may move off-site (e.g., between lots, auctions, service centers).

• Coverage for vehicles stored at other locations or off-premises — these exposures often require separate limits or endorsements.

In recent years many carriers have dealt with catastrophic losses from floods and hurricanes, so they closely control coverage.  Work with your AutoRisk representative to go over Specified Causes coverage and ensure you have the coverage you need.

One of the biggest pitfalls in open lot policies is coinsurance. In many policies, you must insure 100% of the value of your inventory. If you insure less, the insurer will only pay a proportional share of your loss.

Example:
Inventory is valued at $500,000, but you only insure $300,000. If a covered loss occurs for $100,000, your insurer may pay only (300,000 ÷ 500,000) = 60% of the claim, less your deductible.

To help prevent this:

• Use monthly reporting to declare the precise inventory value. Failure to report on time can trigger steep penalties (e.g. paying 75% of a loss after a missed report).

• If using non-reporting (steady value) methods, pick a conservative estimate of your peak inventory — underrating your inventory exposes you to coinsurance penalties.

Dealer’s Open Lot coverage can protect:

• New, used, demonstrator or service vehicles

• Private passenger cars, SUVs, pickups, vans

• RVs, specialty autos, or other vehicles in your inventory

Perils typically included (depending on your policy structure):

• Collision — damage from overturn or collision with another object

• Comprehensive / Non-Collision (Specified Causes) — fire, theft, vandalism, hail, flood, mischief, etc.

• False Pretense (optional endorsement) — loss when someone obtains a vehicle from you by deception (e.g. test drive fraud)

• Fire & Theft — narrower coverage limited to fire, explosion, theft

Some things not covered unless specially endorsed:

• Risks outside the specified perils (e.g. mechanical breakdowns)

• Gaps in coverage when you underinsure or violate reporting requirements

• Losses beyond your per-vehicle or in-transit limits

OSHA regulations will impact nearly all day-to-day operations of a auto dealership. 
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